
Warned of a Crash, Startups in Silicon Valley Narrow Their Focus - my_first_acct
http://www.nytimes.com/2016/08/29/technology/warned-of-a-crash-start-ups-narrowed-their-focus.html
======
icehawk219
For the past 10 months or so I've been part of a 3 person team that is
bootstrapping. I can't count how many times I've been looked at like I have
two heads when I tell someone that no we don't have funding, and we aren't
looking for it, and we aren't planning on looking for it, and we're not
entirely sure we even want it. And when I tell someone that we're more worried
about building a sustainable business that can stand on its own I might as
well be speaking a foreign language.

~~~
coffeemug
You seem to be attaching a moral axis to the decision on whether to raise
capital. Consider that people look at you like you have two heads because
you're making an irrational decision.

Capital usually comes with two strings -- giving up a part of your company,
and giving up control (both of which are correlated, but not the same thing).
In the current climate, if you could raise a seed round while giving away a
minimal amount of your company and not giving away control, why wouldn't you?

Put a different way, how good would the terms have to get for you to take the
money? In the limit case, if someone wrote you a million dollar check, no
strings attached, what would you do? How far are the current market conditions
from this scenario?

~~~
crazy_ant
It has nothing to do with morality, it has to do with building a sustainable
business while retaining full ownership. The notion that you absolutely need
to accept funding is getting tired because it's not supported by facts and
grounded in reality.

I am currently bootstrapping a business and I have been approached by VCs who
_asked_ me to please take their money. I have turned them down because, as I
politely told them, I don't need it, AND I am not looking to simply flip the
company some day (no sane investor will invest unless the company can be sold
in some form and they get their money back). Some people may also wish to
avoid having a boss, and if you think your VC is not your boss in some
capacity at least, you're in for a rude awakening.

Calling someone's decision to avoid raising money irrational and attaching
labels (morality?) is presumptuous. There are certain goals that are
incompatible with accepting funding, such as: operating a lifestyle business,
not reporting to anyone, freedom etc. I am not sure what's so difficult to
understand about that.

~~~
exelius
> There are certain goals that are incompatible with accepting funding, such
> as: operating a lifestyle business, not reporting to anyone, freedom etc. I
> am not sure what's so difficult to understand about that.

Nothing wrong with it at all; but keep in mind you are posting on the message
boards of an organization (YCombinator) that is deeply invested in the Silicon
Valley venture ecosystem. The "growth at all costs" mentality is bound to be
quite prevalent among the posters on here as a result. It's just the audience
that HN draws.

~~~
pop8row9
> It's just the audience that HN draws.

The content of this thread seems to contradict this claim.

------
chatmasta
It seems like a lot of the "easy money" in early rounds comes from
institutional seed investors like SV Angel, who are happy to hand you a $100k
note with a good story and a bit of traction.

The problem I see with this is that their willingness to do that is tied to
the performance of their early investments that have turned into unicorns. So
for SV Angel for example, that would be Snapchat. As long as the unicorns are
riding high at valuations that are obscene multiples of the initial VC
investment, the VC can afford to make more small, early stage investments. If
the goal is a 10x average return on the fund, then the higher the valuation of
its unicorns, the more it can invest small sums in the "long tail" of early
investments.

The problem is that as soon as a unicorn sees a devaluation, the calculation
of average return decreases, and therefore there is less money available for
that long tail.

This is how I see it, anyway, with a fairly unsophisticated understanding of
the mechanisms. I'm curious to hear other input on this perspective.

~~~
seanieb
Evernote is a bad datapoint for the Times to use as a starting point for some
tech bubble tea leaf reading. The company was mismanaged for nearly 4 years.
The founder and CEO walked or was pushed out over a year ago. And rightly so.
It was like it was run by someone with A.D.D. For example they opened an
online store that sold a bunch of branded Evernote junk, pens etc. including
Evernote socks... They kept adding new features when core features were broken
for several versions of the app. In some cases resulting in data lost, eroding
customer confidence in the product.

The tech winter came and took out VC funds, valuations, board seats and
executives. It also slowed down the rate of new startups and IPO's. It didn't
crush companies like reporters speculated or wished. This time companies that
received large amounts of funding unlike the crazy web 1.0 companies of 1999.
These companies have finical planners, oversight and accountants. This gave
them some buffer.

------
zizzles
Silicon Valley is in NEED of a crash.

It is touted as a hub of "innovation" but I do not see it. There are
exceptions that exist, scientific and medical companies perhaps, but the
majority of tech-startups are not that at all, they are a fucking FUGAZI. They
are speculative companies that are all about hype and getting an "exit"
someday. Steve Jobs (as an example) is regarded as a "deity", a god of Silicon
Valley. Because of wealth? Because the iPhone / iPod / iWhatever had a simple
design? Step outside, the iPhone is used as a vessel for narcissism. Facebook
and Instagram, two billion dollar companies in the valley, those two are the
TEXTBOOK narcissism vessels of HUMAN HISTORY. These tech-startups are an
absolute pathetic coping mechanism for humanity, they are not innovative or
special.

~~~
tlogan
I agree that Silicon Valley is in NEED of a crash.

But NOT because there is no innovation. But because there is a _lot_ of
innovation and that real innovation is getting squished by get rich schemes (I
have no other descriptions for some startups). This is like with all bubbles:
fundamentals will start it but then speculators will take over causing the
bubble.

~~~
zizzles
You and I have different ideas of innovation. You are likely thinking in a
capitalistic sense of a view (disclaimer before I get thrashed on: I am not
thinking capitalistically) perhaps you can name me a few particular up and
coming companies YOU think are doing imperative, highly-important and highly-
beneficial things for us humans? Companies that, 10 years from now, will be so
imperative to our survival and well-being that they will fit directly into the
Maslow Heirarchy of Needs?

[https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Ma...](https://upload.wikimedia.org/wikipedia/commons/thumb/6/60/Maslow's_Hierarchy_of_Needs.svg/2000px-
Maslow's_Hierarchy_of_Needs.svg.png)

I scroll through Tech Crunch regularly. My honest observation: 95% of tech-
startups are, as I said earlier, F-U-G-A-Z-I-S. Companies that fuel
narcissism. Companies that are spin-offs of companies that fuel narcissism.
Companies that perform services for other FUGAZI companies. Ad companies.
Companies that provide streaming, so millions of Americans can watch Kim
Kardashian on their Mac. I don't want to be a philosophical hippy, I am not
one of those, but nobody here can deny that all of this is a pathetic coping
mechanism.

Why are we coping? We are coping because we are a too primitive and unevolved
monkey species to take anything to the next parallel. Even something such as
space exploration is science-fiction, meeting a different species of life?
Science fiction. Some sort of child pipe-dream we've learned from Hollywood
(another FUGAZI)

How about something to help us find a slight meaning to existence. Isn't this
the root-goal, at it's core? I look out with clear focus on the surroundings,
but I do not understand. Then I go back to FUGAZI-land. It's imperative I
figure out myself, but society is an obstacle (despite it's perks)

To sum it up: 95% of Silicon Valley is a primitive coping mechanism.

~~~
dsacco
It's hard to take you seriously when you are being so antagonistic. You can
make the argument that Silicon Valley is lacking in innovation, but you don't
need to poison that argument right out the door by pushing a worldview that
these companies all exist to fuel narcissism, thereby implicitly insulting
everyone who likes these products.

I don't use things like SnapChat and Facebook myself, but I also don't act as
though these companies aren't innovating, and i don't shame their users.
Perfectly reasonable, intelligent, kind and well-adjusted enjoy browsing
Facebook every day, and there is nothing wrong with that. And have you seen
what's coming out of (for example) Facebook Artificial Intelligence Research
labs recently? Is legitimate progress not innovation because it supports
capitalist processes that you disagree with?

In short, you're being judgemental and instead of coming across as passionate
and self-aware, you're coming across as puerile and angry.

------
Animats
From the article: (failed startup) "providing valet parking with the touch of
a smartphone button".

What's ending, one can hope, is the idea that attaching some low-end labor-
intensive service to a smartphone app is a "tech business".

~~~
gist
The best ones actually are similar to what you are highlighting, but started
by someone with a Phd in physics [1] and/or an MD that they walked away from
to get in on the lottery.

[1] Note that I do not know what the job market is for people with Phd's in
Physics so pick another advanced degree as an example. I do know the market
for MD's though.

~~~
ry_ry
Not pure physics, but I know 2 astrophysics PhDs well, one works in
publishing, the other is a programmer.

Neither does anything particularly astrological, both have mentioned that it
sounds way cooler than it is practical outside of academia.

------
vonnik
Katie Benner has written some good stories, but I'm suspicious of articles
like this, because they insist almost irrationally on finding a trend that
they can make a pronouncement about.

The truth is, startups are all over the place. Some are wasting cash, and some
are trying to build sustainable businesses, and some are trying to get
acquihired. And all of those things are going on all the time.

VCs have raised record levels of investment from LPs this year. And that money
will get pushed into the system whether Bill Gurley wants the competition or
not.

The people who harp on an impending crash -- and they have been harping for
quite some time now -- seem desperate for something to say about tech. In
secular terms, tech's star is on the rise and everyone knows it, so the real
news _would_ be a crash. But the crash, like Godot, refuses to arrive.
Actually, many parts of tech are pretty damn healthy, and moving fast, AI and
robotics being just two.

~~~
dmix
And there is a correlation between those who don't have time (or exposure) to
talk to the press for fluffy articles about SV... because they are too busy
building a real business that makes money. Meeting clients, investors, hiring,
etc. PR is only on some startups lists and they are usually consumer plays
which are always riskier (such as valet parking apps).

------
danieltillett
There won't be a crash until the rivers of money being pumped out by the
central banks of the world stops. The entire VC industry is just a tiny cork
floating on a gale-whipped sea.

I do think that it is getting really hard to break through the noise with a
new concept. There are just so many companies chasing the same eyeballs that
it is really hard to get the traction needed to build a unicorn no matter how
much money you raise. At this point it might be better to go hyper-niche and
bootstrap.

~~~
adrenalinelol
Well, from the point of view of the Central Banks, creating any kind of
economic activity is a plus, regardless if it'll be viable longterm for it's
employees or if its "true innovation" (not noise). So the money faucets are
working as intended. Given how anemic our economy is compared to other post-
recession economies, I suspect it'll stay that way.

------
cylinder
Crash is going to happen. Most of these startups are not run by people with
business sense who know how to make a company profitable. They are raised by
people who know how to tell stories to raise easy money. The money is not
there anymore, soon enough they'll run out and won't get a lifeline.

~~~
throwaway2016a
The good ones know how to tell a story... a lot of them can't even do that.
They just have wealthy friends/family or made some money from another deal
where they got lucky and think they can do a startup.

I work at a consulting company and it's amazing. Some of the customers come in
and have five employees, no product, no story, but a rich dad.

I have literally seen a millionaire dad sit across their kid in a meeting
trying to explain what minimum viable product is and ended up giving in and
paying to have their over-blown product made anyway. It's worth noting that we
also explain and strongly encourage the client to stick to MVP, we never
recommend overly broad feature sets.

Not saying those are common but they do exist.

~~~
duaneb
It's so odd. Most of the attraction I see in starting a business is the
problem of bootstrapping it—there are many business ideas that are attractive,
and the game is in separating the viable ones from the busts. I'm not sure why
you would start one if you really just want to be a PM and not think about the
cash flow.

------
izolate
Evernote is not a startup any longer. I understand the grey area, but as an
industry we need to reach some kind of consensus on this word.

~~~
icehawk219
I've basically stopped using the word startup because at this point it seems
to apply primarily to companies that only care about vanity metrics and
nothing else. The word has been hijacked by investors and founders who want
companies to appear profitable so they can cash out.

------
rdtsc
At least based on HN coverage there seems to be a recently a wave of stories
about scammers and wanterpreneurs, some questions about "signs of failed
startups", warnings about red flags and so on.

Is increasing scammer activity a sign of the tail-end of a market hype?

~~~
erichocean
> _Is increasing scammer activity a sign of the tail-end of a market hype?_

Absolutely, it's a leading indicator. Fraud rates skyrocketed prior to the
stock market crash in 1929 and then again prior to the 2008 crash.

------
jorblumesea
This is just silicon valley growing up and joining the actual business world.
It used to be a blank check, now people are asking questions about finances,
valuation. VCs, startups were some super risky exotic venture. Now that it's
become more commonplace, more common business controls are being put into
place. Startup == small agile business.

This is a good sign, in my opinion. It means the word startup is no longer
some rocket to the stars but means a small business with bootstrapped capital
that may or may not make it. Like every other small business tbh. VC has
become a legitimate vehicle for investment and returns and not some exotic
moonshot project. Therefore, financials are now questioned.

~~~
mattmanser
That's an odd thing to say, this exact same scenario happened before in the
90s in the exact same place for the exact same reasons.

It's called the dot-com bubble if you're too young to know about it:

[https://en.m.wikipedia.org/wiki/Dot-
com_bubble](https://en.m.wikipedia.org/wiki/Dot-com_bubble)

There's lots of good books and stories about it if you're into tech and VC
stuff.

------
yalogin
What defines a startup? Everything that did not IPO yet is referred to as a
startup. Sure everything starts at some point, but should Dropbox, Uber and
Airbnb still be called start ups? Aren't these large companies?

~~~
gist
Better yet, is any new business a startup? Having been around business for a
long long time I tend to see it as fitting a particular mold in terms of tech
type product offering, young staff, desire to get venture funding, talking the
talk and walking the walk. I think I know it when I see it but I can't even
think of all of the qualifiers.

~~~
fbonetti
Yep, the word "startup" has the same definition to me. It's more of a
description of the culture than how new or scrappy the business is. I worked
at a "startup" that had been around for 10 years, had no plans of exiting, and
was sustainable, but had a very young staff, a keg in the kitchen, and
pressured it's young developers to work late for shitty pizza.

I think some small businesses are jumping on the startup train so that they
can attract kids right of college.

------
artursapek
Is it really not a caricature that people in SV wear jeans and their startup's
stock t-shirt with a blazer over it? People really dress like this?

~~~
staticautomatic
Oh yeah. I could walk down the street and take pictures of people dressed like
that right now.

------
n72
Pretty off topic, but is Chris O'Neill huge? Or did they choose very small
people to flank him in the photo for the article?

~~~
ryandamm
I wondered the same thing, even tried Googling his height. I think it's partly
exaggerated by a somewhat-wide lens, and the two flankers leaning back in
their chairs while he leans forward (nearer objects being represented as
larger).

Also, he's probably huge.

------
patatino
What would be the best way to make money betting on a crash?

~~~
Swizec
Get a high paying job in an overfunded startup. Save aggressively. Build
alternative income streams.

If crash comes: ride it out on savings and alternative income streams.

If crash doesn't come: congratz, you're rich.

~~~
chubot
That doesn't sound right to me. As far as I can tell, for most positions, if
you just care about money and are not counting on the IPO lottery, you're
better off working at Google or Facebook (assuming you can get the job). In
other words, overfunded startups aren't paying THAT much.

And even then, most people would not call you "rich" by Silicon Valley
standards. I would say "rich" at a minimum requires you to be able to buy a
house in Silicon Valley or SF.

~~~
Swizec
This is true, my strategy hedges bets. Get enough cash to cover expenses and
save a lot -> no downside. Still participate in the potential upside.

Low risk, high reward is the name of the game. A job at Google or Facebook,
_if_ you can get it, is just as stable these days as a job at a startup is.

~~~
tracker1
Depending on where you are, any job at $BIG_CORP is generally more stable than
any startup I've worked for... at least outside SV. I've spent most of my life
in the Phoenix area, and the job market for developers (outside late 2001
through mid 2002) has been very good, especially compared to cost of living.
It's all been line of business work for the most part, and none of it too
exciting. But it pays consistently. And does leave enough time to work on
secondary projects.

I've never really seen the draw into the startup lottery, it just seems like a
bad bet as an employee most of the time.

------
rm_-rf_slash
My main concern is that there are few investment avenues these days that
provide a decent return without being extraordinarily risky. Stocks are
stagnating. Bond yields are so dismal you have to invest in places like Turkey
to see any sort of return - if it even happens.

That pretty much makes Silicon Valley the default place to get any bang for
your buck. Investors in VC funds want to see returns. VCs want to keep
investing in winners, getting more investment in their funds, and making good
money along the way. People want to turn their sweat into gold so there is no
shortage of aspirational entrepreneurs.

So it seems to me that if there is anything that could turn a cautious
slowdown into a full-blown crash, it's a scarcity of decent investment
options.

~~~
harryh
_Stocks are stagnating._

    
    
      * S&P500 YTD:    Up  6.7%
      * S&P500 1 Year: Up  9.7%
      * S&P500 5 Year: Up 85.4%

~~~
vidarh
(EDIT: Didn't notice that the emphasis in parent is a quote from grandparent.
So consider the numbers below to further support parent rather than contradict
it)

Your numbers doesn't show that at all.

9.7% up in a year is roughly 0.775% average per month compounded. Assuming
even growth through the year, which is obviously a simplification, to reach
9.7% at the end of the year you'd want to have appreciated 6.3% by now, so
6.7% doesn't sound all that bad.

85.4% over 5 years is roughly 13%/year compounded. Since 1950, the annualised
average return of the S&P500 have fluctuated between -3.6% and 19.3% [1], so
both the 1Y and 5Y are well within the norm. If 9.7% were to hold through a
full decade, it'd still be far above the median per-decade averages.

[1] [http://www.simplestockinvesting.com/SP500-historical-real-
to...](http://www.simplestockinvesting.com/SP500-historical-real-total-
returns.htm)

~~~
vecinu
I think you're missing the fact that the OP was responding to "rm -rf /" and
saying that stocks have _not_ been stagnating.

~~~
vidarh
Ah, yes, I didn't notice that the emphasis was meant to be a quote. Thanks.

------
cloudjacker
How to keep the money machine going:

If one of your investors or potential acquirers is a big company and you
already have contacts with them, get that company to do a Euro corporate bond
issuance, and use the proceeds to buy your company

A) this is already happening

B) it isn't the strangest thing that has happened

Silicon Valley downturn talk is ignoring broader macroeconomic fundamentals,
at this point in time.

Economically unsound? SURE! Are you in a privileged enough position to make a
lot of money? DEFINITELY!

~~~
api
This is why I don't think a 2001-style crash is coming. A slowdown maybe, but
not too hard a landing.

Since 2008 global central banks have made it abundantly clear that deflation
in any major asset class will not be permitted. If it begins to occur,
governments and central banks will intervene with infinite QE and other
actions that will restore "confidence" in the market and prop up the asset. In
some cases that amounts to actually entering stock, bond, and RE markets and
buying stuff with printed money, or giving printed money directly to banks
with incentives to do the same.

Major players in this unwritten pact include the USA, China, and the EU. It's
so large you might almost think of it as WWIII, but being fought with monetary
policy (mostly) instead of guns. It's not really a classical bubble but (IMHO)
more properly thought of as an economic war. The loser of this global conflict
will be the first nation or economic union unable to pump any further. At this
point the loser will experience hyper-deflationary collapse and will be bought
by the winners. Either that or the war will go hot with the loser being forced
to substitute military action for economic might.

Startup stock is obviously not on the list of TBTF assets, but it certainly
rides on others like stocks, bonds, and real estate. To the extent that
startup markets are international, dips will be seen by foreign actors as
buying opportunities. Chinese money is already flooding into SV and tech in
general. EU money is there as well, albeit more quietly, since right now real
yields in the EU are in some cases actually _negative_ and people are looking
for ways to diversify more globally. Ploughing some money into high-risk
assets like startup stock can be part of a larger diversification push, and
the startup world is so tiny compared to the truly massive markets of bonds,
stocks, and real estate, that all it takes is a _little bit_ of this behavior
to keep the music playing.

Edit: add in the fact that startup crowdfunding is going live and you now have
a second firehose opening up. I do think things have gotten frothy but I don't
think it's over.

~~~
DenisM
Clearly, supply and demand are out of whack - there is too much capital ready
to produce stuff, and not enough consumer cash to buy all that which can be
produced.

And yet central banks keep pumping money into the supply side. It boggles the
mind. Why? Why not pump the money into the demand side?

~~~
api
It's ideology. That would be "giving handouts" to "lazy people," etc.

Oddly enough the strongest support base for this ideology is among those who
would benefit from pumping the demand side the most. Many of the wealthier
people I've talked to or who I've heard speak on the subject seem to get that
we are in a demand-constrained economy.

IMHO it emerges from the fact that human beings are genetically programmed for
scarcity. When we feel threatened we tend to respond by pushing for others to
have _less_. "I'm poor, so you should be poorer." Our emotional and social
brains simply do not compute abundance and definitely do not compute large-
scale economics.

------
throwanem
When the New York Times can see it coming...

~~~
adventurer
They are wildly guessing based on the past in my view. MarketWatch.com has an
author that's been predicting the market crash for the past 3-4 years.
Eventually he will be right.

~~~
throwanem
NYT hasn't been.

------
alanh
A welcome change:

> _Other entrepreneurs have a newfound air of practicality, no longer shooting
> for their companies to be the next tech behemoth like Facebook._

I haven't been hearing much about raising lately — Is it still the case that
you are expected to lay out a path to $1Bn in your pitch deck, no matter what
your company does?

------
matchagaucho
Several VC funds were launched over the past few years. Assuming they're ~7
year funds, we're going to see an increase in LP and board pressure over the
next few years, as these funds come to maturity.

------
known
Employment is to succeed in job. Entrepreneurship is to succeed in life.

------
swingbridge
Lean and profitable is the new black.

