Calacanis: Collapsing Economy Will Kill 50%-80% Of Startups

http://www.alleyinsider.com/2008/9/calacanis-collapsing-economy-will-kill-50-80-of-startups

by brandonkm • 18 years ago

36 36 18 years ago

SwellJoe• 18 years ago

Add that to the 50%-80% that die of natural causes and we'll end up with a negative number of startups!!!!!11!! There'll be a startup void and we'll all be sucked in. This is terrible.

Or am I over-reacting?

froo6• 18 years ago

Financial Market's collapsing? - Check

Built a machine large enough to destroy the world? - Check

Yahoo still #1 site in the world according to Alexa? - Check

Created a negative business void? - Check

Cyndi Lauper staging a comeback? - Check

These are truly the end times my friend... be afraid, be very afraid.

tdavis• 18 years ago

As usual, the sensationalist title misses the important part of the argument: He's positing that 50-80% of venture-backed start-ups will die before making it to their next funding round or reaching profitability. So, essentially, 50-80% of start-ups that require non-trivial amounts of money just to operate will possibly die before they would have otherwise.

On the other hand, if you have a real business with revenue and lacking excessive costs I'm going to predict that you'll see a smaller bottom-line, but that's about it. Our company costs $3,000/mo to run, including living expenses for two people, and we technically have a staff as well -- we just pay them with kickbacks instead of ridiculous salaries.

Even given his actual prediction (which, again, the title fails to illustrate), I still think he's overreacting. VCs still have tons of investor money that they need to do something with and given the fact that many previously "safe" investments are becoming unsafe, giving money to VCs actually, at least to me, starts to sound like a better bet than it did previously.

maurycy• 18 years ago

Is Google a real business?

It took them few years to be profitable.

froo6• 18 years ago

That's not even remotely close to the point - you're looking at it using the magical power of hindsight.

Not being a VC myself I can't really comment with any certainty, but plain logic dictates that they would try to make investments based on the information they have available at the time.

I think what the original commenter was trying to say is that in times of economical uncertainty, a lot of people looking to invest will probably invest in places that have potential for larger than average returns.

So making those kinds of comments don't particularly add to the conversation I wouldn't have thought.

netcan2• 18 years ago

>>He's positing that 50-80% of venture-backed start-ups will die before making it to their next funding round or reaching profitability.

I guess this is a semantic issue. But essentially, yes, he's defining sratups as those things dependant on investment of some kind.

>>Our company costs $3,000/mo to run, including living expenses for two people, and we technically have a staff as well -- we just pay them with kickbacks instead of ridiculous salaries.

Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive? Founders & employees living low in exchange for potential future earning are also investors. An they are also influenced by the same sort of things other investors are influenced by.

I'm not saying I agree with this piece, but would you admit that it might get difficult to hire someone with noodles & options if there hadn't been any exits in your vicinity for a while, little startups where going bust left & right, and a few big scares hit home (eg Facebook shuts down).

I agree with your basic premise. A business that makes more money then it spends is safer. If it's in the business of selling bread & butter, even better. But startups as a sector are less like that.

fallentimes2• 18 years ago

>>"I'm not saying I agree with this piece, but would you admit that it might get difficult to hire someone with noodles & options if there hadn't been any exits in your vicinity for a while"

If we chose to hire someone full-time we'd pay them an above market salary. Luckily, we probably won't need to do this for a while (at least a year).

>>"Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive?"

It's only temporary as not only are we already profitable, but our sales & traffic are growing every day and we've been launched less than two months. We could last two years without revenue anyways (even though it doesn't apply).

The launching of concerts, improved crawler speed, SEOism (once Google updates their PRs) and some other non-public things we're working on should improve revenue & traffic significantly as well.

We're almost certainly not taking investment, and we're certainly not exiting anytime soon. We're going to issue dividends without balance sheet risk - like real companies do.

quasimojo• 18 years ago

he is absolutely correct, and it will take out more than just startups

we were told that reflating the dot-com bubble on the back of real estate as opposed to letting a recession clean out malinvestments would be bad. we didn't listen

we were told that low interest rates at the fed wouldn't help, just make commodities more expensive. we didn't listen

we were told that $100 billion in stimulus checks would not have a measurable impact on the economy. we didn't listen

now the kicker is that the $700 billion dollar near-nationalization of mortgage lending won't help either. in six months people will wonder how $700 billion could seemingly vanish with no positive results

people are really bent on this idea that things will be fine by mid 09

next to go is whatever is left of the dollar. at some point people will realize the dollar has become a black hole and they will evacuate it. i would suggest that the dollar is already dead, no fiscal restraint can save it now

US dollar gone by 2025 -> USA gone by 2025

gscott2• 18 years ago

> US dollar gone by 2025 -> USA gone by 2025

I was with you right till the end. The thing about property is that it doesn't go anywhere. It is all still here. While credit will be hard to get, it was similiarly hard to get in the past. Other countries are not in a perfect position to take the "superpower" status away from the United States. China is too closed (currency, politics, etc), Russia is turning back to communism, France can't keep there own people happy, Iran might start an arms race, the EuroZone has there own problems, etc. Considering everyone else, the US for the most part is pretty stable.

bitdiddle• 18 years ago

Well the dollar seriously could go, when the world stops trading oil in it. That's already starting to happening.

Also the chinese and other large sovereign banks don't need to necessarily dump their dollars. That would be shooting themselves in the foot. Kind of like Gates selling all his MS stock. All they need do is change the mix and slow down their purchases of dollars, replacing those with euros.

That's also happening, started several months ago now.

I'm not sure credit will be so hard to get. There's plenty of money around, just a lot less stupid money. For folks who are credit worthy there will be credit. This will be a new concept to many people.

froo6• 18 years ago

> Considering everyone else, the US for the most part is pretty stable.

You kinda forgot about Japan & Australia, if all those things happen I would bet that either of the two would become a standard.

Being an Australian I would like to say us, but it would no doubt be the Yen.

corentin• 18 years ago

There is still more capital in the US than in all other countries combined.

Anyway, it's not a race nor a zero-sum game (there's no real point in being the "first" country); every country can be a winner in the global economy (or could be, if the bureaucrats running them understood this concept).

patrickg-zill• 18 years ago

Oh no! 100% of those running startups today will be dead in 95 years!

Wall Street != Main Street != Startup Street

froo6• 18 years ago

I think it might end up worse than that before this is done sir.

In 95 years I predict Yahoo! will stage a comeback and become the supreme Internet superpower (after several more buyout attempts from Microsoft), being led by Jerry Yang's head in a jar (think futurama)

I also predict Google will change their name to Google!!!1!lol! in an attempt to stay relevant.

At least one thing will remain consistent, the general stupidity in comments on YouTube. Perhaps that's what the world should base their financial economy on instead of the gold standard. It would seem a safer bet if you ask me.

jwilliams• 18 years ago

Might kill off 50-80% - might also foster a bunch of new ones.. Maybe even ones that have better fundamentals than the ones that died.

- e.g. market analytics, risk reporting, compliance... Or startups that drive efficiency and productivity gains - companies will be desperate for these kinds of ideas in the coming 6-24 months.

ojbyrne2• 18 years ago

This seems like most things Calacanis writes, there's about 3 lines of argument, and 200 lines of self-promotion. He manages to get Mahalo, Silicon Alley Insider, TechCrunch50 and his BA of Psychology into the piece. But my favorite part is how the Holocaust is used as a leadin to his experiences in the first bubble.

alaskamiller• 18 years ago

It's 5000 word treatise on name dropping.

omouse• 18 years ago

So it's a typical arts/humanities paper. His GPA must be through the roof!

michaelneale• 18 years ago

Perhaps the mention of the Holocaust would speed the descent towards Godwins law in any rebuttals to his blog post ;)

songism• 18 years ago

Wow, you're right. I wish my brain had a better crap filter.

jasoncalacanis• 18 years ago

i do not reference the holocaust in reference to the first bubble. i reference Victor Frankl and his experience developing logotherapy during the Holocaust and I specifically mention the two things are not comparable. Fine if you don't agree with my position, but please don't make stuff up. best jason

ojbyrne2• 18 years ago

I never said "reference", I said "used as a leadin." Though, really its pretty well the same. I wanted to go check the document again to see if I was being unfair, but apparently it's a case of "...if you can't stand the heat." - "Post has been deleted by request of the author"

bayareaguy• 18 years ago

If you're a pre-ipo startup selling pricy products to high end financial firms, then you're probably in deep doo doo now.

However this looks to me like a huge opportunity now for new startups to displace established firms, particularly for those offering essential features at lower prices. I'd be very worried if I were Microsoft.

Also I think startups offering online services and games could possibly see a huge boost in their subscriber base if the doom scenarios play out and we have large numbers of formerly employed people with a lot of time on their hands.

Angostura• 18 years ago

Businesses fail for one of 3 reasons:

1. Bad idea 2. Bad execution 3. Outside forces.

Astonishing! what a revelation!

ivankirigin• 18 years ago

Something ignored here is that lots of people will decide not to start startups because they become more risk averse in a downturn. That will kill many more, I suspect.

time_management• 18 years ago

2001 saw the crash of a startup and technology bubble, so it was brutal for startup companies moreso than for the economy as a whole. Although the 2000s saw an increasing number of technology startups, this change was based on fundamentals rather than a bubble, per se.

The 2008 crash is worse than 2001 from a broad-based, whole-economy perspective, but since the bubble's been in real estate and finance, it's the people in those industries who are going to get hurt the worst, not startup entrepreneurs. It's going to be like 2001 for investment bankers and real estate agents, but not as bad for technology.

pg• 18 years ago

The 50-80% is a safe bet because the failure rate is at least that anyway. But it would be remarkable if startups started to die of a bad economy instead of the usual cause: not making something people want.

fallentimes2• 18 years ago

Exactly. I can think of scores of mediocre startups that took too much money and failed, but I can't think of any great startups that failed because they didn't take enough money.

amuse• 18 years ago

LOL - reality kills 90% of all startups anyway.

tom_rath• 18 years ago

"This post has been deleted at the request of its author."

Was it really that bad? Calacanis can come across as a bit full of himself, but I've often gained an insight or two from his posts.

Calacanis: Collapsing Economy Will Kill 50%-80% Of Startups

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