
Startup Investing Trends - anateus
http://www.paulgraham.com/invtrend.html
======
jacques_chester
> _One thing we can say for sure is that there will be a lot more startups.
> The monolithic, hierarchical companies of the mid 20th century are being
> replaced by networks of smaller companies. This process is not just
> something happening now in Silicon Valley. It started decades ago, and it 's
> happening as far afield as the car industry. It has a long way to run._

I think this is predicted in part by Coase's theory of the firm.

As the transactional cost of coordinating between firms falls, the size of a
firm necessary to sustain complex projects and processes shrinks.

For example, it used to be that getting computing done meant leasing mainframe
time. IBM wouldn't deal with small-fry, just too much work for too little
return. So to get started, you needed mondo capital.

Later, provisioning a server meant some faxes, phonecalls and maybe some
emails; followed by sending some staff to a data centre to meet a shipment
from the manufacturer and install it. This meant that you needed several
actual people in the company to do this. Usually the founders and a few other
people, on a weekend.

These days? I type a command. My computer talks to a remote computer and they
set up any amount of computing that I need.

Now I need to jump in here and point out that it's not simply _sticker cost_.
It's the full transactional cost -- cost of search, cost of integration, cost
of coordination etc etc -- that is falling on many fundamental inputs to
software development.

The other thing that predicts the fall in firm size is the increasing
productivity of developers. One of the principal ways to improve the
productivity of labour is to use capital, and the past decade has seen an
accumulation of capital that is stunning in its breadth and scope.

For example, a decade ago, Rails didn't exist outside of 37signals. Neither
did the vast ecosystem of tools that has grown up around it. Collectively
these represent amazing amounts of capital that any individual can access and
apply.

~~~
nileshtrivedi
> As the transactional cost of coordinating between firms falls

To be pedantic, it has to fall _faster_ than the transactional cost of
coordinating _within_ a firm. Your point stands though.

~~~
jacques_chester
Thanks, you're right. I smooshed two different costs into an aggregate when
they ought to be considered independently as well.

------
jfarmer
"I think one of the biggest unexploited opportunities in startup investing
right now is angel-sized investments made quickly. Few investors understand
the cost that raising money from them imposes on startups."

Oh lord yes.

Having been through the fundraising process a few times, it's hard to describe
the sheer relief when you find an investor willing to give a quick yes or no.
The best I can describe it is like the feeling of getting a Christmas present
you really, really wanted but didn't think to ask for.

SV Angel and a16z are two of the best I've ever interacted with in this
regard. It's clear both firms deeply respect entrepreneurs' time.

~~~
peloton
The unfortunate reality is that it's not about the firms, it's about whether
the individual partner at the firm respects founders' time. For example, I
know founders who have had unpleasant experiences with an investor at a16z.

~~~
pmarca
Who? Let me know so I can fix it!

~~~
peloton
Not comfortable naming names but investor was late and founder said it felt
like investor already knew it was a pass since he started meeting with
something like "just for full disclosure we typically don't invest..." (I made
this quote up-- I'm just trying to give you an example)

~~~
pmarca
Please have the founder send me an email at pmarca@a16z.com so I can fix.

Thanks!

------
7Figures2Commas
I don't disagree with all of PG's points, but I always find it intriguing that
in discussions of the current startup landscape and the future of startup
investing, there's almost never any mention of the impact of the easy money
policies of the major central banks over the past several years.

Cheap money on an unprecedented scale has affected just about every asset
class, including VC, so to discuss the future of startup investing without
even considering the extraordinary monetary policies we've seen implemented
since 2008 is interesting to say the least.

~~~
pg
To be honest, I don't know anything at all about monetary policy. I've said
before that valuations are high right now, but I don't know what if any effect
monetary policy has had on them.

~~~
7Figures2Commas
I suppose you could argue that monetary policy isn't as big a consideration
for YC as it is for other funds. YC effectively capitalizes new companies with
tiny amounts of money, and it does so across a relatively large number of
companies. If you're not involved in follow-on rounds, valuation is less
important to you, although you probably wouldn't be happy if the paper value
of equity you haven't realized gains on collapsed. Outside of this, it seems
to me that YC's next biggest risk is that the landscape changes, you cannot
put enough of your capital to use effectively/efficiently and more attractive
risk-adjusted returns become available elsewhere.

But most angels and VC firms investing larger sums in fewer deals, and
competing harder to get into those deals, have much greater risk. The
intriguing/disturbing thing is that as far as I can see, those investors seem
to be completely ignoring how the injection of trillions of dollars into the
financial system has impacted the asset class they're investing in. I can't
name any other asset class in which professionals haven't been publicly
discussing this topic for some time.

------
kapilkale
One thing I suspect will change for VCs is the 2/20 model.

Because the cost of building a startup is going down, and assuming the
opportunity lies in early stage investments, VCs are going to have to make
more early stage investments than they are now.

VC operating expenses are covered by a 2% management fee levied on assets
under management. This incentivizes VCs to create megafunds so that they can
have proportionally mega salaries.

Seed stage investments come at a totally different operating cost.

Seed-stage investing is pretty hard with a megafund because they are so
expensive operationally. VCs would much rather write a 50M check in a growth
round for 33% of a company than a 100 $500K checks for 5% of each company.
They might have to talk to 20 companies for the growth rounds to make 1
investment, but they'd probably have to talk to thousands to make the 100
investments in seed rounds. That means they need a bigger staff and that 2%
model won't work.

In fact, I've heard VCs say that the only reason they write small checks in
seed rounds is so that they have a strong relationship with the founders and
pro-rata rights if the company happens to blow up.

I suspect that VC salaries will go down like crazy, and they'll be forced to
rely on carry for the funds earnings. Which is probably a good direction for
VCs to go.

Chris Dixon outlined the problem here too: [http://cdixon.org/2009/08/26/the-
other-problem-with-venture-...](http://cdixon.org/2009/08/26/the-other-
problem-with-venture-capital-management-fees/)

------
jbapple
"[5] This trend is one of the main causes of the increase in economic
inequality in the US since the mid twentieth century. The person who would in
1950 have been the general manager of the x division of Megacorp is now the
founder of the x company, and owns significant equity in it."

What economic evidence is there to support this claim about the causes of
economic inequality?

~~~
_delirium
That stood out at me as unlikely as well. The hypothesis is essentially that
wealth now captured by company founders, which in a previous era would been
captured by their employers, explains the majority of the change in
inequality. Essentially, that the main reason for increasing income inequality
is that people who would've been salaried career engineers in the past are
successful founders today. Some evidence in support of that hypothesis would
be interesting. For my own part, I would be surprised if shifts in the share
of income taken by W2 engineers vs. tech-company founders have even moved the
needle on the overall U.S. economy's Gini index.

~~~
_delirium
(Replying to self)

Found this survey article:
[http://www.nber.org/papers/w13982](http://www.nber.org/papers/w13982)

Their findings are that labor's share of overall income hasn't declined, but
that wages/salaries have gotten much more unequal within the sector of
employment-based income. Some of the factors they point to are: a greater
polarization along skill lines; a decline in high-wage, skilled blue-collar
labor; and a rise in the pay and number of high-end salaried jobs such as
investment banking and C-level officers.

It's a bit long, but worth at least a skim.

------
adventured
"If there were a reputable investor who invested $100k on good terms and
promised to decide yes or no within 24 hours, they'd get access to almost all
the best deals, because every good startup would approach them first"

Mark Cuban does that, and you can email him at will. I've dealt with him and
his team, he's extremely fast in deciding (an email or two), and his team is
extraordinarily easy to work with. Cuban also doesn't care where you're
located. The only catch is that he has to be personally interested, generally
speaking, in what you're doing.

However I don't think Cuban gets access to all the best deals. Being located
in San Francisco or Silicon Valley is clearly a substantial benefit to having
access to a lot of the best new startups. I think location will continue to
matter in that regard.

------
JumpCrisscross
" _If there were a reputable investor who invested $100k on good terms and
promised to decide yes or no within 24 hours, they 'd get access to almost all
the best deals, because every good startup would approach them first. It would
be up to them to pick, because every bad startup would approach them first
too, but at least they'd see everything._"

Sounds like a classic intermediation problem.

The classic intermediation solution is a market maker who defaults to funding
any start-up that meets pre-posted requirements. The intention would be to
off-load the illiquid stake as soon as possible. The thesis is that liquidity
conditions are restraining venture capital flows more than any shortage of
risk capital. The plan may still achieve escape velocity if net transaction
efficiencies outweigh the information asymmetry costs, i.e. the "6 weeks"
liberated from fund-raising enhances valuations fast enough to make up for the
duds accepted in the name of speediness. ROFRs and other anti-transfer
mechanisms diminish the appeal of this idea.

------
bryanh

        Right now, VCs often knowingly invest too much money at the series A 
        stage. They do it because they feel they need to get a big chunk of 
        each series A company to compensate for the opportunity cost of the 
        board seat it consumes. Which means when there is a lot of competition 
        for a deal, the number that moves is the valuation (and thus amount 
        invested) rather than the percentage of the company being sold. Which 
        means, especially in the case of more promising startups, that series 
        A investors often make companies take more money than they want.
    

Seems like this is a plausible explanation of what happened to Color
([http://www.crunchbase.com/company/color-
labs](http://www.crunchbase.com/company/color-labs))?

Also, I rather enjoyed reading:

    
    
        Which means the first VC to break ranks and start to do series A
        rounds for as much equity as founders want to sell (and with no
        "option pool" that comes only from the founders' shares) stands to
        reap huge benefits.
    

As I always thought the big, required option pool that so heavily diluted
founders/early employees was a bit out there. Seems much more sane to practice
JIT dilution.

~~~
lumens
The bigger issue is not that the dilution from the option pool creation
happens at that early stage (rather than JIT), it's that VC's require the
creation, and therefore dilution, to happen pre-money. Because of this, the
founders carry the burden and the new investors don't -- despite the fact that
the investors will reap some of the benefit (equity being available to grow
the business they now own).

------
hooande
The current venture capital model is all about social dynamics. Almost
everything that VCs do is intended to remind founders that they are the
supplicants asking for money, and the VCs are the wealthy financial
professionals who are the gatekeepers of their social class.

If you've ever been to a major VCs office you'll know exactly what I mean. The
decor is all marble and old money. It's designed to let visitors know that the
VCs are rich, powerful and important, more so than the founder who is coming
to seek capital. It's not that the VCs are bad people, trying to manipulate
founders with psychological mind games. It's that this is the way things were
done for most of the 20th century and most VC firms are still playing by the
old rules.

Most of the things that pg complained about specifically fall into this
category of social dynamic reinforcement. Why do VCs make raising money into a
ridiculously drawn out process of months of email after email? Because only
the powerful side of the negotiation can do that. Those who are serious about
getting a deal done answer the phone when it rings. The boss can afford to
wait until they have time on their schedule.

Why do VCs compel founders to accept more investment money than they might
need? Again, it's a power thing. When you go to the bank and ask for a loan
they don't convince you to take $5MM more than you asked for. This is because
bank loans have become a commodity and they need your business as much as you
need their money. VCs are fighting commoditization with everything they have.
They _like_ a system that makes them much more important than the other side.

The kind of VC that pg said would get "all the best deals" is one that valued
founder's time as much as their time. That placed the founders financial needs
on the same level of their financial needs. Well, what VC wants to play that
game? It's smarter to preserve a system that you are firmly at the top of than
it is to lower standards to get more deal flow. Right now the Sequoia brand is
worth it's weight in platinum, which means that they get to dictate terms
entirely. It will be a long time before they change the way that they do
business in order to cater to the needs of any given founder.

I'm not saying that VCs are malicious or evil. They are generally very
intelligent, capable and good people. It's just that they are they are caught
up in an antiquated system that places too much value on social status and
position. Most VCs worked their lives to get there, they aren't going to give
it up even if it's the right thing to do.

I think the real question is: Why doesn't Paul Graham start this mythical
founders first VC firm? People trust him with money and he's proven that he
can put common sense over his ego. He has the respect of the community and as
he said himself, if he followed his own advice he could get all the best
deals.

~~~
pg
"Why doesn't Paul Graham start this mythical founders first VC firm?"

Partly because it would conflict with YC, partly because I wouldn't be good at
it, but most of all because I don't want to. I like dealing with early stage
startups, because at that stage the big problem is what to build. I wouldn't
be any good at advising founders how to organize an executive team, or how to
prepare the company's finances for an IPO.

Incidentally, VCs are not nearly as bad as this comment suggests. The best
ones are nice people and genuinely helpful. When they take a long time to make
up their minds, it's because they're afraid—not just of the risk of investing
in a particular startup, but because that startup has to be the only one of
its type they invest in.

~~~
sillysaurus
_because that startup has to be the only one of its type they invest in._

That's surprising. Would anyone mind explaining why that's the case? YC has no
such restriction, and it seems to work out ok. Why wouldn't later stage
investors do deals with multiple startups in the same space?

~~~
ibdknox
VC's won't invest in competitors - how would you give advice/counsel? It would
cause all sorts of weird dynamics in the firm (e.g. partners competing) that
are likely to be pretty detrimental.

In terms of why YC can get away with this, companies are so early that it's
not clear what they will ultimately be doing in the end. Many of the internal
competitors ended up that way by accident. Moreover, YC doesn't make singular
large bets, while later stage investors do. As a result, they aren't nearly as
diversified as YC is and so a duplicate represents a much greater overall risk
(essentially guaranteeing a loss before you even start).

~~~
sillysaurus
_VC 's won't invest in competitors - how would you give advice/counsel?_

Hmm. YC does, and it seems to work ok. Why wouldn't it work for later stage
VCs? Or rather, why does it work for YC?

~~~
mattzito
YC deals with people at such an earlier stage that a lot of their advice and
hand-holding is more generic - how to get a product out the door, how to
improve user conversions, how to attract quality talent - these are examples
of isuses that are universal, so having (some) competitors isn't too much of a
conflict.

A later-stage VC, though, you might be having conversations with portfolio
company A about how to entice sales people from portfolio company B, or
portfolio company B might be getting ready to expand internationally and
you're advising them on the best way to capture market share in Asia, where
company A is stronger.

It's much more specific, targeted advice and consultation vs. "here's how
we're going to help you get off the ground"

------
dave1619
Seems like PG is advocating the following to VCs:

1\. Don't grow pessimistic over the growing number of startups because there
will be a growing number of great founders. If you focus on finding them, you
can make more money than before.

2\. To find them, you need a competitive advantage which could be doing what
founders want/need: smaller Series A rounds and quick decisions.

He's practically daring the VC community to see who will step up.

------
natural219
I'm more skeptical. That there will be "more good startups" seems more like a
wish than a prediction. Why will there be more good startups? Based off of
what evidence?

I'm not necessarily disagreeing, I just wonder why he thinks so. That there
will be more startups in general seems obvious, but "good" startups seem to be
increasingly more elusive, at least to me.

~~~
kevingibbon
"it's becoming cheaper to start a startup, and startups are becoming a more
normal thing to do"

The number of good startups will grow with the number of overall startups.

~~~
robryan
Maybe, in many markets the total value to capture, while likely heading up
over time, is unlikely to double because there are 2 top quality startups in
the space rather than one.

So often it could be the case that the competition to dominate a particular
market will just be more intense.

Of course in some spaces the quality of product/ service from more startups
might alter the capital distribution of customers to create a much larger pie.

------
earbitscom
Oh man. This may be my favorite startup quote in all of history. _" Investors
make more money as founders' bitches than their bosses."_

~~~
tptacek
I am not as in love with that quote as you are. I'm not a fan of the term, but
also, it screws with the tone. You know it's janky writing when the reader
stops and rereads to make sure they just read what they think they read.

~~~
jacques_chester
I think he liked the alliteration too much to give it up.

~~~
tptacek
Masters/minions also would have worked.

~~~
sneak
...and without the terribly sexist undertones, at that.

------
jseliger
_There are still a lot of people who 'd make great founders who never end up
starting a company. You can see that from how randomly some of the most
successful startups got started. So many of the biggest startups almost didn't
happen that there must be a lot of equally good startups that actually didn't
happen._

This is also true of a lot of writers; I wrote some about it here
([http://jseliger.wordpress.com/2012/07/29/links-the-time-
for-...](http://jseliger.wordpress.com/2012/07/29/links-the-time-for-novels-
technology-in-universities-programming-and-writing-academia-and-more/)), and
will quote from Tim Parks’s “Does Money Make Us Write Better?“:

 _When they are starting out writers rarely make anything at all for what they
do. I wrote seven novels over a period of six years before one was accepted
for publication. Rejected by some twenty publishers that seventh eventually
earned me an advance of £1,000 for world rights. Evidently, I wasn’t working
for money. What then? Pleasure? I don’t think so; I remember I was on the
point of giving up when that book was accepted. I’d had enough. However much I
enjoyed trying to get the world into words, the rejections were disheartening;
and the writing habit was keeping me from a “proper” career elsewhere._

John Barth and William Goldman almost quit too and have written about it. How
many anonymous but important artists got within a hair of success but couldn't
make it over that line, who, instead of being artists who "almost didn't
happen," _didn 't happen_? The Internet is enabling a much more direct way of
judging artists, much as it does startups, and I'm struck by the comparisons
between artists and startup founders that run throughout pg's essays.

------
rdl
If investors don't do the option pool shuffle, don't have mandatory minimum
amounts to invest, don't waste everyone's time, and don't dick around for
control provisions (board seats, etc.), I wonder if that ceases to be a
"Series A" and is just followup very large seed rounds. i.e. does calling it a
"Series A" when in fact it has terms closer to seed make it more or less
likely to happen?

Doing two seed rounds (maybe one for $1-2mm, and a later one for $5-10mm)
seems like an easier way for this to "just happen without conscious thought"
than redefining A rounds themselves.

I've certainly heard of people raising <$500k early on genuine seed terms, and
then $5mm+ on "seed rounds" which are essentially Series A minus control. Then
you end up with crazy $100mm Series A rounds happening later.

------
sdoowpilihp
The article was a good read. Through out the article though, I couldn't help
but feel that Paul Graham wants to change how startups are invested in,
specifically the 24 hour turnaround on investment decisions and the A round
change, and framed it as "I see x as a trend that is developing". It makes me
wonder if a sufficiently influential person in a given industry claims to see
a trend that is closely tied to human behavior, could that trend become a
reality?

~~~
abalashov
Yes. I think there is no question that people like PG have a vested interest
in taking patterns that favour them and socialising them into the wider
industry as a descriptive account of an ongoing trend, rather than a
prescriptive self-fulfilling prophecy. Any good marketer-pundit will do that.
:-)

------
netcan
_" The monolithic, hierarchical companies of the mid 20th century are being
replaced by networks of smaller companies."_

 _" There might be 10x or even 50x more good founders out there. As more of
them go ahead and start startups, those 15 big hits a year could easily become
50 or even 100."_

I wonder how those two things work together. The first predicts a world with
more, but smaller businesses. The second seems to predict no change in the
threshold for success. If the future really does allocate a larger portion of
the pie to medium seized companies (say, 100 - 500 employees to take an
arbitrary definition of 'medium'), isn't that definition of success and
associated financing model problematic? There isn't much of a market for
medium sized tech companies that have moved past rapid growth. Without that
market, VCs can't get their money back.

The essay talks about opportunities for more risk tolerant investors at the
bottom of the pyramid (earlier stage, smaller investments). That seems to
cover the idea of more, cheaper, riskier startups. But, the other idea about a
higher resolution economy implies (I think) a need for smaller lower risk
investments too.

------
newnewnew
And this is all bad, bad, bad news for recruiting. These companies will all be
fighting over the same talent pool that is growing only slowly.

~~~
spamizbad
I'm genuinely surprised by the wherewithal entrepreneurs have at hiring
domestic talent. Anyone know why outsourcing isn't more popular- particularly
among B2B startups?

I'm a developer myself, but if I was an entrepreneur with no coding skills,
I'd hire some guys in India to crank out my lo-fi MVP and use that to find a
product/market fit and then raise money. I suppose it's not that easy though,
is it?

~~~
RyJones
I have seen outsourcing done many times. I have never seen even a partial
success.

~~~
spamizbad
What usually goes wrong?

~~~
njr123
The quality of the outsourced programmers is extremely low. They might cost
20% of a domestic programmer, but if you got even 20% of the productivity
you'd be pretty lucky.

These outsourcing companies will also only do _exactly_ what you have
specified. This means the specs have to be very precise, in a way that I think
would be difficult to do if you weren't a programmer already

~~~
abalashov
Indeed. Plus general communication problems, language problems, time zone
problems, and lack-of-shared-intellectual-culture problems. It's a lot to
overcome to save a few pennies.

------
quackerhacker
_there 's a third: start your own company_

I'm going play the role of semantics really quick. I like how PG
differentiates between a startup and a company. What I've learned while
coding, and dealing with Angels are the differences in stages...so I'll share
_my_ definitions (with dev examples)

    
    
      1. Idea: just a concept, like an app
      2. Project: the investment (usually time) we as entrepreneurs put in, like coding an app
      3. Startup: just launched/deployed and ready to improvise as you grow, now your in the App Store and are out of beta
      4. Business: your in the black, or at least have a projected growth rate of being there (u made angry birds)
    

I see why the startup stage is the greatest risk/reward investment, because in
my eyes, it's like you just turned on the engine, everyone hears the growl,
but you haven't spun the wheels yet.

------
kevingibbon
It will be interesting to see if VCs take Pauls advice. Recently a lot of VCs
have been offering value add services like design expertise and recruiting. I
hope they also include quick decisions and less dilution.

Why does it take some VCs so long to make a decision? Ron Conway makes a
decision to fund a founder within 10min of meeting them.

------
beat
I worry about this a little, not because I think pg is wrong, but because what
he's saying is what I as an early-stage founder really want to hear. Anytime
someone is saying something I really want to hear, I turn on the extra radar,
to make sure I'm not wishful-thinking.

------
beat
Another little concern I have, and not touched on in the essay... will M&A
activity keep up with the increase in the number of startups? The trend toward
acqui-hires is distressing. The practical definition is buying out a startup
for their staff, not their product. IPO is not the primary outlet for software
startups. Most successful exits are from acquisition by larger companies.

So while pg clearly illustrates a situation in which founders are gaining
power over investors, I think we're looking at another, worrisome situation
where potential buyers have more power over startups. Competition will be up,
and prices will be down. Worse, handing more power to the relatively slow,
cautious big corporations will encourage their already bad habits of
dithering.

------
brudgers
A pyramid is a lousy model. It fights gravity. A better model with a similar
shape is a funnel. With seives. Gravity does most of the sorting, though
sometimes the apparatus needs a shake to keep things flowing.

YC doesn't select stones to set on top of other stones. It filters a stream.
It amplifies what makes it past the interviews. It reduces friction to help
companies keep moving.

There's less statefullness than in pyramid construction. HN is a scouting
network, not a quarry. The process doesn't chisel companies to the desired
batter. It develops talent and sells it on. Like Ajax.

A pyramid is an anti-pattern for disruption.

------
6thSigma
Once the JOBS Act regulations go through and companies can crowd-fund for
equity, early rounds should go lightning fast.

The problem is it will be difficult for the crowd-funding websites to organize
and adapt with regulations and the new marketplace that is being created.

For instance, if there are 1,500 investors in the Seed round, how do you
decide who the official advisors are? Will people be wary investing in
companies without a known advisor or investor already "in?" And if so, will
that mean that crowd funding won't be necessarily all that helpful to
companies struggling to find that first investor?

------
utnick
Interesting article

As an outsider, it was surprising to me that seed investors don't have access
to a company's revenue numbers. I would think there would be some kind of
quarterly report that goes to all investors.

~~~
mikeg8
There's no definitive rules for stuff like that. Some seed funding happens
pre-revenue and other founders are more than willing to share revenue figures
with potential seed investors. We are in the seed funding stage and are
starting a bi-monthly email update to our advisors, potential investors ect
that will definitely mention revenue numbers.

------
mathattack
"When I graduated from college in 1986, there were essentially two options:
get a job or go to grad school. Now there's a third: start your own company."

This is an important observation. 20 years ago, the smartest people went to
large companies. Now it's a question of "Join someone else's startup or start
my own?" The alternative of career paths at large companies no longer exist.
It isn't just social acceptance and lower cost of entry, it's that the
alternative is long gone.

~~~
drugthrowaway
You're only talking about a very, very small slice of the population -
geographically centered around maybe 3 or 4 cities. This is absolutely not the
case in reality though.

~~~
mathattack
The slice is the top students, who used to exclusively go to large companies.
Now it's not so many. My impression is the top CS and Engineering students can
successfully conduct a national job search.

~~~
_delirium
The top students still mostly go to large companies. Compared to the number of
top students going to companies like Google (who hired something like _6,000
people_ last year), grad school, quantitative finance companies, and several
other options, the number of top students going to YC or otherwise starting
companies is not a large number.

Among my own acquaintances it seems to have more to do with people's strengths
and lifestyle interests. People who are strong techies but entirely
uninterested in business would rather go to Google, or even to somewhere like
NASA or Boeing or IBM or Intel. People who are a bit more into
entrepreneurship, and/or don't like having a boss, would rather go into
starting a business. Depends on the specific technology as well: a lot more
web-tech people go the startup route than hardware engineers, and certainly
compared to aerospace engineers.

------
yarou
I don't find the trends to be too surprising. After the major bubbles of the
dotcom era and the 2008 financial crisis (I wasn't alive for the LBO bubble),
a lot of energy is focused in creative pursuits, rather than those simply
engaging in wealth transfer. Bootstrapping will become easier as time goes on,
with the advent of b2d/open-source toolkits, as well as the perpetual cost-
savings of Platform-As-A-Service providers such as Heroku and AppEngine.

------
falicon
With a larger number of startups, there will likely be some amount more of
hits per year, but I think the cap (or even large percent of growth) is not
actually determined by this.

Rather, I suspect that the 'about 15 big hits a year' is actually more about
the public (and how many 'new' things the masses will actually adopt a year)
than it is about the overall number of new startups each year.

------
csomar
_Right now the limiting factor on the number of big hits is the number of
sufficiently good founders starting companies, and that number can and will
increase._

I do share this opinion. Creating value has no limits. You can create as much
value and wealth as you can.

------
jpdoctor
I'll add a major forward-looking issue: The Federal Reserve has been issuing
free money, and that party is over.

It won't affect the next A or B rounds, but exits in about 3-5 years are going
to dry up much like they did the last time the Fed tightened.

~~~
calhoun137
I'm not sure where you got the 3-5 years figure, but my understanding was that
the fed has issued a lot of money that has not entered the money supply yet.
According to [1], there has been a 259% increase in the monetary base, but
only a 35% increase in the money supply. This is obviously really scary, since
it implies that the dollar is likely to suffer massive inflation at some
point.

[1][http://www.marketoracle.co.uk/Article40113.html](http://www.marketoracle.co.uk/Article40113.html)

~~~
jpdoctor
Since the money supply (M2, eg) includes the monetary base (M0), the link is
confused (at least about nomeclature.)

Monetary base in red (you can see where they started printing in the past few
years), Money supply in blue
[http://research.stlouisfed.org/fred2/graph/?g=kcD#](http://research.stlouisfed.org/fred2/graph/?g=kcD#)

------
ubershmekel
I'm very curious about the VC/Angel probabilities of success. Of the 511
startups, how many bootstrap or above? How many die after the first
investment?

From the post we know ~2% will grow to a ~billion usd valuation.

------
balsam
i think the most interesting takeaway, that none of the comments touch on, is
PG thinks there are a finite number of good ideas (even though this is
currently larger than the number of good startups.) this probably means that
(he thinks) that the number of good ideas is a simple function of the number
of technological breakthroughs in a given year. so, in fact, it might be
possible to comprehensively list all of the good ideas, in a RFS, for example.

------
lnsignificant
I wish someone would redesign Paul's site. I always think I click the wrong
link when I initially land on it.

~~~
pixelmonkey
paulgraham.com's design is actually quite similar to the design of default
templates for Viaweb online stores, the company pg founded. Every Viaweb site
had a left-hand row of buttons with navigation elements and simple sans-serif
text in the center.

I actually have a theory that the software running paulgraham.com is a sort of
stripped down version of the original Viaweb content management system. You
can see in the view-source that there is still "Y! Store" JavaScript running
on his pages, and that, for example, the titles of each essay on his site are
actually images hosted at yimg.com (e.g. for this essay,
[http://ep.yimg.com/ca/I/paulgraham_2270_385](http://ep.yimg.com/ca/I/paulgraham_2270_385)).

pg has spoken about how one of Viaweb's major features early-on was that it
worked around the limitations of browser fonts by auto-generating images
(GIFs) with rendered anti-aliased fonts and served those in the browser. Looks
like his site continues to do the same thing to this day.

If my theory is true, I really hope pg never redesigns it. It serves as a
pretty cool historical reference to the company he founded, that made him
wealthy in the sale to Yahoo, and that ultimately allowed him to start YC /
HN.

The left-side navbar is also an image map! (remember those?) My guess: Viaweb
generated a single image out of the navbar description and markup for an image
map. In those days, browsers didn't handle parallel downloading well. A single
navigation element with an image map probably loaded faster in browsers than
several navigation image buttons.

Yes, image maps are out of vogue and text-as-images is unnecessary with modern
browsers. But, if the software running paulgraham.com truly has lineage to
Viaweb, then that is so much cooler than any modern redesign could possibly
be.

~~~
pg
It's not a version. My site is actually made with Yahoo Store.

------
Eduard
I'm curious about the n² algorithm, and what n stands for with respect to
batch size.

~~~
TheMakeA
PG discussed this a bit over here:
[https://news.ycombinator.com/item?id=5464451](https://news.ycombinator.com/item?id=5464451)

------
CleanedStar
"This trend is one of the main causes of the increase in economic inequality
in the US since the mid twentieth century. The person who would in 1950 have
been the general manager of the x division of Megacorp is now the founder of
the x company, and owns significant equity in it."

Boy, is this a load of bollocks. I guess the 20th century war against
socialism ("the means of production in the hands of those who work it") and
worker's organizations and parties doesn't come much into play into these
analyses. Up to the bickering a few months ago in Wisconsin with Walker -
although we're so far down the road, that example isn't very useful as a
specific case.

Yes, the entrepreneurial middle manager starting his own business, this is the
source of income inequality! Meanwhile, half the Forbes 400 inherited their
way onto the list. Where's the plucky entrepreneur in that equation? Even
"self-made" people like Warren Buffett had a congressman father and a
grandfather with a chain of stores. Not exactly a guy pulling himself up by
his bootstraps.

I mean, the fact that this speech was made to investors is a signal. Not the
tone, but the fact that it's investors who are the ones who sit and hear these
things. The programmer in the trenches, working 50-60 hours a week creating
wealth is not a part of these decisions on production.

There's a good documentary called "Born Rich" that is on Youtube right now. I
would recommend people watch it. This is who the money goes to, not the
plucky, hard-working entrepreneur. Blogs are filled with stories of angels and
VCs backstabbing founders. As is HN. And the founders usually get the best
deal in the company, far better than schlub programmers. Even hackers of the
caliber of Jamie Zawinski have attested to this.

This idea of income inequality happening because some hard-working founder
gets all of the money is a complete farce. Propaganda even.

If we want to really get into a discussion of this - just who are the "limited
partners" the VCs are raising money from, and where did they get their money?
We always see a fresh-faced Mark Zuckerberg or Drew Houston, or a Paul Graham
or even a Ron Conway, or John Doerr or Michael Moritz. But who are the limited
partners they're raising money from? Who is calling the shots on how money
gets spent?

------
captiva12
It makes sense to invest in a company where the founders want to control the
ownership. That really means the strongly believe in what they are doing. And
other thing they should look in for founders is Perseverance.

------
wilfra
"investors make more money as founders' bitches than their bosses."

Hall of Fame quote right there.

~~~
harryh
Not really as it gets cause and effect backwards.

