

R.I.P. Good Times: The Startup Bubble May Be Coming to an End in 2012 - dylangs1030
http://techcrunch.com/2011/11/26/josh-kopelman-i-think-2012-will-look-more-like-2008-than-2011/

======
itmag
Well, good riddance.

Is it just me, or is money being thrown at a lot of crap these days? As long
as it has a cutesy name and is based in the Valley, it gets bukkaked with
millions of dollars by eager investors.

All this cash floating around also seems to lead to startups sucking up all
the best talent. Do coding geniuses really need to be working on photo-sharing
apps, as opposed to, say, rocket programming?

I did an interview with Danish madman and super-entrepreneur Morten Lund once.
One of the things he told me is that a recession is the best time to start a
business: the table is cleared and the posers don't want to work hard to make
it. More room for the truly dedicated.

~~~
dextorious
"""All this cash floating around also seems to lead to startups sucking up all
the best talent. Do coding geniuses really need to be working on photo-sharing
apps, as opposed to, say, rocket programming?"""

Good point. But for all the "how to hire the best" articles moving around
related to startups, I don't see many "coding geniuses" there, and have yet to
see a significant contribution to OSS or CompSci coming from a "social"
startup.

Mostly fresh-out-of-college, no-real-world-experience, lets-use-what's-shiny
types...

Someone like Brad Fitzpatrick runs circles around these guys.

~~~
sunchild
The problem, in part, is that VCs want naive, unfettered young people. The VC
model has sort of evolved into a kind of talent betting pool.

If you're sophisticated enough to have a proven track record, you're probably
also more sophisticated about retaining equity and control.

------
asanwal
Folks have been predicting this throughout 2010 as well as 2011. The arguments
are generally devoid of data, i.e., "based on what we see".

First, let me say, there will eventually be a decrease in funding levels
primarily because the VC asset class is raising less money and since they can
only invest what's in their bank accounts, it has to come down. When will that
happen? Not sure.

Here's some thoughts based on data we collect.

\- 2011 is shaping up to be banner year for VCs ($30B+ invested) \- Seed
investments whether by VCs, VCs & angels or just angels are growing like mad

If you think of investing as a funnel, i.e., more seed stage companies get
funded than Series A than Series B, etc, it def looks like the funnel has
gotten a bit fat up top, i.e. a lot more seed deals than Series A, B, etc
money down the pipeline.

So if anything, the Seed thing has been overdone. At the same time, many of
those Seed companies can become real businesses on just the Seed round, i.e.,
SaaS companies (just look at UserVoice's second small round raise as a case
study). Or these companies get acquired for $20-$50 million. Which is not a
great return for a mega-VC who only care about billion dollar opportunities,
but can be quite good for a micro-VC. I'd imagine Dave McClure and others like
500Startups would be happy hitting those all day long.

That said, there is an overabundance of seed backed companies and many of
these will be orphaned and die. That's not a bad thing. It's the market
working.

At the same time, there are a lot more investors at the Seed stage and a lot
more can pile in so the trend might continue for a while as everyone hopes to
fund the next Facebook, Pinterest, Quora, etc (pick your soup du jour). This
is only natural as there are a lot more folks who can invest at the $1 million
level than the $10 or $100 million level.

As to whether later rounds will decrease in # and a bubble exists, that can
really only happen when the buyers (investors) decide not to pay crazy
valuations. I'm not sure what the 'forcing mechanism' will be that will drive
this. There is not a long list of public internet companies that will set the
"real price" for these companies and cause a correction. So without the
forcing mechanism, it comes down to investors agreeing that valuations in
private markets are too high. Not sure there is anything out there that would
cause an across-the-board shift like that. Of course, some investors might get
more conservative but there looks to be no dearth of cowboys investing right
now.

Finally, this could all change if the stock market and general economy go into
a tailspin. If I could predict that with any precision (or if anyone could),
we're in the wrong business.

Some links for those interested in some data -

Startup Cash Crunch? Hardly - [http://www.cbinsights.com/blog/venture-
capital/startup-cash-...](http://www.cbinsights.com/blog/venture-
capital/startup-cash-crunch)

VC on track for $30B in 2011 - [http://www.cbinsights.com/blog/venture-
capital/quarterly-ven...](http://www.cbinsights.com/blog/venture-
capital/quarterly-venture-capital-report-q3-2011)

~~~
dextorious
"""Folks have been predicting this throughout 2010 as well as 2011. The
arguments are generally devoid of data, i.e., "based on what we see"."""

Actually, "what we see" is the very definition of EMPIRICAL DATA.

What you probably wanted to say was "devoid of any theory" etc. But no theory
has yet untangled the economic prediction thing --too many parameters.

A little manual pruning of the empirical data by someone with experience in
the trenches is better than some vague theory or a bunch of stats.

~~~
asanwal
I don't disagree with you (fully), but unfortunately, hand-wavy predictions
about a bubble appear to be the norm. If someone is predicting a bubble, share
the empirical data points that led you to that conclusion.

------
saalweachter
I'm probably just an egotist, but I really think that any drying up of the
venture capital is really just going to hurt venture capitalists.

An engineer -- here's the egotism coming -- is a money machine. She may be
more effective working together with other force multipliers (marketeers,
venture capitalists, a good CEO), but fundamentally a good engineer creates
value all by herself. If the VC isn't along for the ride, less value may be
created less quickly, but the engineer is still going to get hers and the VC
not.

I can think of one example of an engineer who just didn't seek funding and
created a whole bunch of value (notch); does anyone know of a good example of
a startup which was forced to bootstrap without significant funding (on
account of a burst VC bubble) and survived to stick it to 'em?

~~~
suivix
Most engineers are male, why do you use 'she'? Also it distracts from your
other points.

~~~
mkr-hn
Because someone would argue the opposite (that engineering needs to be more
welcoming to females) if saalweachter used he instead.

~~~
lucisferre
Technically in most Latin languages the generic gender is masculine. So it is,
in fact, awkward when she is used for the same purpose. Sure it can be used to
make a statement "between the lines", but that is what makes it so
distracting.

Gender inequality in engineering isn't going to be solved by replacing 'he'
with 'she'.

~~~
mkr-hn
Opinion, not fact. It's not awkward to me. And we would be better off if we
didn't worry about which word to use.

------
prodigal_erik
So we went from "DOOOM!" in 2008 to funding grilled cheese and daily deals in
2011 and now back to "DOOOM!" in 2012, bouncing between the throttle and the
brakes faster than most startups can even prove out their thesis? This seems
like an opportunity for a contrarian VC betting against the others, dodging
the irrational exuberance but getting better terms when founders need the
money badly.

~~~
knowsnothing613
It's part of the built to flip mentality of the VC world. Look @ Groupon for
godsake. The sustainability of its business model is dubious, but they still
rushed the IPO, so they could flip it to ma & pa. But ma & pa aren't buying,
so Investment Bank clients that got in during the roadshow are unloading en
mass, and has sunk the share price below the IPO price, despite the low float.

web VCs fund companies they believe they can flip. It's also why they are
biased towards late stage funding, since they have a higher chance of flipping
over their positions.

------
cperciva
_The number of seed-stage fundings is outpacing series A fundings._

Can someone explain to me how this could possibly ever _not_ be the case? Even
if 99% of seed-funded companies go on to raise a series A, that's still "seed-
stage fundings outpacing series A fundings".

Maybe I'm not understanding what Schonfeld wrote here?

~~~
mkuhn
I think he means that more money is spent on seed-stage deals than on Series A
deals.

With seed deals being much smaller than Series A deals that definitely has
implications (e.g. there probably will not be enough money around to get a
Series A for all those Seed funded startups that get to that next stage)

~~~
ed209
Maybe it's just getting cheaper to build and maybe monetizing is getting
easier too, so it's possible that companies are profitable much earlier and
don't need a series a?

~~~
spydertennis
This is a good hypothesis but I see two problems with it. !) I've almost never
seen a case where a company could raise a decent Series A and has chosen not
to. Theres a lot of validation and peer pressure towards doing so. 2) Just
because you are profitable does not mean you have the money needed to fuel
growth. Lots of profitable companies raise Series A. Its actually the
preferred way for founders to do it.

------
dmk23
STATEMENT

    
    
      RIP Good Times! DOOOOM! GLOOOM! The Skies Are Falling!
    

TRANSLATION

    
    
      I Need an Excuse to Knock Down Your Valuations and Terms!

~~~
namidark
Or maybe that new "X" sharing app that does nothing new doesn't need $
2million in seed funding

------
steve8918
Reading the comments below, it completely sounds like the Housing Bubble
discussions between 2004 and 2008. You had the doomsayers saying for years
that "house prices are too expensive, there's going to be a crash" and the
momentum chasers saying "no, this time it's different, there's not enough
land, house prices are here to stay."

In the comments, you have the same sentiment of "It's too frothy, there has to
be a pullback", or "There won't be a pullback, this time it's different than
2008."

After surviving the dotcom crash and the 2008 financial crash, it definitely
seems like we are headed towards a global recession in 2012. No matter what
path we take, whether Europe can save itself or not, the best case scenario is
going to be a sharp pullback in European economic output. Worst case is that
the euro falls apart and the entire global financial system is rocked. My
guess is that Germany won't allow this to happen because they will suffer
disproportionately, so they will allow the issuing of Eurobonds.

So that being said, economic growth will slowdown worldwide. I think the US is
the best place to be, given its sluggish-but-not-catastrophic growth.

BUT it's not the US's GDP that matters, it's the investments of American rich
people that matters in terms of funding VCs. If rich people take a hit because
a majority of their investments get whacked, then they will stop investing in
venture funding. There's a pretty strong correlation between VC funding and
the stock market. Already the markets are down pretty hard since they topped
in June. If you remember the dotcom boom, it was during a massive bull market
in the stock market. As well, after the crash of 2008, the nadir of the
markets being March 2009, there's been almost a doubling of the stock market
since then, so by 2011 lots of rich people got very, very rich and are willing
to spread out their investments.

However, since June, the US markets are down 15%. The German market is down
almost 30%, Chinese markets down 23%, Indian markets down 22%, Brazil down
25%. There are a lot of rich people around the world that don't feel as rich
as they used to. If this trend continues and spills over to 2012, these rich
people will definitely pullback on discretionary investments, the top of them
being venture funding. So if you want a gauge on how VCs will behaving, I'm
personally going to be looking at the stock market to see how it's going to
behave.

------
pg
"The number of seed-stage fundings is outpacing series A fundings."

That is always the case, just as it is always the case that series A fundings
outpace IPOs.

------
michaelpinto
I hope so because that means that it's the best time to do a startup!

------
kls
This is not a bubble, I think a lot of people are yelling fire because they
want to cool the market, but this is no where near a bubble. When the
stupidest ideas are being funded after a meeting with 2 guys and a sketch pad,
with no product and no company, then we are in a bubble. Wait until the Euro
collapses and all that capital flight happens, then we may see a real bubble
like the one we saw in the .com boom or worse the kind of money that hit the
housing boom.

I think the wise people in the Vally see the capital influx coming and are
trying to cool the sector to ducks some of that capital. We have already
killed the goose that laid the golden egg once before, I think we are just
trying to ensure that we are not to attractive to the stupid money.

There are fewer and fewer places for it to run to and tech is one of the last
bastions, but it cannot sustain the kind of fiat capital that has been
created, we are too weak in our recovery from the last exuberance. That being
said, this is not a bubble, it can and has gotten a lot crazier than this.
This is what healthy was before the bubble.

~~~
moocow01
"ideas are being funded after a meeting with 2 guys and a sketch pad, with no
product and no company, then we are in a bubble"

Unfortunately from a few interviews I went on in SV a few months ago, more
than a couple of times this scenario was bragged about by the founders when
asking how they started. It was a huge turn off to me but I guess it impresses
other candidates. (Ironically though one of those companies was a small social
games company that just got acquired.)

------
z92
What I have learned from share market is that when people predicts the future,
that prediction is always accounted for in the present. Therefore things don't
go up or down when that time arrives.

Unless of course when the prediction itself changes. And that's when things
start to move again -- not in the future, but at present.

------
mkr-hn
I submitted an article from 2004 that gives some context to the start of the
latest boom: <http://news.ycombinator.com/item?id=3282354>

------
haffi112
So, where will the next bubble be?

~~~
mkr-hn
Probably automation in the physical world. Watch for the gold rush when the
first commercial self-driving cars roll off the assembly line.

~~~
itmag
I am intrigued and wish to know more of your ideas.

What are some ideas for automation of the physical word? I am always looking
to feed my creativity algorithms with new domains.

~~~
mkr-hn
Everything will feel like it's missing an AI when you see cars driving
themselves everywhere you look. I can see the general shape of it (lots of
automation), but it's hard to say what it'll look like.

I try to keep speculation to a minimum because most specific predictions of
the future end up being wrong even if the rough idea is right.

The best I can come up with is automated bicycle messengers, but that's as
likely as any idea I could come up with.

~~~
itmag
Tell me more about the general shape then :)

~~~
mkr-hn
I made a blog post out of it: [http://journal.mkronline.com/2011/11/27/the-
coming-automatio...](http://journal.mkronline.com/2011/11/27/the-coming-
automation-goldrush/)

------
OoTheNigerian
This bubble prediction babble is a good example of the saying "a broken clock
is right twice a day"

Bubble pundits have to accept the fact that they will not be able to predict
the bursting of a bubble. Assuming there is one.

Even the title says "I think"

------
dextorious
You mean the world doesn't need tons of teams of young geeks working with RoR,
Closure, Mongo, Mustache and other wonderful technologies to solve non
existing "social" problems? I'm shocked!

(Addendum: I'm starting to think that having a startup is the "I'm gonna be a
film star/hip hop singer/rock guitarist" equivalent for the geek youth).

~~~
viandante
You are being provocative, ok. But there is plenty of space for start up
innovation in many sectors, just not any more social apps, agreed on that.

~~~
itmag
What are those other sectors?

Not an insult btw. I genuinely want to know.

~~~
dextorious
Well, how about medicine, biology, finance and banking, industrial production,
logistics, printing, transportation, etc, just off of the top of my head?

There are tons of stuff to do a startup on besides some social gimmick.

~~~
itmag
Cool. The reason I ask is because I am always trying to come up with ideas
(see <http://ideashower.posterous.com>) but I feel I keep circling around a
few domains when I brainstorm ideas. I could do well to expand my vision.

If you have any ideas in those areas please do share :)

~~~
viandante
As dextorious pointed out, there can be many ideas. You should focus on
something where you have some domain knowledge. Said that, pricing may be a
cool idea, I wrote a thesis on price differentials across countries, if you
want to share that, let me know.

For me, I am starting with something really small, yet really difficult for me
being a beginner: pivot tables on the top of a database. There are some reason
I am doing it, but mainly it is because excel is really slow with what I call
'small data' and it also has strange row limits. Also, I want to provide an
easy way to build pivot tables on the server side, so people don't have to
send excel files around.

Project is here: <https://github.com/kfk/proj00>. It is really just a scratch.

~~~
gruseom
_pivot tables on the top of a database_

That's interesting. As far as I can tell, pivot tables were a hack that MS
added to Excel in response to Lotus Improv, which was an early 90s attempt at
a higher-level spreadsheet that Steve Jobs raved about for years. Perhaps you
can restore them to their original glory.

 _because excel is really slow with what I call 'small data' and it also has
strange row limits_

Can you elaborate? What do you call 'small data'? And what are the strange row
limits?

I'm interested in these things because I work in an Excel-related space, which
I would be happy to discuss offline (email in profile).

~~~
viandante
1 = Yes, that's exactly what I think we need here. A perfect example is the
"data frame" concept in R (that you can implement as a list of tables in other
languages). Excel doesn't have decent high level abstractions of your data,
that forces the user to do a lot of boiler plate work that can be extremely
time consuming and dangerous (as the more more manual work, the more
mistakes).

2 = Excel 2003 limits (still used in my company):
[http://office.microsoft.com/en-us/excel-help/excel-
specifica...](http://office.microsoft.com/en-us/excel-help/excel-
specifications-and-limits-HP005199291.aspx). Especially when you make deep
analysis (first 10 customers of segment B, low margin products, lost due to
low margin products, pricing, etc.), you hit the limit and you are forced to
do bad things (like using 12 columns instead than 2 to represent 12 months).

3 = As 'small data' I just mean all those data people use in companies.
Usually those are the result of extracting data using a business warehouse
system (ie cognos) or financial data submitted by entities (ie 30/40 files
from different parts of the world of PnLs to consolidate...) or KPIs, or...
you get the idea...

p.s. I will be sending you an email later today. It would be really great to
discuss those concepts.

~~~
gruseom
Please do. I look forward to it.

