
Seed funding slows in Silicon Valley - justswim
https://www.reuters.com/article/us-venture-seedfunding-idUSKBN1AH31J
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kylehotchkiss
Probably an unpopular opinion, but when the startups receive $120,000,000 to
make a juice machine that is only really accessible to the top 1 or 2% of the
USA, it's not a bad idea to give funding a reset and give people a reason to
step back from trying to raise funds and more time to work on more innovative
ideas. America has it's fair of crises now, yet a good chunk of people have a
smartphone. How can startups help people in the midwest and the coasts? Or
what interesting things could be done given most of the world is online now?
I'm sure we'll see some cool ideas and another funding boom again with some
cool new ideas soon.

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pm90
Its not an unpopular opinion, but that Juicing thing was definitely an
exception, not the norm.

As to why everyone is chasing unicorns, one of my friends who's actively
trying to get funding for his hardware startup sums it this way: VC's would
make more from 1 unicorn than 50 other mildly successful businesses, and the
other 50 businesses would probably require just as much work as the unicorn.

Its a really fucked up calculus to be sure. I'm not sure what the solution is
though. How do we encourage VC's to invest in more meaningful startups?

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dimaggiosghost
The problem is it's impossible to predict success in an early stage company.
Optimal way to ensure profit is to place many bets and hope one pays off
enough to cover the costs of the losers. Asymmetrical outcomes are a
requirement for sane strategic investors.

If all you can do is buy lotto tickets, you are better off buying insane
payoff opportunities than trying to pick which lotto tickets will have a
higher frequency of payoff, but a much lower yield.

~~~
pm90
The point though is that these are not really lotto tickets. A lot of high-
tech startups are working on monetizing some obscure technology, or inventing
a more efficient way to do a task, or something along those lines. They are
actually providing value, other than the payoff from their sale or IPO. I
think we as a society are failing somewhat to give an appropriate monetary
value to that kind of contribution.

~~~
TheHegemon
The problem is that a VC doesn't care how much value a product provides to
society. It only cares how much value it can extract for itself.

~~~
flamedoge
some VCs do look at what non monetary value their investment generates. I.e.
Reddit.

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ryandamm
I'm not sure the pause in unicorn IPOs is _directly_ related to a slowdown in
seed funding -- perhaps indirectly by minting fewer angel investors.

A lot of the popular press -- even the popular tech press -- conflates startup
funding. But late stage investing, which is mostly where unicorns play, is a
totally different game from seed investing.

Also, there are two stories here... one is about the shift in average check
size and fewer deals. This is really just investment grade inflation, where
larger deals are being called 'seed.' Not sure why but it's how it works. So
much of the former seed rounds are probably underreported angel / micro fund
rounds now.

[Source: my startup's funding isn't publicly disclosed for that precise
reason.]

~~~
estsauver
It really has to do with expectations. The expectations of a company that has
raised a "Seed" are X, the expectations of a company that's raised an A are
3X, a series B are 15x etc. By positioning yourself as having only raised a
seed it makes it easier to raise later rounds. It's a very real anchoring
effect.

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austenallred
From NYT that has actual numbers:

> Seed and angel investors completed about 900 deals in the second quarter,
> down from roughly 1,100 deals in the second quarter of 2016 and close to
> 1,500 deals during that time period in 2015, according to a report released
> last month by Seattle-based PitchBook Inc, which supplies venture capital
> data.

> The dollar amount provided by seed and angel investors was $1.65 billion in
> the second quarter. That's just shy of the $1.75 billion for the same time
> period of 2016.

That's slowing from 2015, but IMO these changes are pretty insignificant.

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whatsmyhandle
"The median seed deal is now $1.6 million, according to Pitchbook, up from
about $500,000 five years ago. That's more in line with what big venture firms
used to invest."

Cost of living, office space, employees (due to the cost of living) has to be
a factor here. Maybe $500k was viable a few years ago in the Bay Area, but
imagine these days a company NEEDS a larger seed round in order to get to a
viable state.

~~~
JohnnyConatus
Yup. Assume there's two founders both of which draw a 50k salary, likely after
months of bootstrapping. 400k is not even three engineers in SF.

~~~
seanp2k2
400k is like the fully-loaded cost of a _single_ engineer if you're trying to
hire "top talent" and actually get them to come work for you (i.e. they're
valuing any equity you're offering at the likely result of $0).

~~~
pkaye
But those "top talent" engineers will be starting their own company so you
don't have to worry about that.

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mtl_usr
I think it has to do with the traditional app model slowly being phased out.

There is a huge saturation of apps on every major platform and it's getting
harder and harder for new devs to get enough userbase that way.

~~~
pc86
Being phased out by what?

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nibstwo
The platform building that functionality themselves. Vertical integration in
the customer-facing direction. 90% of my apps are Google-made now.

~~~
thisisit
What does "functionality themselves" mean? If possible please elaborate a bit?
TIA

~~~
pm90
I think he's referring to the platform itself providing most of the apps.

e.g. Google Play Music replaced spotify for me when I used android. It can now
play podcasts (like Apple's podcasts app) and also recognize music playing
(like Shazam). Google's Inbox replaced Dropbox's mailbox. Google Map has a lot
of features I used to find in Waze, even some extra ones (like Timeline).
etcetc

It reminds me of what Microsoft used to do: embrace, extend, extinguish.

~~~
Harimwakairi
"Embrace, extend, extinguish" was Microsoft's strategy for destroying open
software interoperability standards. I understand what you're saying, but it's
not nearly the same thing.

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bretthellman
"slow down" = great time to start a company

~~~
quaz3l
Why is that? There is less money in circulation, so less chance you'll get
any. Are they making wiser choices? So if you're company is a wise choice
you'll get funding?

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cocktailpeanuts
You don't need funding to build a great company. In fact most great companies
started out without huge funding.

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readhn
Everything is cyclical. We have not had a major crisis since 2008... Perhaps
something is coming our way. Who knows.

~~~
acchow
Pretty much every dynamic system that doesn't collapse ebbs and flows.

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tejay
I don't think this is terrible news for entrepreneurs. It forces more
operating discipline in the earlier stages. And, I believe we could do with
more discipline as an ecosystem. As long as there's growth capital around once
the business _is_ prepared to scale, we're all good.

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nickspag
The particular point about incumbent advantage, which admittedly has always
been a factor, is particularly poignant in my mind. A lot of the
recommendation is that founders shout from the rooftops about what they're
working on, but in this climate is the better route to be relatively quiet
with a small group of beta testers/a personal network? And go public more
feature-rich or stable? If you hit a chord early on an incumbent could shift,
even just "enough," and water-down your competitive edge to the point where
the slag to viability just isn't realistic.

~~~
tarunkotia
In theory, yes the incumbent can shift just enough to water-down your
competitive edge but a company or a team with this kind of agility are few and
far between. Getting a consensus is one of the hardest thing to do, let alone
the speed at which you have to execute.

~~~
bdamm
In my experience this is one of the greatest hindrances to corporate
evolution. If you or anyone else knows of any research into this phenomenon
and how to help groups move beyond it I would love to see it and learn from
it.

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cblock811
I've been hoping funding would slow so all the dead wood (we don't need all
these delivery apps) can burn off without adding more to replace them.
Hopefully we'll see companies try to grow sustainable businesses rather than a
bunch of zombie startups that persist when they really shouldn't.

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jwilliams
The cost of starting a company is also declining. So there is an offset there
- In early stage the big outlier in SV is rent. However, most other aspects
are getting considerably cheaper (including cloud platforms being very
generous with credits)

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Powerofmene
As it has historically done, this will level out and correct without any
intervention required.

