The point of funding should really be to enable faster growth than they might otherwise have been able to achieve, but if a business can't at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place?
If you're a startup and you don't take VC funding, then you have the luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company. Well, as long as you can do that in the face of competitive pressure. Strictly speaking, unless it's a "network effect" situation like a social network, you probably don't need to grow fast.
Unless you take VC money. Then, the simple act of taking their money now means there is pressure to grow fast, but it comes from the investors and not from the market per-se. And this is because VC funds are time-boxed and, by definition, have to generate whatever return they're going to generate by a fixed point in time. And the older a fund is (eg, the nearer it is to the end of it's life) the greater the pressure.
This is something I think more entrepreneurs should think long and hard about. Don't raise VC money just for the sake of doing it. Even if you can. Do it IF and only if it's the only (or at least surest) way to reach your goals. And always remember that the VC's interests do not necessarily align with the founders (at least not 100% so).
Uber seems like a weird example of this. It was said (and remains said) that they're operating in a winner-take-all space, and they expanded as if they were a social network.
Despite the aggressive expansion and marketing, a majority of people I know in the Bay Area now use Lyft exculsively. The last few times I've said "I'll get an Uber," somebody's actually paused and said "Wait, why don't we take Lyft?" I'm not even sure why. When asked, they just reply that they don't like Uber for some non-specific reason.
They're expanding around the world and into new products and concepts, but haven't even seemed to nail down a loyal customer base on their home turf. Anecdotally speaking.
"My greatest regret is taking other people's money."
"Don't take money unless you are losing your window of opportunity and there's nothing else you can do about it."
If you have an easy to copy idea (look at what happened to Sidecar after Uber swooped in), if you don't grow fast, someone else with more money is going to take your idea and run with it. If they grow faster than you, then you'll be squeezed out.
So VCs are like corporations or central banks or other superpowers of financing -- they grant an unfair advantage to whoever they back, to defeat the other guys. Either by offering lower prices (eg free service) until the competitor runs out of money, or R&D to get to the next level of efficiency, patent portfolio, engineering talent, brand etc.
So financing is often necessary to compete in global markets. If you don't take it, you are betting that the market is either not global or not efficient.
If you don't need an SUV you don't get one. However it is convenient to have at times and the downside is may be worth it. Also, they provide you with better protection...from all the other people who buy SUVs and this increase average tonnage on the road.
Networks are inherent in every business and the world is global.
I am not saying don't think about VC money, but there is no reason to suspect you can't get decent alignment. It is mapped pretty well to the success/need of the company. Smart helpful investors will be there (along with dumb money) for revenue positive companies.
I don't even think the pressure comes from the investors per-se, it comes from the capital investments you make which necessitated the funding. Excess staff, buildings, tools, etc, all have ongoing costs and also depreciate in value. You are by definition building out excess capacity based on a growths model. If sales don't keep up, you become insolvent.
If you're sustainably harvesting profits from your niche then eventually that's going to attract other firms, some of whom are going to be big fish that can dump a lot of marketing and sales spend, take your customers and acquire the sustainable profits you've been harvesting.
There are exceptions for when people have really strong "moats", but defensible moats are a lot harder to come by than people realize.
That's a GROSS over generalization. It definitely is not rosy, not when your competitors are VC funded and releasing products for free. You can't compete with free and VCs are realizing that maybe there's no money in free products.
One, part of the VC model is relatively frequent fundraising. You take some seed money, prove the model a bit, take an A round, prove it some more, etc. It's in nobody's interest to give all the money necessary to get to break-even at once; investors would rather make smaller bets, and founders want to sell as little equity as possible when uncertainty is high.
Two, if your goal is to never actually need another round of funding, then you'll be very conservative in how you spend your money. Bolder competitors will spend money with the expectation of getting more soon, allowing them to outpace you. So there's a strong incentive to spend as fast as possible, trusting that you'll get good enough results to earn the next round of investment.
Three, there are many interesting businesses that are only possible with huge investments. In the Internet world, Twitter and Facebook are good examples. Most ad-supported businesses really only work at scale; ditto network-effect businesses. For physical goods, Tesla's a good example: you have to sell a lot of cars to justify building a factory. Pharma, too; your second pill might cost $1 to produce, but that first pill can cost $2 billion.
I agree there's a lot of entitlement in the industry, but I think some of it's reasonable here, in that when you talk to a VC firm, they'll sing you a great song about how they are there to support you, that they'll back you all the way, etc, etc. People who haven't experience a downturn can be genuinely shocked at how fast supposedly bold, independent investors suddenly all stampede in the same direction.
Many entrepreneurs have been trained to pursue growth over short-term sustainability. In a market defined by network effects, this makes sense. It also works where one has a shot at winning a significant majority of a research-driven industry's profits (e.g. Apple or SpaceX), thereby starving one's competition of R&D oxygen.
Not all markets look like that. Furthermore, the cost of (and risk of losing) financing have not been properly worked into teams' growth-versus-profitability calculi. The time and resources it takes to adapt will kill some and slow others. After all is said and done, we'll have a healthier Valley culture.
Almost all VCs aren't interested in "non-profit" and "welfare of general community."
They want hockey-stick ROI and unicorns.
I know this may be the wrong forum to say this, but let's get real...VC are in it for the money, not to make a social impact, and the last thing most of them are interested in is playing welfare daddy to a bunch of tech nerds.
The point of funding is to generate a return.
Hopefully more than you can get from CDs.
Good investments are often a very long term proposition.
A lot of businesses would never be able to survive their early years without outside funding.
Now, do a lot of flimsy startups feel entitled to funding? Yes. That is a problem.
Investors can't just sit on money. They have to get returns, and that means that they have to put capital to work.
Also, don't forget the money's all locked up for multiple years.
"SVB counts among its customers 65 percent of U.S. VC firms and half of all VC-backed companies."
That's the only complimentary sentence about any of the firms mentioned in the article. It's also a bit out of place - the article reads just fine without it, and that information isn't needed to make the article's point.
Plus, the tags at the bottom are "Silicon Valley Bank" and "Money".
FTFY
For every "next Uber or Airbnb," there's hundreds of Shutdownifys.
Startup culture is weird sometimes.
Hah... What makes you think YC funds significantly higher quality of startups overall compared to the general VC industry?In practice, I'm guessing if the LPs get cold feet, then VCs will be forced to triage their funding decisions accordingly. How much this matters given the sheer size of some funds, I'm not sure.
“Right now, we don’t really know what things are worth...When you don’t know what something’s worth, you don’t know whether you are getting a good deal or a bad deal, so the obvious thing to do is, not much.”
When you invest in startups (with the exception of late-stage, pre-IPO investing) you never really know what things are worth. The business model of VCs is to make a bunch of high-risk bets, most of which will fail, in order to get a couple of big winners. What's really happening is that VCs aren't willing to invest at valuations that companies expect based on recent history. This is similar to housing bust, when home owners refused to sell because they continued to believe that their homes were worth what they were before the financial crisis.
I mean, even a touch screen toaster that costs $1,500 got invested in. Who is going to pay $1500 for a touch screen toaster? http://www.juneoven.com
Heat. Fire. Cash burn. Bears.
VC. Lower valuation. More Power. Liquidation preference, contentment.
Entrepreneur. Panic. Sellout. Fantasy. Donkey, bulls, credit card.
VC. Rich. Beach. Downturn, Upturn, Cycle. Ratchet, racehorse.
Ramen, caviar, yacht, walk, laugh, cry.
Well, isn't that just a nicer way to put this?
A publication can get a lot of clicks and buzz from folks for who it is new, and so they report it as new.
But the articles are all part of the system which trains and educates entrepreneurs. It provides examples and stories of people who bring to market real solutions, those who bring "fad" solutions, and those essentially bring "me too" type solutions. This system also trains investors, where each cycle has a few winners which spawns some additional limited partners (or general partners) in various VC firms who also look at how their money is spent and where its going.
As much as it would be great, there isn't really a course of study you can take that will teach you this stuff, you kind of have to live through a cycle or two, absorbing all the experience you can. If you want to be able to really internalize and understand the stuff that someone like Danielle Morrill is talking about you need context, and the context comes from experience both in the good times and the bad times.
So to answer your question about the point of these articles, it is the same reason they teach freshman Calculus or Composition. Everyone needs to know this stuff and every year there are new people trying to learn it. The message that value is always appreciated over hype is pretty timeless but sometimes it takes a couple of cycles to really understand and distinguish between the two.
Earlier today I gave a friend a 5min primer on venture funding. After we'd parted ways and I walked back to my office I had that phrase "you can't teach some of this stuff" rolling around in my head for a while. You can't teach all of it but you have to get people started with something.
It's evolution.
How else will the people who have been here less than 6 years get jaded?
More usefully, it may be obvious that these things go in cycles, but knowing exactly where we are in the cycle is very valuable to anybody who is thinking about raising money, or who is working at a company that isn't yet self-sufficient.
I know, hence the sentence after the bit you quote:
"Well, as long as you can do that in the face of competitive pressure."
Obviously every situation is unique, but my point is mainly just to say that not all startups have to worry about "grow fast at all costs". Sometimes - but not always - that pressure is just about the VC's wanting their returns within a certain window of time.
expectation of yield within x-1 years for investments in year y+1 over expectation of yield within x years for investments year y
And that's what portion of value waiting gets you. If the yield in that first year is negative, they're going to wait no matter what. 1x is better than (<1)x.
Although then you get into how VCs get paid, mostly on the upswing... you're probably right. 1x gets no carried interest.
Part of this makes more sense if you're looking at it from the perspective of a VC betting on 100 companies, than from the perspective of a single company. The funnel they're looking for is: some subset of these companies will get a ton of users (hundreds of thousands, maybe millions), then a subset of those will be wildly profitable.
We're a 2-year-old startup that hasn't reached profitability yet. We asked when that might happen, and he said we actually don't want to do that. We asked why, and he said that as soon as we start making a profit our investors will immediately start focusing on it. They will ask why we're not leveraging our profit to the maximum, what can we do to grow revenue? Whereas as long as we're losing money we can continue to experiment.
It takes a 2.5 GHz quad core CPU to produce an awesomely accurate imitation of an analogue iron bell "Ting!", what did you think?
(At least, that's the reason my mum gave for not using the feature on her fancy microwave. She used to be a professional cook.)
Besides the price, the low thermal mass is a selling point -- throw a couple chocolate chip cookies in there and you don't heat up the entire house in the middle of summer just for a fresh baked treat.
Not everything in IoT is bad...
Britain doesn't really have snack food like America. I've never thought to warm up a cookie, and without air conditioning I doubt I'd want a warm snack in the summer. Ice cream!
Though thinking about it, the most common thing to serve during the day as a snack is cake. There's a decent variety here (remove "vegan" and anything that says "salted"): http://www.jamieoliver.com/recipes/category/dishtype/cakes-t...
(Or, perhaps with smaller houses on average people don't want to use up the space for one, and wealthier people with space don't want to heat up processed foods.)
Most British people own a toaster. Do Americans? https://en.m.wikipedia.org/wiki/Toaster
And then... Uber lowered their rates. Good for me, right? Rides are cheaper now. BUT... it appears that as a result, a LOT of local Uber drivers have quit doing Uber and over the past month, it's become increasingly difficult to even get an Uber here. More and more often, I fire up the app and get "No UberX available" (and usually no UberXL or UberSelect either). So I installed the Lyft app, and I consistently find that Lyft can get me a ride when Uber can't.
I still usually at least try Uber first just out of habit, but they're definitely ceding ground to Lyft in this area, just due to availability if nothing else.
OTOH, Uber does do some neat stuff... like I noticed that in Portland, they have "UberPedal" where you can get a car with a bike rack. I find myself hoping they expand that to our area, as it would be nice to be able to bike to work, knowing that if it's raining or cold or something later, I can call up an UberPedal bike-rack equipped car for the trip home.
That, to me, was the Zenith of Uber. The entire VC set of the city was waiting for cars and drivers gridlocked in the garage and lot, while some kid with an app summoned two fully appointed SUVs as if from nowhere.
I wore Uber shades, tried the various promotions. I was thrilled, absolutely certain that they were one partnership away from Google to automate city transport and leapfrog our ailing transport grid.
Then something changed. The lines between Uber and UberX blurred, and UberX drivers changed from well-dressed folks owner-operating, or working for car fleets, to guys with Jack Daniels hats, ponytails, and (this is literal) body odor.
Uber decreased in quality, both in fleet and drivers. Ubers used to be spit-polished tire-black shined towncars, and the drivers were excellent. Never an open door missed, a bottle of water offered, mints stocked, radio preference, and an AC at a comfortable temperature, which the driver would immediately offers to adjust.
It wasn't just the network that made Uber. It was the service. It literally outclassed the transportation of millionaires, with service options of the Four Seasons at the price of a Motel 6.
The service has now become so bad, that power users are like sailors following the rats off a sinking ship.
Then it's disclosed that one of the main showrunners has been spending all his time on some fucking branding project? And when it's finally released, the material he produced looks like it was created by a sentient bag of cocaine.
"We're particles that unite to form atoms, to something... something... interaction between meatspace and cyberspace.... unity, and particles and shit. Yo, you gonna hit that?"
Are you serious?
In summation: No moat, no network effect. It was nice of you to pave the way for self-driving car fleets, but unless you reorganize management from the bottom of the floor up, your balloon's about to deflate faster than Napster. Peace guys.
*Full disclaimer: I did turn down a second round interview at Uber due to their policies regarding the Americans with Disabilities Act. My consulting rate is $500/hr, and I'd consider fixing this mess with the ADA for half that.
I wish I had the opportunity to speak to your board for five minutes about the damage their ADA policies are causing.
Imagine a girl, unable to move unassisted, alone in the snow, as her driver throws her wheelchair to the curb screaming at how he doesn't accept people "like her."
I would conjecture that Uber constantly being under attack (i.e. having lots of negative articles about them) has played a significant role in this. So when people have to pick between Lyft and Uber, they go for the one that seems "less evil". Perhaps the reason Lyft doesn't come under fire as much is because they haven't grown enough to divert attention from Uber?
If we consider the long-term outcome, is this actually a problem for Uber? If you move between places where both Lyft and Uber are available, and places that only have Uber, it doesn't seem unreasonable that you'd just stick to using Uber. But anyway, once you have an account with one of the two services, what incentive do you have to create an account with the other one?
Yeah, that's one thing Lyft definitely go right. For the life of me, I can't understand why Uber doesn't do that as well.
Maybe it's supported for different grades of service?
Maybe Uber has given up on the USA as a whole, the USA after all is only 300 million people in a world of 8 billion+
Why bother competing at all when you can go overseas where there's little to no competition.
I've heard a combination of complaints about Uber leadership being dudebros and Uber drivers sexually assaulting riders as the reason why. I don't know if Lyft actually provides a safer ride, but they don't say shitty things in public and don't have as many well known incidents.
What might still move uber from a fluent market into a winner takes all position some day would be a shift to their own fleet, either driverless or with employees. That would then be real investment and as such would be much harder to match by a newcomer than the day to day underselling they are currently doing to artificially to balloon themselves up.
And there are other factors. If a competing service let me choose what model of car turns up (say among nearby ones), I may pick that. After all, a big advantage of these over owning a car is that you can try different models.
I don't think the winner takes all, any more than restaurants are winner take all though in theory restaurants also benefit from higher utilisation, less food wastage, negotiating power over suppliers, etc, as the number of patrons increases. That hasn't led to there being only one restaurant in each neighborhood.
Also, just as cabs did, über will erect regulatory barriers to entry for smaller players.
And I don't think network effect is all that sustainable of a competitive advantage here. Switching costs are just downloading a new app and entering your credit card information.
Frankly, I think this market is still open in the very long term.
It's a disturbing trend that some of these unicorn startups are valuing growth at the expense of morals, and that VC's are complicit in pushing for growth above all else. It gives the industry a bad name, and I wish it wasn't so.
Luckily Zenefits seems to be dismantling itself because of its antics, so hopefully it will prove to be a lesson in how not to create a company culture for others in the future.
I can't speak for others, but that's why I always prefer Lyft.
[1]: https://pando.com/2014/10/22/the-horrific-trickle-down-of-as...
[2]: http://www.buzzfeed.com/charliewarzel/french-uber-bird-hunti...
[3]: https://pando.com/2014/02/27/we-call-that-boob-er-the-four-m...
[4]: http://valleywag.gawker.com/more-proof-uber-fights-dirty-aga...
[5]: http://www.buzzfeed.com/bensmith/uber-executive-suggests-dig...
To give you a comparison it's like those conspiracy theorists back in the days who claimed NSA was snooping on everyone and then later claimed the president is an Alien from planet Xenu.
However, I think uber pool/lyft line require a much higher critical mass of users to be effective than the basic lyft/uber services and there may not be enough users to fund more than one of those in some (many?) metro areas.
Same reason my source about racial discrimination isn't Stormfront, and my source about startups isn't Vox.
Also I wouldn't take what Breitbart has to say about sexist issues at face value either. I'm expecting you to be able to learn that soon enough, I mean you'd give me the same treatment if I shoved a bunch of Daily Mail articles at you. And rightly so.
[6]: http://www.latimes.com/local/abcarian/la-me-ra-self-inflicte...
[7]: http://www.theguardian.com/technology/2014/nov/18/uber-worst...
[8]: http://www.theguardian.com/technology/2014/nov/18/uber-exec-...
[9]: http://www.pbs.org/newshour/making-sense/ubers-boys-club-wha...
[10]: http://www.businessinsider.com/uber-avions-de-chasse-promoti...
[11]: http://www.fastcompany.com/3037552/uber-cancels-sexist-hot-c...
[12]: http://www.newsweek.com/uber-taxi-e-hailing-riding-app-travi...
[13]: http://www.gq.com/story/uber-cab-confessions?currentPage=1
[14]: http://www.nytimes.com/2014/12/08/opinion/we-cant-trust-uber...
[15]: http://bits.blogs.nytimes.com/2014/11/18/emil-michael-of-ube...
[16]: http://nymag.com/daily/intelligencer/2014/11/acting-like-jer...
[17]: http://www.alternet.org/7-evil-things-uber-did-2014-you-shou...
[18]: http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-...
[19]: http://finance.yahoo.com/news/uber-scandals-timeline-michiga...
It's trivial to verify that a source has the right story, so once verified then conversations should shift from debating the accuracy of the source to the consequences of the story itself.
17 == "17" // TRUE
17 === "17" // FALSE> The term Übermensch was used frequently by Hitler and the Nazi regime to describe their idea of a biologically superior Aryan or Germanic master race;
https://en.wikipedia.org/wiki/%C3%9Cbermensch
When I first heard of Uber, it's what I immediately thought of.
JavaScript. Wat? https://www.destroyallsoftware.com/talks/wat