

AVC: Tough Times Ahead for the Web (...or not?) - colortone
http://avc.blogs.com/a_vc/2007/09/tough-times-ahe.html

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garbowza
I think we're all trained to expect a downturn after a sustained run of good
times. It does not appear that tech will trigger the downturn (if there will
be one) this time, but the question is how much will tech be affected?

Personally I believe that the solid business models will continue to prevail
since internet traffic will continue to increase. However, marginal ideas and
products will have more trouble finding the quick cash they are looking for.

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colortone
I agree in total with this take...

The Net isn't going to stop growing in traffic or utility, that's for sure.

My fear is that the glut of mediocrity will put a chilling effect on this
"sector" from an investment standpoint.

Based on my recent experience, it's seems like it would be easy to spook Angel
investors, and I don't think that would be good for seed-stage NetCo' [even
the good ones].

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dpapathanasiou
_seems like it would be easy to spook Angel investors_

My experience is the opposite: since angels use their own money, they answer
to no one and can stick with you (assuming they continue to believe in your
vision), even as the environment changes.

OTOH, VC firms (or any other organization with limited partners) are subject
to more oversight and 3rd party scrutiny, and are much more likely to follow
the herd.

There are, of course, exceptions in both cases.

~~~
Readmore
Agreed. If you approach an Angel investor with an actual plan that explains
how you make money, they will listen. Just jumping up and down yelling about
how quickly social networks are growing isn't going to cut it though.

I was actually told last week by an investor that they had heard a pitch the
previous day for a social network that was basically that, just inflated user
adoption numbers. We have a much better chance at the funding.

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bharath
Startups that make what people _really_ want are likelier to survive the
downturn when it does come. For example, Peter Lynch has said that downturns
are a good time to invest in companies that make breakfast cereal -- people
don't ever stop buying that. A case in point are the Indian outsourcing
companies that saw their stock skyrocket during the last recession -- at a
time when American companies were using them as a means to cut costs.

~~~
nostrademons
The last downturn also saw some companies flourish that made stuff nobody
would think of as "really wanting", though. HotOrNot, LiveJournal,
FuckedCompany, Blogger, Del.icio.us.

I think the biggest predictor of success during a bust tends to be low costs.
Recessions force honesty on business people: you are economically viable if
you contribute more value (actual value, not predicted value) than you consume
in resources. It's relatively easy for one guy working out of his home to
produce more value than he consumes. If his product is at all useful, he's
basically got it covered. It's relatively difficult for a startup with $20M of
financing to produce more than it consumes, because his product has to be
roughly 200 times more useful than the solo entrepreneur.

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joshwa
This ties into a question I was going to ask as a discussion item... how far
"ahead of the curve" is best for startups, in terms of maximizing chances of
success?

Obviously one can be too far ahead of the curve, and the market, and run out
of cash before you can get profitable, but neither do you want to be a me-too
player in a crowded market where differentiation is difficult (and the best-
funded player wins).

Where's the sweet spot?

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sabat
It's BS like this that helps actually create a downturn. Repeat the idea
enough in the media, and people will naturally begin acting like it's a
reality -- making it a reality.

The real cause? Our need to punish ourselves for doing well. "We deserve a
good downturn right about now. Things have been too good. We need to feel some
solid pain to keep ourselves in check."

