A VC - Latest Comments in My Thoughts On "Startup Depression"

Re: My Thoughts On "Startup Depression"

T-Shirt Printing London — Sat, 22 Nov 2008 04:52:56 -0000

It is not the guy that gave away the t-shirts that is the problem. T-Shirts are in fact a very cheap form of marketing. The more fundamental issue is cost control - or lack of. These start-ups are given so much money they end up burning it rather than remembering that the conventional rules of business apply to all companies

Alex
www.twitte.com/indigo

Re: My Thoughts On "Startup Depression"

Samuel Diamond — Thu, 23 Oct 2008 23:16:39 -0000

Not to be mean, but if you are knee-deep in the startup business, the thoughts from Calacanis shouldn't have been a wake-up call. It should've been more of a reminder.

People should already be aware of this information. Even beforehand, business models around manufacturing and energy ( including 2.0 sites that use energy from companies who might increase prices for their server use ) were getting shredded by the 100 dollar barrel.

If people were not aware, and that somehow the 10 steps were going to save people who read it, then those people were most likely going to fail anyway. Or they were saved from information that should already be known.

The percentages are always malleable: Who comes up with 90%? Not all startups are funded by VCs, and not all VCs publicize where their money is going ( except for bigger firms ).

Calacanis is a great innovator, but in terms of analyzing, is mediocre at best, and haughty at worse. Don't ask Jordan about the future of the NBA, because he has no clue. Let the innovators innovate; if you start listening to their percentages and "sky is blue" logic, no one will get anywhere with creating a successful business.

This motivates me to write a book. Because people go nuts over simple logic.

Re: My Thoughts On "Startup Depression"

antje wilsch — Thu, 09 Oct 2008 16:41:49 -0000

Jason's comments are not atypical of the valley myopia on this subject that frustrate me b/c I used to deal with start-ups day in and day out, although now I'm somewhat removed but I still maintain professional contacts and check in with them.

>1% of all companies who seek money get it. That's not even ALL start-ups; just the ones seeking money. I don't understand why people look at funded start-ups as any bell-weathers for what the entire start-up community is doing. Most companies get funded b/c they have good contacts, a leader who's been there before (prior success) or has another personal connection. VERY few companies walk in off the street and ever get funded.

Yet if you talk to all the hopefuls at all the various silicon valley events, you'd think that's the only way any company ever makes it is by getting VC funds. Most companies don't. And most start-ups eventually fail. I guess it's the dream that's sold that keeps them coming back and trying. But I wish language like this was tempered down b/c you're right Fred, the ones who are funded right now, again less than 1% of all companies who sought funding overall, aren't the ones who need to worry. It's everyone else.

I've always said thank god for technology and innovation - without it, where would the US be right now?

Re: My Thoughts On "Startup Depression"

dmreinke — Tue, 07 Oct 2008 16:56:41 -0000

My own perspective as the founder of an early stage startup - I'm glad to be heading into the downturn. I'm excited by the potential to focus on basic blocking and tackling. If you have a strong idea you want out of the hype bubble and you want to focus on building a great company.

In my mind all the elements from moving from "2.0" to "3.0" are not in place yet. There is still a lot of work to be done to turn all this social network data into valuable assets. Maybe a few years of quiet execution will lead to some new breakthroughs that create the next Google or facebook.

Re: My Thoughts On "Startup Depression"

A2K — Sun, 05 Oct 2008 11:32:13 -0000

Gotcha. I'm glad to hear my logic isn't all screwed up. Thanks for
sharing your insights. Hopefully you'll give us a look soon (us being
Urban Revurb). :) if not, i'll have to find another app like
tumbltape so i can continue to have an excuse to send you random
emails shamelessly promoting my company.

On another topic, i am digging the disqus features. Especially being
able to follow/reply to threads via my email. So much more convenient
to both track and fire off responses.

Cheers,
Alex

Re: My Thoughts On "Startup Depression"

fredwilson — Sun, 05 Oct 2008 11:12:07 -0000

Yes, it does make sense in new startups and that's the vast majority of what
we invest in and it will continue to be

But my point is that early stage investments will not have the same wind at
their sails they've had in the past four years

It doesn't change how we will invest, but it likely will change how quickly
we'll generate returns

So a few smart later stage investments is a good compliment for us and we've
been doing that since the start of the year

Re: My Thoughts On "Startup Depression"

A2K — Sun, 05 Oct 2008 11:07:12 -0000

I won't disagree that there are probably hundreds of VC backed
companies in positions like that of meetup. However, i would probably
also say that for every meetup, there are probably 2-3 others (give or
take) that are not close profitability. It's those companies that i
wonder when VC's say enough is enough--let's put a viable business
model in place, or let's move on.

In his post the other day Calacanis talked about building leaner, more
focused and more profitable businesses in these times of financial
uncertainty (a sentiment you echoed here). However, i can't help but
wonder if on the flip side, it doesn't also make some sense to seek
out early stage companies that are building their businesses with
these goals already in the forefront? To me i would think that an
early stage start-up with a solid plan of revenue would take less
time, money and VC resources to reach a level of profitability equal
to that a meetup. Am i wrong in my logic? If so, forgive me but i am
new to the web start up world and this angle of funding.

Thanks in advance.

Best,
-A

Re: My Thoughts On "Startup Depression"

fredwilson — Sun, 05 Oct 2008 09:30:09 -0000

Meetup is a good example of this. We recently invested in Meetup. They've
been around for five years and are very close to profitability on double
digit millions in annual revenues. They needed one more round to get there.
I think there are literally hundreds of companies that fit this example.

Re: My Thoughts On "Startup Depression"

AndyFinkle — Sun, 05 Oct 2008 04:49:10 -0000

Alex,

My point regarding building your product as a widget was not intended to imply that you should solely back any one platform. This comment was specific to a launch phase, and is a suggestion on how to jump start your customer acquisition phase.

Re: My Thoughts On "Startup Depression"

A2K — Sun, 05 Oct 2008 00:27:58 -0000

"I say that because in down market cycles, it's the seed and startup stage investing that dries up first. It happens every time. Seed/startup investing is most profitable early in a venture cycle and late stage investing is most profitable late in a venture cycle. It makes sense if you think of venture capital as a cyclical business and it is very cyclical. Early in a cycle you want to back young companies at bargain prices and enjoy the demand for those companies as the cycle takes hold. Late in a cycle you want to back established companies that need a "last round" to get to breakeven and you can get that at a bargain price compared to what others paid before you"

Fred: I am curious about this comment form your post. Certainly i can see how this would apply in most typical funding scenario's but the question i have is; What percentage of the "late stage start-ups" out there are close to breaking even? Obviously you can't speak for all start-ups, but i think most of us can agree that there is a LARGE percentage of businesses out there who are operating sans a sustainable financial model. At what point to VC's cut their losses and start funding start-ups that actually HAVE a plan to make money? Seems to me if most stick with the above philosophy their ONLY hope is to sell that company (which is a whole different ball of depressing-wax in a down economy). If not, i would think you guys would be just throwing good money after bad.

Any thoughts?

Re: My Thoughts On "Startup Depression"

A2K — Sat, 04 Oct 2008 23:52:25 -0000

I think Andy makes some excellent points!. Especially 4, 5 & 6.

With respect to #4& 5 i think this makes great sense. However, i also think there is room to expand on this type of "partnering up" scenario.

In my opinion, why stop there? I think given the landscape these days (with respect to niche start-ups) there is a lot that we, as entrepreneurs, can do in the way of building mutually beneficial partnerships. And by "mutually beneficial", i of course mean not only financial, but also user, content, feature sets, etc. As an early stage start-up this is something i have started to focus on as we continue building out our Alpha. I guess my theory is on this is: why spend the money AND time to build something out when there is a good chance that another start-up out there is focused on this piece? In my specific example, it was reaching out to Profilactic ( a similar service to FriendFeed) in hopes that they could provide the lifestreaming component we plan to develop for Urban Revurb.

Personally, i think there is huge potential in this area. Another great example would be utilizing someone like Disqus versus building out your own commenting system. Or for Twitter to reach out to the hundreds of apps built around their platform and cherry pick some that they could add to enrich the user experience, instead of purchasing them (ie the acqiusition of summize). Honestly, i could go on and on. But i won't. :)

Bottom line is; this is something that i feel that should be a huge focus for both early AND late stage start-ups moving forward. Right now, i know of one that will be trying this route--especially in this down market.

One thing i do disagree with (at least in my example/opinion) is building your product as a widget, etc. When i look at a lot of these "social" sites i see little more than basic web "fads". So for me the thought of staking my companies future in the future of another social network seems even more risky than taking the bigger plunge. Plus, i guess also feel that if your idea isn't working in current form.... you can always scale it back down to a widget. (Unless of course you have destroyed your brand in the process)

Lastly, i'll say number 6 is dead on. Sadly, most companies (start-up or otherwise) don't get this. Fortunately for my start-up, i am not the tech guy, I am the marketing guy.

Cheers.
Alex

P.S. to Fred. I mentioned two of your portfolio companies in my above comments. Obviously there are others--which begs me to ask; is there a reason why VC's don't forge partnerships between their investments?

I look at Tumblr (another one of yours) and wonder why there isn't an option to integrate Disqus in my blog right from the customization tab. Certainly both these companies could benefit from tighter integration (especially when most of the comments systems on tumblr are via Disqus). But more importantly, i think it helps simplify the UE for those of us who want to add comment capabilities. Is there something i am missing in my logic?

Re: My Thoughts On "Startup Depression"

Mark McGuire — Fri, 03 Oct 2008 19:58:44 -0000

Jason brought up some excellent points in his post, I just wish they wouldn't have been limited to times of economic hardship. As entrepreneuers, we should always be relentlessly focused on staying lean, executing and finding that winning value proposition regardless of what is happening in the market. And I hope that our start-up and others like us that don't have an existing VC partner prove you wrong in the upcoming months/years Fred. We are just closing a large angel round at Alice.com and will be looking for a VC partner in 09 post-launch. Our early socialization efforts with VC leaves me with the impression that there are still lots of VC's that are actively pursuing Series A investments. I think start-ups that take Jason's advice and execute well will continue to get the funding they need.
Mark McGuire (flywheelblog.com)

Re: My Thoughts On "Startup Depression"

fredwilson — Thu, 02 Oct 2008 06:47:09 -0000

Yes, that will happen, just like VCs breathing down entrepreneurs necks

Re: My Thoughts On "Startup Depression"

fredwilson — Thu, 02 Oct 2008 06:28:08 -0000

Self sustaining from a cash perspective

Re: My Thoughts On "Startup Depression"

Andy Lee Graham — Wed, 01 Oct 2008 17:19:07 -0000

I feel people mix up business, they equate an Internet business to have the same mechanics as a brick and mortar business. I have two website, both having daily unique visitors from 7000-14,000. An internet business only needs time invested in the project, the essential need is to understand how a web site make money, then be able to pay for the initial beta version of the site.

I believe people need to differentiate,
"Great entrepreneurs build value and market-share in down markets."

That is a comment of a person who is starting a business.

The majority of the comments who worry about the money are having their dreams of money destroyed, they are depressed about a dream of money, not the dream of a great business.

Re: My Thoughts On "Startup Depression"

ekan — Wed, 01 Oct 2008 11:26:45 -0000

Downturns are a great excuse for failure and "covering your business model *ss"...but as a startup, you should do better in a downturn because you're theoretically providing higher value beyond the current market. The industry I'm in, digital signage, is starting to see companies fail. Yesterday, a company called LocalVision blamed their failure on the economy. Not sure the full story in their situation...but please, don't blame the economy.

Re: My Thoughts On "Startup Depression"

Michael Lewkowitz — Wed, 01 Oct 2008 09:45:22 -0000

One segment that I think will remain strong are 'social ventures' - those that are tackling serious environmental and social challenges. The number of investors moving into this area seeking an investment that has the potential to provide feel-good social returns is growing. Many of those folks are looking to 'social ventures' as an alternative to traditional donations. While people are getting beaten up in the markets - they still have money and are more than ever looking for meaning in what's happening with the world and how they can play a role.

For all ventures, it's time to dig deeper into using our social capital (networks and relationships) to get done what we need to get done. It's also worth seeing if we can push our business to 'open' up more - becoming more permeable, iterative, and emergent - and leveraging the community and other resources to create the value that we are uniquely trying to orchestrate. The open-source and social change worlds have some great lessons for us in creating huge value with limited financial resources.

Re: My Thoughts On "Startup Depression"

alan meckler — Wed, 01 Oct 2008 08:02:30 -0000

Interesting to read these comments from Fred and Jason. While I am no longer blogging (for now) I long ago predicted the demise of many Web 2.0 ventures for the basic reason that most would not be able to make profits. the down cycle we are seeing will only speed up the process and prove my prediction. Therefore Web 2.0 failures will be blamed on the credit crisis when in fact the credit crisis only accelerated what was bound to happen.

Re: My Thoughts On "Startup Depression"

Phillabelle — Tue, 30 Sep 2008 22:09:09 -0000

Thanks Fred for helping us keep the spirit alive! Metrics and a clearing system were the missing elements on Wall Street. So if we aggregate this to our startups' biz plan, we may prevent the crash and burn situation that awaits most of us!

Re: My Thoughts On "Startup Depression"

davemorgan — Tue, 30 Sep 2008 21:58:10 -0000

Great post Fred and great job by Jason to get this conversation started.

My view is that there is no better time to be in a start-up and to be "pre-revenue" than when revenue is hard to come by, when hungry talent easy to come by, and when large incumbent potential competitors are drained and distracted. While it may be harder to come by financing in those times, it is more likely to come from smart money, which will pay off in the long-term anyway.

Re: My Thoughts On "Startup Depression"

karls — Tue, 30 Sep 2008 19:00:49 -0000

I guess we must closet swimmers then :)

We started our financial web startup 1 week before Lehman blew up. What a way to commemorate your entrance.

We're feeling pretty edgy these days but thankfully, funding is still obtainable but hiring is harder than ever with more people seeking the comfort of a paycheck from a Fortune 500 company. People tend to be skeptical of the survivability of startups during downturns.

Re: My Thoughts On "Startup Depression"

Steve Kane — Tue, 30 Sep 2008 17:47:03 -0000

sorry of course you are right - my points, if thy are valid at all, are looking head at next VC fundraising cycle (when VC funds raise their next funds)

i agree there will be almost zero default on existing LP commitments (though I would not be surprised if LPs start breathing down VC funds necks a bit more now...)

Re: My Thoughts On "Startup Depression"

David Noël — Tue, 30 Sep 2008 17:08:15 -0000

Thanks again, Gonzalo. Points taken and concidered. Appreciate your detailed
feedback, thanks.

Re: My Thoughts On "Startup Depression"

leigh — Tue, 30 Sep 2008 16:29:26 -0000

"you have to start thinking about how you are going to get where you want to go without venture funding."

I think this is good advice regardless of a downturn market or not. Figure out how to get to where you need to go so that the money comes to you and not the other way around. Work with people who are hungry and do it in that other 40 hrs a week that's not your FT job.

Re: My Thoughts On "Startup Depression"

Gonzalo Arzuaga — Tue, 30 Sep 2008 16:08:16 -0000

Well, the exercise of "selling" your idea to as many people as possible
always helps because it helps you see your idea from different angles (based on their feedback). What you
want is to have people challenging your idea, trying hard to find flaws to
your concept. That's the help you need, IMHO. After "convincing" 10 people
(assuming people that are more or less knowledable in the field you're
venturing in) it means you've gone somewhere, at least in paper. A different
story is having people to commit and investing the real dollars they've
earned.
There's no rule here. I personally wouldn't enjoy reporting to a bunch of
different people about how things are going, one by one (specially when things are going badly). What you suggest
might very well work for you (cash from friends and family - guidance from
angels) but the thing is you're gonna have to split the pie in more slices.