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I do agree valuations are artificially inflated, but before you start drawing parallels to 1999 and every financial bubble of years past remember there are comp

I do agree valuations are artificially inflated, but before you start drawing parallels to 1999 and every financial bubble of years past remember there are companies with real revenue streams. Sure, there are the snapchat valuations which have no basis, but do uber, airbnb, dropbox, and the like not deserve billion dollar valuations? Let's entertain the idea that we have another "catastrophic" event where every VC in the world wakes up to the realization that many of these companies are worthless. They can't liquidate their positions. The key idea here is that this is a private market. These startups can't go from $100 million -> $0 in a day. They will tighten their straps, let a few employees go, and extend that runway as long as they need to make revenue. IMHO the easy days will be over and now every founder will learn what its like to really run a startup - No more shots in the dark just because you can

araes 12y ago
The real concern isn't that belts will tighten. Its that something serious or startling will happen inducing panic. Its the worry that we're getting near a tipping point, where the balance is bad enough that a strong shock could send us over to dark days. On the second point, many of them absolutely can go from $100 million to $0 in a short time. Probably not the Dropbox(es) and Airbnb(s) of the world. But, those are only a tiny fraction of all startups. Imagine I'm only semi-major league, with good prospects, and I run a business being pushed to grow that's heavily leveraged on my financing rounds. I effectively keep payroll alive in quarter to half year cycles as we bring on more and more folks to fuel our growth. If the investors get spooked though, poof, it all collapses. They suddenly don't want my risk because all their charts and finance guys say the market outlook is bad. My actual income doesn't nearly cover my growth-oriented staff. I can't meet payroll, I can't pay my office rent, I can't keep the lights on. I have to let a ton of folks go which kills morale. I may struggle for a while with a skeleton staff to try and recover, I may even do so if I'm really good, but I've still had my legs taken out for a while.
- notastartup 12y ago
  You know what's funny is that I already see this happening in lot of startups in Vancouver. It's not only just startups, but video game studios too. Most often is that founders or executives burn cash for the sake of short term gains without investing in the future. The future where Google suddenly open sources the app you been charging six digits for, the future where your competitors end up with most of your clients. Not pretty but it's a cutthroat environment when you decide to be a pig in a Wall Street sense, not as a derogatory term. Pigs get slaughtered, always, in any market. As soon as someone with an excel spreadsheet says the risk far outweigh the rewards, they close shop and blame the ruling party or the local tech labor market as being 'too expensive'. I can imagine what the impact would seeing that happen in large numbers in SV, that would have a ripple effect.
  - araes 12y ago
    Well, that's the really scary version of the scenario. Where a lot of the sketchy shops start vaporizing. They were the ones that were horribly managed, or had a product that only looked good when money was plentiful, but their catastrophic death signals to other investors that the market is dicey. Slightly higher end folks pull away, and the next tier of shops cave or weather it. This continues until you get to a tier that's stable enough that investors running doesn't destroy them. I'd wager the rate of pullback probably determines how far up the chain it goes. Rapid changes are more frightening and cause pretty sound relationships to collapse simply because the money is afraid the cancer will spread to them too. Do we go to the doctor when we've lost 20 lbs over a year or over a week?
    - notastartup 12y ago
      Yes you described the domino effect and the word vaporize is scary and accurate. I think what we are seeing is a business management problem from people who are not fit to run a business to be blunt. Hiding behind product, or a "disruptive" process or basically prancing around on the media about throwing money here and there while slowly, the less funded, leaner guys figure out how to take you down.
pessimizer 12y ago
>do uber, airbnb, dropbox, and the like not deserve billion dollar valuations? Uber and AirBnB are illegal businesses in most places in their current form, and to the extent that they loosen up those laws they invite competition from other companies for which there are no switching costs for either their customers or vendors to move between at will. The only way they can crush in that case is by undercutting on price and going into negative profits, while coming up with ways to increase lock-in. There's nothing preventing an alternative dropbox, or 100 alternative dropboxes. The only thing they have going for them is an early brand and technical talent (which may reduce infrastructure costs.) I don't think that any of them are worth a billion dollars.
- jusben1369 12y ago
  You're overly simplifying things. Uber has my payment information set up in a sleek app. Uber has the most cars available when I need it. They have pretty seemless technology that works well. New entrants are unlikely to match that. So I'd stick with Uber. Which of course are all the reasons Uber has raised gazillions and is growing like crazy. "There can be only one!"

araes 12y ago

The real concern isn't that belts will tighten. Its that something serious or startling will happen inducing panic. Its the worry that we're getting near a tipping point, where the balance is bad enough that a strong shock could send us over to dark days. On the second point, many of them absolutely can go from $100 million to $0 in a short time. Probably not the Dropbox(es) and Airbnb(s) of the world. But, those are only a tiny fraction of all startups. Imagine I'm only semi-major league, with good prospects, and I run a business being pushed to grow that's heavily leveraged on my financing rounds. I effectively keep payroll alive in quarter to half year cycles as we bring on more and more folks to fuel our growth. If the investors get spooked though, poof, it all collapses. They suddenly don't want my risk because all their charts and finance guys say the market outlook is bad. My actual income doesn't nearly cover my growth-oriented staff. I can't meet payroll, I can't pay my office rent, I can't keep the lights on. I have to let a ton of folks go which kills morale. I may struggle for a while with a skeleton staff to try and recover, I may even do so if I'm really good, but I've still had my legs taken out for a while.

notastartup 12y ago
You know what's funny is that I already see this happening in lot of startups in Vancouver. It's not only just startups, but video game studios too. Most often is that founders or executives burn cash for the sake of short term gains without investing in the future. The future where Google suddenly open sources the app you been charging six digits for, the future where your competitors end up with most of your clients. Not pretty but it's a cutthroat environment when you decide to be a pig in a Wall Street sense, not as a derogatory term. Pigs get slaughtered, always, in any market. As soon as someone with an excel spreadsheet says the risk far outweigh the rewards, they close shop and blame the ruling party or the local tech labor market as being 'too expensive'. I can imagine what the impact would seeing that happen in large numbers in SV, that would have a ripple effect.
- araes 12y ago
  Well, that's the really scary version of the scenario. Where a lot of the sketchy shops start vaporizing. They were the ones that were horribly managed, or had a product that only looked good when money was plentiful, but their catastrophic death signals to other investors that the market is dicey. Slightly higher end folks pull away, and the next tier of shops cave or weather it. This continues until you get to a tier that's stable enough that investors running doesn't destroy them. I'd wager the rate of pullback probably determines how far up the chain it goes. Rapid changes are more frightening and cause pretty sound relationships to collapse simply because the money is afraid the cancer will spread to them too. Do we go to the doctor when we've lost 20 lbs over a year or over a week?
  - notastartup 12y ago
    Yes you described the domino effect and the word vaporize is scary and accurate. I think what we are seeing is a business management problem from people who are not fit to run a business to be blunt. Hiding behind product, or a "disruptive" process or basically prancing around on the media about throwing money here and there while slowly, the less funded, leaner guys figure out how to take you down.

pessimizer 12y ago

>do uber, airbnb, dropbox, and the like not deserve billion dollar valuations? Uber and AirBnB are illegal businesses in most places in their current form, and to the extent that they loosen up those laws they invite competition from other companies for which there are no switching costs for either their customers or vendors to move between at will. The only way they can crush in that case is by undercutting on price and going into negative profits, while coming up with ways to increase lock-in. There's nothing preventing an alternative dropbox, or 100 alternative dropboxes. The only thing they have going for them is an early brand and technical talent (which may reduce infrastructure costs.) I don't think that any of them are worth a billion dollars.

jusben1369 12y ago
You're overly simplifying things. Uber has my payment information set up in a sleek app. Uber has the most cars available when I need it. They have pretty seemless technology that works well. New entrants are unlikely to match that. So I'd stick with Uber. Which of course are all the reasons Uber has raised gazillions and is growing like crazy. "There can be only one!"