The Expanding Birthrate Of Web Startups

http://www.avc.com/a_vc/2010/08/the-expanding-birthrate-of-web-startups.html

by DanielH • 16 years ago

65 24 16 years ago

stackthat3• 16 years ago

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.

timme• 16 years ago

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'.

fredwilson2• 16 years ago

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

earle3• 16 years ago

Can you name startups launched since 2005 which have > 20M in revenue and haven't taken series a capitalization?

cageface2• 16 years ago

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.

stackthat3• 16 years ago

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

cageface2• 16 years ago

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.

nickpinkston3• 16 years ago

Look at it through the hype-cycle: -Tech Trigger: PC's are common -Peak of Expectations: ~2000, max unsustainable web investment/activity. -Trough of Disillusionment: Bubble explodes, the web bleeds cash. -Slope of Enlightenment: Agile/Lean startups rise from the ashes. - Plateau of Productivity: Startup environment becomes normal and fundamentals increasing known.

Conclusion: There are plenty of bubble, but general web startups aren't one of them. Let's look at green tech's future as the next Bubble D'Jure.

nickpinkston3• 16 years ago

Did I seriously get down nodded for a constructive comment? Or is someone a little green sensitive?

frederickcook• 16 years ago

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?

thaumaturgy• 16 years ago

> ...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.

bconway• 16 years ago

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?

I think you may have let the atmosphere of HN and the stories it links to distort your view of the startup landscape. Yes, there are definitely more opportunities for low-barrier to entry software startups, but look at all the industries that are operating as they were 5 or 10 years ago and are very interested in VC funding. There are dozens of said industries (biotech, automotive, chemical, etc). The seed stage companies frequently discussed here offer a great service for the software industry, but don't forget that HN is still an enthusiast site.

swombat• 16 years ago

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

nickpinkston3• 16 years ago

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

gokhan• 16 years ago

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• 16 years ago

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.

endlessvoid94• 16 years ago

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

No shit.

Ardit20• 16 years ago

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

earle3• 16 years ago

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.

fredwilson2• 16 years ago

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

earle3• 16 years ago

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

rwhitman• 16 years ago

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.

The Expanding Birthrate Of Web Startups

Related Stories