

The Expanding Birthrate Of Web Startups - DanielH
http://www.avc.com/a_vc/2010/08/the-expanding-birthrate-of-web-startups.html

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cageface
As a survivor of the first big .com crash, the current froth around startups
seems uncomfortably familiar in some ways. There _are_ a lot of companies
making sustainable, growable revenue a priority. There also seems to be a lot
of companies that are just throwing any idea they can think of against the
social networking wall to see if it sticks.

I expect there to be some significant winnowing out, although perhaps not as
destructively as 1999.

~~~
stackthat
Well if you are 2 people who runs a startup for $1000-5000 per month what's
going to happen? In 1999 1 chair of a startup was $1500

~~~
cageface
Those are the sustainable startups I mentioned. I have higher hopes for those,
even if the stakes they're playing for are smaller. I still see plenty of
companies raising a lot of VC and tracking drop-dead burn rates of 1-2 years.

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stackthat
I think VCs need to understand that not all startups want to be a billionaire
hence they don't need baby sitters and they can take care of themselves.

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timme
Agreed. I can't help but think that the article has an arrogant undertone to
it. There are plenty of startups who do just fine without VC 'support'.

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fredwilson
i can see how you can take the post in that way.

but i didn't mean it that way.

i'm just concerned that there isn't as much capital around to fund all of
these companies in the follow on rounds

~~~
stackthat
What round? In a small startup you don't have rounds. You are ramen profitable
in your first year which is generally not more than $5K-$30K per month
(depending on the size) and then you stay alive, you don't get huge or big or
massive and generally you don't care. $5-10K per month is good salary for a
(co-)founder.

These small startups funded by their customers after 3 months to 1 year, after
a year if they are not ramen profitable then it's generally end of the game.
In the long term it gets bigger and in which case you are already big which
means either someone is going to acquire you or you can fund yourself and keep
getting bigger and bigger.

I understand that some startups need load of money and stuff but many don't.

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imp
Not everyone can be ramen profitable in their first year. I think his point is
that people assume it's easy to get to profitability and end up out of cash
when they don't get there right away.

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gokhan
It's much more easier to start a web company today than 10 years ago. Cheap
cloud services. Endless web frameworks. Client side libraries. Server side
libraries. Matured architectures. Many best practices.

What's improved in VC world in the last 10 years? Better laws? Better
standardized practices?

~~~
patio11
I suspect "better deal flow", since they're essentially colleges in a world
where high schools have just arrived to supplement the traditional "single
master and apprentice" mode of instruction.

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endlessvoid94
Every time I read "If you're an entrepreneur, you need to focus on
profitability", I think to myself:

No shit.

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frederickcook
Isn't this the opposite of what we've been hearing the last couple years? The
trend of companies being cheaper to start and the rise of angel and super-
angel funds have left VC's without a place to make large investments? Isn't
that the reason for the contraction of the "VC industry" in the first place?

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thaumaturgy
> ...have left VC's without a place to make large investments?

OK, I've got a gripe about this: I get the sense that VCs have done this to
themselves, and it's kinda funny.

My view on it might be -- and probably is -- influenced too much by the kind
of slant that the stuff on HN has. There are probably other investment circles
out there that concentrate on other things; I just don't know where they are
or what they're up to.

But try getting a small team of brilliant young engineers, chemists,
scientists, and mechanics together, and then go looking for VC to build a
prototype electric sports car. Let's even say you've built most of the
drivetrain and software already, and you're looking for VC so that you can
afford a designer for it, flesh it out, shop it around to some shows, and make
some connections.

Now, let's imagine you take a similar team of brilliant young people, and --
with only a few lines of code written -- you say, "We want to build the next
great social media app."

I'd bet you're a lot more likely to see funding for the social media app than
for the next electric sports car, and that makes perfect sense: the
development of the social media app requires way less up-front expense, which
in turn means it carries less risk, _and_ it promises far earlier
profitability if it's successful. If the electric sports car beats all
expectations and finds a huge demand, you're still going to have to spend
millions on a factory and tooling and everything else before money will begin
to trickle in.

Here's the catch though: social media whatsits are also much less likely to
_need_ VC. Programming methodologies and technology have been developing at a
breakneck pace for decades now. What used to take a room full of software
engineers months to roll out can now instead be launched by two guys in a
couple of weeks. Hell, some people on HN have gone and launched basic startups
from scratch over a weekend. Now you can come up with an idea, order a VPS for
20 bucks from Linode, click to run a StackScript that will build your server
for you, download a pre-built free PSD template, plug in jQuery and jQuery UI,
spend a couple hours writing content, download some graphics, and then open up
an AWS account and have your application backed by a massively scalable,
highly reliable backend. Ding, done.

Fred Wilson's main concern -- that there isn't enough money to go around for
these kinds of things -- is perfectly wrong, I think.

The neat thing about this is that everyone involved has been acting rationally
according to their own self-interest, and this has resulted in the VCs self-
selecting themselves into a niche that decreasingly needs them in order to be
successful. At this point, if a web or software company has burned through a
million dollars of investment and still isn't breaking even, then their
business model is broken.

We also have to look at the lifecycles of these respective business
approaches. Things seem to work out best for VCs if they get into a company
that grows for a few years, but as Fred says, they're getting purchased
earlier. Others are probably dying out faster. The overall life cycle for
these businesses seems to be very short. (Myspace was launched in 2003, just 7
years ago; who here has an account with them?) The life cycle of the
successful "hard" business meanwhile hasn't really changed much; the rule
still seems to be that you have to work for three years before you'll be
profitable (if you're not doing R&D, that is), and then as long as you're
careful not to blow it, you can be around and be making fine money for
decades.

...But VCs don't seem to be as interested in sending _those_ kids to college.

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rwhitman
Well I think the unsaid thing here is that the social media 'startup' itself
is quickly being commodified... If you can write code, you can potentially
build a semi-profitable product on your own for less than the cost of a TV.
All the other business infrastructure can be handled by free or nearly-free
web services, crowdsourcing etc. A lot of the marketing channels are free as
well.

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earle
The thing that nobody understands until you've lived through it is just how
long it takes for some companies to get profitable and self sustaining. And
just how long it takes for some companies to get liquid and leave the
portfolio."

The thing that less people understand is when to cut bait. I think avc is
making excuses here.

~~~
fredwilson
if i had cut bait on comscore in 2001, i'd have left tens of millions on the
table

if i had cut bait on multex in 1995, i'd have left tens of millions on the
table

if i had cut bait on TACODA in 2004, i'd have left tens of millions on the
table

venture capital sounds easy.

it is not

~~~
earle
All those examples had justifiable reasoning beyond "stay and pray".....
right?

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swombat
I think he means "increasing". I don't think a rate can expand any more than a
temperature can elongate.

~~~
nickpinkston
In all possibleness, it's a perfectly cromulent usage.

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Ardit20
How do you know that the birthrate of startups is expanding? I was expecting
to see numbers and graphs.

