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Silicon Valley Firms Having Cash Showers
Carl Bialik from WSJ writes "'The market for high-technology start-up businesses is so intense in Silicon Valley that some companies are being showered with millions of dollars from investors -- without even asking for it,' the Wall Street Journal reports. The home-improvement website Done Right received an email from a well-known investment firm inquiring about putting cash into the company. 'Paul Ryan, Done Right's chief executive officer, says the missive wasn't sent to him or to his executives -- it landed in a general corporate email inbox,' the WSJ reports. 'Mr. Ryan wasn't put off by the impersonal plea: "We're having very good discussions with [the firm] right now," he says, declining to name the potential investor.' The Journal notes that 'pre-emptive' funding is, of course, risky, and harkens back to bubble-year investment trends."
Better to be showered in green than in gold.
The investor gets a big bite of the company before the company owner knows the real value of his venture. If even 5% succeed in making an IPO worth 10 fold the investor's buy-in price, the venture capitalists make out like bandits.
Using pure economic reasoning to guide your decisions does of course leave history, or memory, out of the equation. Something that looked like a good idea and failed can still be a good idea five, ten or twenty years down the track, when you're armed only with analysis and a set of rules. Perhaps one history elective during that MBA would've helped cut down of this sort of tomfoolery.
Where do I sign up?
Investors sit in on a meeting at CompuHyperGlobalMeganet.... Client: "I need to upgrade my 28.8 kb connection to a 1.5 MB Fiber-optic T1 LAN. Will you be able to provide an IP router capable of supporting my existing Tolken-Ring Ethernet network?" Me: "Nope. Can I have my money now?" Investor: "Is this bucket big enough for all the cash?" Me: "Can I have a free wheelbarrow? Investor: "OK." Client: "But what about my pictures of Captain Janeway?"
Depends upon VC's vision about technology whether it is in phase A or phase C of the famous Hype Cycle
hilarious
All I get is suggestions how to increase my malehood.
The only ones that deal with money come from widows of late Nigerian presidents. Must be tough to live there when every few days a prez is killed. Kinda makes me want to send our government there, for development aid.
Whether I'm concerned with their or our well being in doing so, is up to the reader.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Looking for investors, willing to accept any cash amount in suitcase
i offically name this
"dot com 2.0.... beta..."
yeah baby! we havent learned anything from previous dot com's
Sounds to me like the CEO is being taken by a 419 variant scam -
"Hi, we am interesting in investing to your company, the money will arrive from my dead uncles account of [insert country here]. We will just be needing $10k to release those funds please thank you. Did I mention that I am a civil servant..?"
Remember dot.bomb a few years back? Stupid people hosing money around. AT the end everyone got burnt. That green shower could turn into a shit shower very quickly.
Engineering is the art of compromise.
I reckon we're at about the right time for internet investments to start up again. Technology has caught up with the ideas. If Google's payment gateway plans live up to the rumours then the possibility of micropayment subscriptions for premium content is very real. Add to that the fact internet users are a much more clued up and savvy bunch with good, fast access and, critically, a willingness to spend money online there's a real opportunity here. The problem however is that investors are buying into (IMHO) the wrong thing. The biggest chunks of capital are going on things like social networking sites .. basically people are buying premium ad space. Online advertising is the old model .. the one that didn't work. It works for Google because they're not in the business of displaying adverts. They sell the distribution. Actually displaying the adverts doesn't yield much profit (a million here or there maybe, but not the hundreds of millions the venture capitalists want). I believe the future is in charging lots of users small sums for things the want .. like iTunes.
http://twitter.com/onion2k
About the only people that didn't get hurt were those that were able to get big wads of cash out of the system and into other havens. Don't settle for stock options that are years out. Even if the company is based on a solid business model, dot.bomb collateral damage can still wipe you out. Instead, turn your equity into tangible assets ASAP. Don't piss your money against the wall and sign up for huge expenses. That Hummer will eat your money that you might need to live through some unemployment when the dot.bomb happens again.
Engineering is the art of compromise.
...we're getting Bubble 2.0 as well.
It is said that economy works in 7-year cycles. Let me be the first to publicly call this "Hype 2.0"
There is no such thing as good luck. There is only misfortune and its occasional absence.
We are starting to recover in the smallest markets. We are finally getting rid of the final vestiges of people who were in it totally for the money and salaries are starting to stablise. It takes several years for it to trickle down to us.
.com stuff). Having a second one isn't going to help matters any - I want a moderatly stable job with a decent salary. If you get a .com type of thing save up and don't become greedy, it's not going to last.
Even then it's tough to get a job if you graduated in the height of the dot com boom and lost your job in the worst of it (especially in small markets like where I live and are in the position I am in - though my personal timing has nothing to do with the
For the sake of the industry I hope not - one would think that people learned in the last one. While it's not so bad on the large stable markets it kills the smaller ones.
------- Sorry about the spelling, I suffer from two problems. Dyslexia makes it difficult to spell well, lazy makes it
If you haven't read it - the 80/20 principal is a fascinating book. And one of the conclusions that Koch came to was that capital investors are every day living in great fear that tech innovators, especially in the software development industry will all come to realise that capital investment really isn't the cornerstone of the start-up the way it used to be (like when building cotton raddling factories etc).
I don't think we are going to see the death throes of the VCs just yet - but there is a certain 'writing on the wall', of which this kind of thing is indicative.
If you want to know what God thinks of money, look at who he gives it to.
Genesis 1:32 And God typed
"The home-improvement website Done Right received an email from a well-known investment firm inquiring about putting cash into the company."
Sounds like the start of an Nigerian mail scam.
Being showered with money isn't much of a blessing. Before you know the investors are knocking on your door wanting to know where their ROI is, and why you haven't spent the X millions given (apparently spending the money is a sign of progress).
The money is a burden; a HUGE burden.
When in this situation, be honest with yourself. What will you spend the money on. If you cite PR, furniture, company stationary, etc, run the other way. If you cite "more employees", triple-check your logic to see if they are really needed before taking the money.
"Pigs get fatter, hogs get slaughtered."
-- Jim http://www.runfatboy.net/
Dear Mr Nice VC Person,
Please send all your money to the email address on this post and we will give you lots of love
Thanks
Bob
SolarVPS - Quality Windows and Linux Virtual Servers
It's the bubble all over again. It's just that now it's "Bubble 2.0 beta" and it uses AJAX.
The NYT and The Merc both already had coverage last fall of some of the investor fallout from pent-up money combined with low-overhead startups. 2.05 billion was thrown around the Bay Area in quarter of 2005 (representing 40% of nationwide VC spending - NY was 2nd at 12%) but it wasn't easy. Firms in Palo Alto were turning down money offers from longer than lunch hour away commutes - and I've seen VC cold-calls come in at 2 off my contracting clients (seriously).
But when companies can make do with 250,000 instead of 20 million whatchagonnado?
This gives me no small measure of hope that something different might be emerging.
"Thanks, Mr. Simpson. Because of you, we're all taking golden showers! [offstage laughter] What?"
We know where leadership by an anti-intellectual "strongman" who scapegoats minorities and likes boisterous rallies goes
Usually from the desk of some African bank manager or lawyer.
.,.&$%*
I also get offers to help me ejaculate like a pron star, and drown my girlfriend in
NO CARRIER
He refuses to confirm the investment firm......
I thought I ws riding the train, until you stopped at iTunes and small user-transaction fee models. As the dust settles, the internet will work like radio, the big money will be behind the popular sites, who will use their control over advertising space to lease to other companies, and to promote their own products. The thing is, internet is not 'fixed' like radio. You turn on the radio, and expect music or talk.. what kind of music or talk is at the discretion of the programming director, and fresh content is added daily. Like radio, there is emerging several 'genres' of websites. News, gaming, business, information, application, etc.. Depending on your users to take out a credit card every time you want to make dollar only works if you have a viable product to sell. Television and radio isn't that product.. neither is internet.
Any fool can criticise, condemn, and complain, and most fools do. - Benjamin Franklin
Return on investment for a VC company is dependant on a probability curve.
The cumulative profits of the companies in any given sector follow a probability distribution where small number of companies are stars, a small number are total wash-outs and a big number sits somewhere in the middle.
Depending on the sector (and the status of the overall economy) the curve might me higher or lower with relation with the break-even line (ie the average profit of all companies sits at a higher/lower profit point - or if below the break-even line lower/higher loss point).
Also, the steepness of the curve might be higher or lower (i.e. more or less companies are at the extremes of the curve than at the center). Investment restricted to younger/non-listed companies probable matches a steeper curve (i.e. more likelly to be a wash-out or the next big thing).
Since nobody knows beforehand where each companies profit will be in this curve (remember this is a cumulative profit curve - u only know it when u get there), to decrease the investment risk VCs (and any wise investor) always invest in multiple companies (each investment representing a point in the curve). Thus they decrease the risk of doing a single investment which is a total wash-out and loosing it all.
VCs try to beat the market by:
Still, the returns on investment of a VC are still constrained by that curve - they might get a star, they might get a total wash-out and most of their investment will be in companies that fall in the middle. I dare even say: the less a VC can provide guidance and expertise the more likelly it is that their return on investment will match the average on that sector.
A VC company whose ROI matches the market average on a sector is little more than an extra expensive fund or index tracker on that sector.
It wants it's hype back
My Starcraft 2 Blog
It looks like investors have come up with a new gambling strategy - bubble or quits.
... because there's no such thing as a free cash shower.
I'm no economist, but I'd guess that firms/investors are pulling their money out of the shaky real estate market, and back into stocks and tech.
Your hybrid is not saving the environment. Its purpose is to make you feel good about buying something.
Party like it's 1999!
*sigh* I love all these stories about money being thrown around to everyone who isn't me. Dammit. ;)
Hey investor-type people with burning hot cash, I've got a few complete games right here that could use a nice cash injection to get me back on it fulltime, employ a 3D model and texture artist with talent (ie. not me) and drop a few crinkleys into advertising. Just waiting to make you some nice easy money...
But I suspect I may have to stick to the tried and true, just gradually build my baby up off of part-time work, hope it somehow catches on big-time one day, so forth...
NOTICE: I am immediately moving to San Jose, California to start my own IT firm. I have no idea what I will do, but I expect the money to come pouring in. Stay tuned...
He who knows best knows how little he knows. - Thomas Jefferson
Yaaay, the good times are back and they will never end, Aeron chairs for all!!!!!! /what tech bubble?
Receiving funding is pretty wonderful. Especially when you really want to expand what you're doing, or to hire more really smart people.
But bear something in mind: Investors want something back (profitability, future value, etc. - as well they should), and that something also includes the investor's desire to control the path their investment takes.
In a similar analogy: I'm independent (read: not able to sell any of my music in amounts larger than one or two) and can make any music I want, on any schedule I want, and I don't have business people deciding anything for me - artistic freedom is fantastic (even if it doesn't cover the costs of instruments or even dinners out with the family). Getting externally-sourced money is great if you can get it, but it isn't a free ride or a free lunch. All investor (or record label) money comes with built-in responsibility and some level of strings attached.
A Passionate Independent Musician
...companies in Silicon Valley interpret SPAM as valid investor interest.
But then again Mr. Ryan.... my father, the Kinf of Nigeria was improsined. I need to transfer $40,000,000 US out of nation. After examine your credit I have exclusively selected your bank account as trustworthy to move fund.s Please send routing number and account number. For this service you recieve 10 percent bonus....
I am very small, utmostly microscopic.
After all this time, why in the hell does the press still insist in pretending that any prat with a web site is a "high-tech" business? We're not talking about technology here at all, we're talking about advertising.
If VC's were really investing in technology in a big way, that would be a good thing, but they're not.
-jcr
The only title of honor that a tyrant can grant is "Enemy of the State."
The VC guys acutally believe the Vista Hype.
There are no loopholes. It's either legal or it's not.
Replace "insurance man" with "working man," who lost both his job and all the money he put (late) into that booming market, and than you'vegot it right.
But of course, as always, the people at the top made out. When they get fired they get more than a working man will make in a life of being hired. And that is the truth.
Somehow your message would not be well-received in the Midwest - as recovery hasnt even happened. What you call recovery is all but economic disaster - end a perfectly fine industry or three, keep education costs out of reach, and otherwise turn the area into territory even Boss Tweed couldnt picture having more perfectly.
Something this deep will unfortunately require the Midwest to benefit in a similar fashion to what the US did for the Dubai ports deal. Except this time, the Midwest is the benefactor, and it's via protected industries and quality education that paves a route towards allowing all, not just the top 2%, true economic prosperity.
If there is any recovery, it will be when you can go to Michigan or Ohio and not wonder why you feel like you're in [economic] Hell. It will also be when you can get an education without going beyond a 4 digit price tag for 4 years worth- with the selection in the hands of the student, not those who want to build a "Prestige University". It will also be when such education will result in a job that is not at all wage slavery, and that such education can be provided to remove any disadvantage.
If globalization had effective transitioning plans for the disaffected, you wouldnt need such drastic recovery measures. However, it's too late when it's this far. The damage is done and there is little alternative in the Midwest. What "recovery" may be seen is only class division.
Twitter supports and protects racists - by smearing their critics with the "Hate Speech" label.
Seriously though? Why do you have to have a company based in Silicon Valley????? I guess it's like show biz. If you want to make it you've got to be in Hollywood or NY. I guess you've got to go to where the money is if you want the money to find you.
the missive wasn't sent to him or to his executives -- it landed in a general corporate email inbox,
FINAL WINNING NOTIFICATION:
Dear Lucky Winner,
RE: BONUS LOTTERY PROMOTION PRIZE AWARDS WINNING
NOTIFICATION
We are pleased to notify you the draw (999) of the UK NATIONAL LOTTERY, Online Sweepstakes International Lottery Program held on 18/10/2005 .
In view of this, your ??5,856,652(Five Million Eight Hundred AND Fifty Six Thousand, Six Hundred and Fifty Two Pounds Sterling) would be released to you by any of our payment offices in Europe.
CONGRATULATIONS!!!
At your disposal, we remain.
Very Truly Yours,
MRS SCOTT VOKE
Posting as an AC to protect the innocent... But in the old .COM days, our company received many tens of millions of investment from investors. And guess what: it wasn't wasn't from people whose doors we were beating upon, but from investment firms on the internet who found us there, and thought we fit with their strategy. There's something wonderfully equalizing about the internet, allowing investors to match up with startups that fit well with them. (Not that there weren't some shades of suspicious .COM behaviour after the fact on the investor side, but in general, I like the approach.)
I was in San Jose for the VON show last week. I met a VC shopping for used network equipment vendors. Having worked in the aftermarket for a while I'm flat amazed that someone wants to consolidate aftermarket companies.
I am very easy to get along with, but I don't have time to waste being nice to people who are being stupid. -Theo
Were they from Nigeria? Yeah, I got one of those too. =P
I'm sorry. The number you have reached is imaginary. Please rotate your phone 90 degrees and try again.
I am a technology analyist for a hedge fund and I must say that there is a buzz around the "new dot com" companies. However, for the sophisticated/value investor, it is never good enough to simply have a good idea - the company must be ready to capitalize on it. I see at least one company per week that has a brilliant idea but no strategy to make it profitable. The difference between the way I look at a business and the way VC firms look at a company is that they will initially accept poor mangement because they will require oversight and the ability to put some of their own people in place. Some hedge funds do this but they are often not the high-risk/high return types. VC firms (and to a more important degree these days "angel investors") will get into a company for a good idea, a recognizable brand, a value-chain opportunity with other investments or for some more highly speculative reason. VC don't initially chase profits or earnings, they operate mainly outside of the realm of "fundamentals" by looking to capture as much of a company's ideas and future updise while accepting many (oft. deplorable) downside risks. A quick note about hedge funds for people that are quick to label them as horrible groups that short stocks and cause companies to go down in flames: there are firms, like the one I work for, that do not short their investments (we invest with a company for the long-term and often help them with their second and third rounds of fundraising) and many don't get into death spiral warrents that cause companies to dilute their stock over and over (and lose current investors tons of money). Hedge fund is just a generic term for a private investment company - the ones that give "hedge fund" a bad name are a very small minority.
I don't keep a lid on my coffee so when I walk around I look busy -me
I guess those come next year.
Don't get me wrong. Our product is great, and our users love it - but the attention given to a two-man startup around for such a short period of time was disproportionate to what we had proved to the market at the time.
We decided to hold off on trading a large amount of equity for a relatively small amount of cash - especially when cash isn't needed to bootstrap a company like ours. In our situation, it makes better sense to seek angel funding before talking to VCs when we need money for growth.
Although venture capitalists ARE strangers with candy, they're not necessarily evil or stupid. In this current environment where a lot of small companies are flipped, speculation makes financial sense. Given the potential returns, an investment of a million or two is chump change for these firms. For small companies, that's all you need; what's actually more important is that VCs provide all-important media and business contacts. The bottom line is that you should be wary of the candy, but it can help you realize your ideas. If you are motivated, skilled, and have an idea, this is a great time to join the gold rush.