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Startups, Competition, and Liquidity

22 points by jeffreyrogers 12y ago

byoung2 12y ago
The cost of starting a startup is also much lower now than a decade ago, and a decade from now it will likely be even lower. In a future with more, but smaller startups, investors might not even be necessary if savings, bootstrapping, crowdfunding, or small loans (e.g. under $30k) can provide enough capital to get off the ground.
- rdlecler1 12y ago
  I pretty much disagreed with every premise in this blog post. If starting a startup means creating a homepage then it's cheap. If it means getting beyond minimal bootstrapping with any kind of technical need then it is expensive. Students out of hackreactor are getting $105k, we made an offer to an engineer in Austin, but we couldn't match his $275k competing offer.
hiou 12y ago
> But in Walmart's case the growth was slow I'm not sure I can agree with WalMart having slow growth[0]. http://corporate.walmart.com/our-story/history/history-timeline http://corporate.walmart.com/our-story/history/history-timel...
johnrob 12y ago
Most of the returns come from a few big hits. The essay needs to address why there would be none of those (I say none, because there are already so few that 'less' seems moot).
paulsutter 12y ago
> In effect, the investors are trapped due to lack of liquidity, not because the investment is bad, but because it wasn't a huge success, just a minor one. No, actually, the investors are trapped because they made a failed investment. There's no trend here. Nearly every business formed in history provided no liquidity for the equity owners. That's fine for the founder, if their goal is a lifestyle business. Of course for a venture investor, this "minor success" is a failed investment. This is why seed notes require repayment after a certain period, and why preferred shareholders can demand a dividend. Unless the founders goal is a lifestyle business, they should shut it down and try something better.
AstroChimpHam 12y ago
Can we quantify a bit more? What numbers mean a "minor success?" What numbers define one that's big enough to be worthwhile? Also, I don't see buyouts discussed anywhere in the article. Lots of those minor success founders will want an exit as well, and when they sell their business, the investors get to exit as well.
supster 12y ago
According to Andy Rachleff, a General Partner at Benchmark (top tier VC firm), usually the startup first to product market fit is worth significantly more that all its competitors combined. Assuming this is true, the OP's "competition destroying big hits" thesis is incorrect. Source: https://blog.wealthfront.com/demystifying-venture-capital-economics-part-3/ https://blog.wealthfront.com/demystifying-venture-capital-ec...
bbody 12y ago
I don't quite understand a lot of the arguments in this post. The one that got to me was about startups who are stuck in their own niche. Every coffee shop doesn't need to become a massive chain, it has its' own niche and probably makes the owner a tidy sum. Startups are the same. Sometimes a coffee chain will make it big but it is unlikely.

22 points by jeffreyrogers 12y ago

The cost of starting a startup is also much lower now than a decade ago, and a decade from now it will likely be even lower. In a future with more, but smaller startups, investors might not even be necessary if savings, bootstrapping, crowdfunding, or small loans (e.g. under $30k) can provide enough capital to get off the ground.

rdlecler1 12y ago
I pretty much disagreed with every premise in this blog post. If starting a startup means creating a homepage then it's cheap. If it means getting beyond minimal bootstrapping with any kind of technical need then it is expensive. Students out of hackreactor are getting $105k, we made an offer to an engineer in Austin, but we couldn't match his $275k competing offer.

hiou 12y ago

> But in Walmart's case the growth was slow I'm not sure I can agree with WalMart having slow growth[0]. http://corporate.walmart.com/our-story/history/history-timeline http://corporate.walmart.com/our-story/history/history-timel...

johnrob 12y ago

Most of the returns come from a few big hits. The essay needs to address why there would be none of those (I say none, because there are already so few that 'less' seems moot).

paulsutter 12y ago

> In effect, the investors are trapped due to lack of liquidity, not because the investment is bad, but because it wasn't a huge success, just a minor one. No, actually, the investors are trapped because they made a failed investment. There's no trend here. Nearly every business formed in history provided no liquidity for the equity owners. That's fine for the founder, if their goal is a lifestyle business. Of course for a venture investor, this "minor success" is a failed investment. This is why seed notes require repayment after a certain period, and why preferred shareholders can demand a dividend. Unless the founders goal is a lifestyle business, they should shut it down and try something better.

AstroChimpHam 12y ago

Can we quantify a bit more? What numbers mean a "minor success?" What numbers define one that's big enough to be worthwhile? Also, I don't see buyouts discussed anywhere in the article. Lots of those minor success founders will want an exit as well, and when they sell their business, the investors get to exit as well.

supster 12y ago

According to Andy Rachleff, a General Partner at Benchmark (top tier VC firm), usually the startup first to product market fit is worth significantly more that all its competitors combined. Assuming this is true, the OP's "competition destroying big hits" thesis is incorrect. Source: https://blog.wealthfront.com/demystifying-venture-capital-economics-part-3/ https://blog.wealthfront.com/demystifying-venture-capital-ec...

bbody 12y ago

I don't quite understand a lot of the arguments in this post. The one that got to me was about startups who are stuck in their own niche. Every coffee shop doesn't need to become a massive chain, it has its' own niche and probably makes the owner a tidy sum. Startups are the same. Sometimes a coffee chain will make it big but it is unlikely.