
The 99% (of startups) - thatha7777
http://justinkan.com/the-99-percent
======
downandout
This gives an interesting glimpse into the prognostication abilities of
supposedly brilliant VC's. It also shows the the near-impossibility of cashing
in private company shares, at least through VC's. In addition to this story,
the Sony hack revealed that Evan Spiegel of Snapchat wanted to cash in about
$40 million worth of shares just after he spurned Facebook's $3 billion offer.
He was also roundly rejected. Had someone bought those shares, they would have
been worth around $200 million today.

So anyone thinking that they're going to get much liquidity as a private
company founder should think again. If the Snapchat and Twitch guys were
rejected, the odds are not good that you will be the exception.

~~~
coffeemug
_> This gives an interesting glimpse into the prognostication abilities of
supposedly brilliant VC's._

The question isn't whether VCs are brilliant according to some absolute
metric. The question is whether they deploy capital better than random chance.
The numbers show that top ten VCs consistently do.

~~~
Androider
Take 1000 people, have each predict a coin flip 10 times. The top 10 players
will have predicted way better than random chance would have you believe. Why
several of them are even 10 for 10, they must have special prediction powers!
;)

Grow the player base, increase the number of predictions, you'll end up with
some real super-stars who just go on winning. They'll probably write books and
lecture about their techniques. Right up until the moment they lose. Kind of
like hedge fund managers.

~~~
maaku
Explain Berkshire Hathaway for me then, please.

~~~
refurb
Berkshire doesn't just buy stock. It buys a controlling interest and
influences the way the company is run.

~~~
mahyarm
VC investors tend to influence the company too.

~~~
Cshelton
While true, the difference between the decisions the board of a company makes
and the 'investors' is pretty significant. VC investors are not there to act
as a board of directors. Where as many private equity/takeovers deals usually
end up replacing many people on the board and executives.

------
noname123
Would love to see a series of good curves:

(1) of all startup's started by people who working in the industry, quit FT
jobs to do startup or put in serious moonlighting hours in startup; total
earnings - opportunity cost, annualized:

(total income from startup - opportunity cost of hours worked on startup) /
years spent

Maybe this data-set should be split further into bins of founders whose last
title prior to startup were only individual contributors, or were executives,
their age and pedigree etc.

Would love to see the distribution + standard deviation say, for computer
programmer who quits the job to do a startup would gain or lose in earnings
per year.

(2) of funded all startup; the alpha of investment: total return on investment
- (S&P500 Index return in duration of funding to IPO/exit) / (S&P Index
Return)

Maybe this data-set should be split further into bins of people involved:
founders, first 10 percentile employees by join date, second 50 percentile
employees and so forth...

Would love to see the distribution of return on investing in startup's as an
investor vs. investing in S&P500.

~~~
jmathai
Dug up a post of mine from 2 years ago [1]. I bootstrapped for 14 months
without salary and then took a pay cut for 2 years. Here are my numbers. I
blogged about this as well [2].

    
    
      Loss of salary for 1 year, 2 months
      Does not include loss of 401k match or ESPP
      -$140,000
    
      Successful Kickstarter @ $25k
      +$20,000
    
      8 week contracting project @ 20hrs / week
      +$16,000
    
      Living expenses for 14 months (savings/stocks)
      -$70,000
    
      Post funding difference in salary from market rate
      -$50,000 (year 1)
      -$40,000 (year 2)
    
      Total ≈ -$264,000
    

[1]
[https://news.ycombinator.com/item?id=7570428](https://news.ycombinator.com/item?id=7570428)

[2] [http://jaisenmathai.com/openphoto-
trovebox/](http://jaisenmathai.com/openphoto-trovebox/)

~~~
sergiosgc
Thanks for the numbers. I imagine you got equity of the company in the end, so
in terms of your personal asset accounting, it should be factored in (not that
getting a valuation on equity is easy, if it hasn't been traded).

~~~
jacquesm
Trovebox shut down in January 2015 so that equity is worth nothing.

~~~
jmathai
We sold the technology to Western Digital and went along for an acquihire. In
the end it approaches break even but even that's nearly negligible.

~~~
jacquesm
Pity! I had my fingers crossed that you would have some kind of neat exit, you
certainly deserved it with all the hard work put in. Better luck next round!

------
srameshc
Why the hell is this so negative ? He is very clear "This is for all the
founders who know they have built something that people want, but the rest of
the world hasn’t recognized it yet." It must be tough as a founder to prove
yourself and others that there is an certain value to his/her business. Isn't
a good exit is what an investor's or founder's option ?

~~~
ThomPete
Or to paraphrase Horowitz.

 _Building a startup is hard. You will have to stand up to a lot of people who
will tell you everything you are doing wrong. If you care a lot about social
signals you probably shouldn 't be an entrepreneur._

~~~
incepted
Then again, 99% of the people telling you what you're building will never work
are right.

~~~
ThomPete
Sure there are no certainties. But you won't know if you don't try.

------
hakcermani
“Watching people play video games is a niche” is now “I’m in charge of our
consumer, marketplace and esports investing.” Fuck them. Build your business.
Thank You Justin, just what I needed today !

------
joefkelley
I kind of don't understand this post.

Surely Twitch is an example of the 1%, not the 99%?

Not that I disagree with the end sentiment - I'm currently at a startup that
was acquired as part of the 99%, but I don't think this is the most effective
person to be saying this.

~~~
indlebe
Twitch is surely an example of the 1% now, but he's saying that you may not be
at that point yet and still have a great startup, regardless of what you are
valued at, at this moment.

~~~
brandnewlow
Right. He's saying that Twitch is a 1%-er now, but even 9 months before their
deal they were in the 99%, aka VCs are clueless sometimes.

~~~
oaktowner
What's interesting is that they had already raised $42M at that point
(according to comments here).

Certainly raising $42M and having an over-$100M valuation already put them in
the top 1%, right?

~~~
jacquesm
> Certainly raising $42M and having an over-$100M valuation already put them
> in the top 1%, right?

No, it put them in the top .1%.

Easily.

But even then, as a founder selling some of your own stock to a VC is not
easy.

The reasoning behind this is twofold: first the VC wonders if the founder
wants to set aside some money for themselves in case things go belly up, in
other words, does the founder do this as an insurance premium? (Answer: yes,
and why not, why should founders be always stuck with risk). Then the second:
ok, so we'll make this guy 7 figures rich, what if he doesn't show up next
Monday or absconds to Tahiti?

These and other (minor) fears are reasons why VCs are skeptical about deals
where founders cash out (even partially) before they (the VCs) do.

Whether that is just or not is up for debate, I think VCs are well within
their rights _not_ to do deals, at the same time when you've been in the
traces as long as Justin has (I've followed their story right from day 1
because we were in some ways a competitor) a bit of goodwill would be
appreciated and I can see a couple of ways in which such a deal could be
structured where most of the fears would be laid to rest. Still, it's an
arrangement between consenting adults and if there is no consent then there is
no deal.

That's tough but that's a trap that many founders are caught in, they have the
stock but they don't have the liquidity and there is no market for their
shares where they can get a chunk of cash 'just in case'. (pun intended).

------
perryh2
For those that don't know, Justin's new app The Drop is pretty cool. It's like
reddit for EDM. [https://thedrop.club](https://thedrop.club)

~~~
toephu2
wow, layout looks like a total rip off of Product Hunt

~~~
rspeer
Is that seriously the only site with this layout you've seen?

------
jacquesm
That's the most clear use of 'fuck you money' that I've ever seen.

------
rajacombinator
Nice. Sadly it's super rare to see anyone who's made it deviate from the
script and share authentically like this.

I suspect this is more a case of "VCs colluding against founders" than "VCs
being too dumb." When you have a legit $100 mil valuation, SOMEONE will buy
those shares, unless you're blocked from selling.

------
lepunk
"...but there are hundreds if not thousands more startups that will make their
founders and investors rich."

I think the correct word here would be "richer". For VCs 5x return on an
investment while desirable, it's not the ideal outcome.

Consider a VC invests in 100 companies during X years, $1 million each.
Ballparking here but 80 of these will be a total failure. 19 of them will make
5x return. That is -$100 million spent and $95 million gained. So if the last
one is "only" a 5x return the VC gets their money back (-inflation, time
spent, etc). Thats why they are looking mostly for Ubers and AirBnbs imho

~~~
sangnoir
> Ballparking here but 80 of these will be a total failure

Would those 80 still have failed if the mindset was "get 5x returns" rather
than the current "get 100x - 1000x returns"?

My gut says the demand for high-returns results in "total failure" in many
cases due to insane burn-rates in quest for "hockey-stick growth"

~~~
lepunk
That is a fair question, and a "what if" type so its hard to answer. if you
assume an ideal world with sane CEOs than it shouldn't matter what the
investors expect. The startup should burn cash at an optimal rate to achieve
the highest profit. Of course don't live in an optimal world...

------
xiaoma
The interesting question to me is if Twitch would have done as well if he
hadn't gotten rejected 9 months earlier. Unfortunately we can't spin up
another universe, alter that one variable and run a test.

------
arikrak
90-99% of startups fail[1], which should be mentioned in a post with that
title.

[1] See e.g. [https://s3.amazonaws.com/startupcompass-
public/StartupGenome...](https://s3.amazonaws.com/startupcompass-
public/StartupGenomeReport2_Why_Startups_Fail_v2.pdf)

------
angryasian
I'm unaware of the timeline but I'm curious was he trying to sell shares in
JTV or did twitch eventually spin off to a separate corporate entity from JTV.
It makes a huge difference because JTV was a huge liability nightmare.

------
free2rhyme214
I love Justin Kan's writing. If you read this Justin keep writing more man!

------
feverishaaron
These investors aren't paying enough attention to their children / their
colleague's children.

I would think that this guy's fame would have made this market opportunity
super-obvious.

[https://en.wikipedia.org/wiki/Joseph_Garrett](https://en.wikipedia.org/wiki/Joseph_Garrett)

With his own personalized collection of Minecraft toys and all:

[http://amzn.to/1O4VQNi](http://amzn.to/1O4VQNi)

~~~
minimaxir
There's a big difference between YouTube fame and Twitch fame.
Counterintuitively, there's actually little overlap.

Relaively few YouTube gaming celebrities stream due to quality control. Twitch
celebrity streamers use YouTube primariy to host stream highlights as Twitch's
VODs are not convenient.

Notably, YouTube Gaming, which was YouTube's Twitch competitor, failed
miserably since there was no clear advantage to switching from Twitch (among
UI/Content ID/monetization issues)

I know many YouTube gaming celebrities who have become successful enough for
merchandizing, but not any Twitch celebrities. They're separate markets.

~~~
feverishaaron
I don't disagree.

I used Stampy Cat to make the market point, because there were hints that the
"alright, let's play this game" spectator video was going to be a big thing,
even before Twitch was Twitch.

This guy has been operating since Minecraft was in it's infancy, and he had a
large following before Twitch was a big thing.

------
known
"No one can make you feel inferior without your consent." \--Roosevelt

------
netcan
Questions for YC (I think):

(1) Is this a good thing? IE should founders, employees, VCs or other
shareholders be able to cash in shares? (2) Is this fixable in some way?

------
Animats
It's depressing that Amazon paid four times as much for this business as Bezos
did for the Washington Post.

~~~
Jasber
27 million people watched the League of Legends world championship[1] which is
on par (or better) than MLB & NBA championships. It's pretty clear eSports is
going to be huge. Having the biggest streaming site/brand will be valuable and
doesn't seem crazy in that perspective.

[1] [http://espn.go.com/espn/story/_/page/instantawesome-
leagueof...](http://espn.go.com/espn/story/_/page/instantawesome-
leagueoflegends-141201/league-legends-championships-watched-more-people-nba-
finals-world-series-clinchers)

~~~
harryjo
That's a high single-event number. Do the numbers sustain across the year? MLB
and NBA have over 100 events per year (considering all the days games as one
daily "event")

~~~
brazzledazzle
While some people stay with a game/genre/gaming forever I notice a lot of
people "age out" and can't even invest the time to keep up with watching
esports (much less playing the games they're watching). I wonder if, assuming
my observation is the norm, that will impact numbers as society has less
children.

~~~
moistgorilla
People age out but those that age out don't have the attitude of "old people",
which in this case is "why would people watch this" and "this is a waste of
time". (not trying to generalize older people but i think you guys know what
type of people I'm talking about) Slowly esports and will become more and more
mainstream (probably not completely mainstream but I can't predict the future)
and more and more people will watch it.

Also, for the people that age out it seems like 3 more people join. Search
viewership growth for games like League of Legends, Dota2, and CSGO and you
will see that watching videogames is serious business.

------
ryporter
At the time he attempted to sell his shares, Twitch had raised $42 million,
and had been valued at around $100 million several months earlier [1]. He is
complaining about the gall of VCs not to buy his shares at a price that would
imply a valuation of less than $194 million (and presumably not that far
below). I do not believe that this is a good attitude for entrepreneurs to
internalize.

[1] [https://www.pehub.com/2014/08/amazon-pays-970-mln-for-
twitch...](https://www.pehub.com/2014/08/amazon-pays-970-mln-for-twitch-
nearly-10x-last-vc-valuation/)

~~~
thethimble
His sentiment is worth much more than the raw numbers.

Raising a round is a very very hard thing to do. As an entrepreneur, you look
around and all you see are the 1% in the media. On the other hand, the
fundraise feels like you go door to door getting your idea shot down by
everyone you talk to. The passion and tenacity to fight through this
negativity is what Justin is trying to elicit.

~~~
jacquesm
No, that's not why no deal happened. I suspect it was because he was not
raising money but because he was selling some of his own shares. In other
words: he was trying to take some money of the table. And those are very hard
deals to close.

This is the key line:

> I tried to sell some of my shares in a secondary transaction at less than a
> fifth of that price – and I was turned down by every VC I asked.

So, he eventually actually made more on those shares, about 80% more and
lucked out. But there is no way of knowing what would have happened in an
alternatively universe where some VC would have bought a chunk of stock from
Justin. Maybe then this deal would have never happened. You don't get to play
twice, but it's nice that it all worked out so well for him.

~~~
pcl
_about 80% more_

Correction: at least 5x more.

Also: obviously I don't know the full context about this particular deal, but
it always seems a little sleazy to me when still-involved founders sell in a
secondary without making that deal available to the rest of the owners.

~~~
jacquesm
You're absolutely right, what was I thinking. Need to sleep more and more
regularly.

> it always seems a little sleazy to me when still-involved founders sell in a
> secondary without making that deal available to the rest of the owners.

Well, that depends. If the founders have laid everything on the line for a
really long time then I can imagine taking some off the table so you don't
have to go back to work in your dads garage if things go badly wrong. If
someone is past their vesting period and they own the stock free and clear
they should be able to sell it if there is a market. Other stockholders will
have these abilities as well (assuming there are no limitations or shareholder
agreements to the contrary).

Usually the rest of the stockholders would have an option to purchase the
stock at the price agreed between the founder and the outside party anyway,
and if there are drag-along clauses then the buyer might find himself forced
to buy from many parties.

It all depends on what the papers say and what kinds of shares there are.

------
CPLX
What the hell is he talking about?

Is the summary of that article something like "this one VC didn't buy shares
from me but then I got rich so fuck the haters 99% of you are going to be rich
too" or something?

The article is like a word salad.

~~~
jaz46
Justin is saying that VCs understand what's hot now, but are sometimes bad a
predicting future value. So to founders, if you're creating value, keep going
even if VCs don't see the light yet. They'll come around.

~~~
minimaxir
The haters-gonna-hate philosophy in Silicon Valley is starting to become a
problem.

There's a lot of luck involved in making a startup, and startups can fail for
any number of reasons that no data can predict. The notion that if you do your
best, you will succeed, is _dangerous_ to naive entrepreneurs.

~~~
maxmcd
The parent article contains this line:

> "trust your numbers and growth to give yourself confidence in the face of
> rejection"

I don't imagine the people that you're worried about this being dangerous for
can always find comfort in their numbers and growth.

------
antoniuschan99
Tl Dr:

About Twitch.tv - “Watching people play video games is a niche” is now “I’m in
charge of our consumer, marketplace and esports investing.”

Fuck them. Build your business.

Makes sense :)

------
voynich61
"I was successful even though there was a long time that I thought I wouldn't
be all that successful, and I've gotten to where I am because I believed in
myself."

I paraphrase, but Poe's Law is in full effect here.

~~~
yoshizar
I disagree with your interpretation. I think Justin is saying,

"If the fundamentals of your business are good, believe in the data even when
investors don't recognize its value. Eventually, they will."

------
api
"I tried to sell some of my startup shares for below what the market turned
out to be willing to pay for them, but people said no because it wasn't trendy
and it sort of hurt my feelings, but then I got rich so haha!"

I feel really sorry for you bro. If you want some consolation you're free to
PM me and we can totally hang out and you can buy me a house.

~~~
raylan_givens
I really don't think that was the message he was trying to convey. If
anything, he was trying to inspire other startups/founders that feel
unappreciated/underestimated.

------
zillionize
"There is a tremendous amount of excitement about the top 1% of startups, but
there are hundreds if not thousands more startups that will make their
founders and investors rich."

I cannot agree more with Justin and we have had several investment cases like
that.

~~~
huhtenberg
What an odd comment. Reads like a spam for "zillionize".

~~~
huhtenberg
(Parent has edited the comment now)

