Startups Struggle For Survival As Investors Turn 'Picky' (gerbsmanpartners.com)

An anonymous reader quotes The Wall Street Journal: Eighteen months ago, Beepi Inc. was rapidly expanding its online used-car business to 16 U.S. cities where people could buy cut-rate vehicles adorned with giant shiny bows. Beepi doesn't exist anymore. After burning through more than $120 million in capital, the startup failed to raise more cash and shut down in February. Its roughly 270 employees cleared out of the cavernous Mountain View, California headquarters, leaving behind the ping-pong table and putting green.

Beepi's rapid demise offers a glimpse into the changing fortunes of Silicon Valley startups, many of which have struggled to adjust since a two-year investment frenzy came to an end. In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.
The article also points out that "much of the money still being invested is pouring into the upper echelon of highly valued start-ups like Airbnb and WeWork or younger ones with clear paths to profit," leaving "scores" of previously well-funded startups now struggling to survive.

Comments

buble

[Anonymous Coward]

at least this bubble burst wont tank the worlds economy.

Re:buble

[Mr D from 63]

Anybody stupid enough to invest in Beepi deserved to lose their money.

Re:buble

[Anonymous Coward]

Leave Michael Buble out of this!

Re: buble

[Anonymous Coward]

Except they didn't lose their money they lost mom and dad's, almost definitely without their knowledge. The investors doing the buying make their percentage off the top no matter what.

The main problem

[110010001000]

It doesn't take 120 people and $120 million to sell cars online. What were those 120 people doing?

Re: The main problem

[Anonymous Coward]

Playing ping pong and golf from the sounds of it.

Re:The main problem

[fnj]

More precisely, exactly what were those people doing with ALL THAT LOOT??? Where did it go?

Re:The main problem

[Anonymous Coward]

Tending to the putting green?

Re:The main problem

[religionofpeas]

https://www.youtube.com/watch?...

Re:The main problem

[110010001000]

Much of the money goes the people who rented them the real estate.

Re:The main problem

[Anonymous Coward]

Let's see, we had a CEO, CTO, CFO, a Public Relations Officer, and 116 people putting giant, shiny bows on cheap ass cars. Not counting the offshore coders, of course.

Re:The main problem

[Anonymous Coward]

More precisely, exactly what were those people doing with ALL THAT LOOT??? Where did it go?

In Mountain View, CA? Rent.

Re:The main problem

[Anonymous Coward]

This is what's killing the Bay Area, mortgage/property tax and rental costs. Landlords are raking it in, and home ownership is at the top of the pyramid pricing scheme. The winners are the ones that bought early and got out by now. Everyone else is left paying for the winners for 30 years. 2 bedroom condos with shared laundry areas for $750K and $700/mo hoa. Even MV trailer parks are $2500/mo for the lot (and goes up each year), plus $150K "down" to pay for the rental privilege. Won't change until people stop looking at houses as investments instead of homes.

Re:The main problem

[R3d M3rcury]

FTA:

Venture capital poured in, and its valuation surged from $US12m in early 2014 to $US525m by mid-2015. Beepi moved out of its cramped office and into a glassie building where the chief executive zipped around on his own Segway. Staffers enjoyed quinoa salad and turkey meatball lunches and dinners when they often stayed late, and unwound with ping-pong or Nerf guns.

Re:The main problem

[Anonymous Coward]

they were giving out cars and getting cash from buyers as bonuses...

Re:The main problem

[dgatwood]

Of course, a big part of the problem is that in the 1970s, California enacted a property tax scheme that is perfectly designed to limit homeowners' ability to move. By making property taxes be based solely on the purchase price instead of on the actual value of the home, people would pay dramatically more in property taxes every year if they sell one house and buy a second one even if they break even on the deal.

Prop 13 drastically skews the proportion of renters to owners by forcing people to rent out their old place so they can afford the rent on a new place instead of selling and buying. It also discourages new people from entering the market by making them pay the bulk of the cost of goods and services while folks who have been there for a few years pay proportionally less. The result is one of the most screwed up real estate markets anywhere in the world.

(BTW, Sunnyvale mobile home parks are only ~$1k per month and only maybe $50–75k to buy an old house and move it out of the way, plus the cost of whatever you move in. That extra $1,500 per month + $75k is the Google tax you pay for living five minutes closer to work.)

Another part of the problem is that the Bay Area lacks a proper region-wide planning commission with authority to regulate zoning across the various cities. So you have places like Menlo Park, where the only housing is private estates for the rich C*Os, with lots of businesses out near the shore where land is cheap (because it smells of rotting fish), and you have Gilroy and Morgan Hill that are almost entirely housing, with few businesses.

IMO, what we really need is to have some government entity that slowly converts business-use land in the South Bay to residential use and says "No" whenever big companies say that they want to expand their presence in the South Bay, encouraging them to build satellite offices farther south instead. And offer tax incentives to locate new businesses outside the SF/Peninsula/South Bay area. Adding more businesses farther south would increase the reverse commute traffic and reduce the primary commute proportionally, and opening up more farmland to development would go a long way towards reducing the cost of housing as well.

Unfortunately, that's unlikely to happen unless there's a single management agency that has some authority across all the different administrative districts. Right now, each city wants to get its share of the tax revenue from new businesses, and they mostly don't care about the clustering problems that result from it. Nobody is taking a bird's eye view of the problem, or if they are, they don't have the authority to do anything about it.

Re:The main problem

[__aaclcg7560]

In Mountain View, CA? Rent.

How much of Mountain View doesn't Google own?

Google and LinkedIn did a land swap last year to get out of each other's way since Mountain View wasn't big enough for the both of them.

http://www.bizjournals.com/sanjose/news/2016/07/12/google-linkedin-strike-stunning-grand-bargain-for.html

Re: The main problem

[K. S. Kyosuke]

Playing Volkswagen Golf and Dongfeng Ping-Pong?

Re:The main problem

[SoftwareArtist]

Nerf guns and ping pong balls are darn cheap. So are turkey meatballs. If that's the cost of getting employees to stay late, it's a great investment. Office space in Silicon Valley is expensive, but not $120 million worth of expensive. I suspect someone has some very uncomfortable questions to answer about where the money went.

Re:The main problem

[R3d M3rcury]

If that's the cost of getting employees to stay late, it's a great investment.

Depends on why they're staying late.

During "crunch" times--usually a few months before shipping--a company I used to work for would bring in dinner. I know more than a few people who would hang out, let the company buy them dinner, and then go home shortly afterwards. These were usually the same people who would snag a half-dozen free sodas to take home on the way out (and, no, they weren't working from home).

I'd be more interested in things getting done. If people are staying late in order to get things done, that's great and I have no qualms about feeding them as a way of thanking them. But I've seen it turn into a "Hey, free food, let's stick around! Maybe we'll get a foosball game going after dinner. Look at us, we stayed at work 'til 11:00 playing ping-pong!"

Re:The main problem

[doom]

I see the appeal of a centralized Bay Area urban-management agency (though I have to say I expect in practice it would be infiltrated and subverted by the people it's supposed to regulate, much like the SF Planning Department)-- since that's not even on the horizon yet, what else might happen?

I sometimes think that what the South Bay really needs is for companies like Google to make up their minds to steam-roller the local government-- if you look at the playbook of the big sports teams, for example, they get whatever they want just by hinting that they're going to move to another city.

Re:The main problem

[nnull]

Burned through 120 million dollars in 18 months at practically zero operating costs?

Re:The main problem

[Anonymous Coward]

California did not enact Proposition 13, the voters did. That's why it's called a "Proposition". It was enacted during a time when valuations were climbing at a high rate, and older homeowners were being forced from their homes by increased property taxes.

Re:The main problem

[Anonymous Coward]

they were spending something like $1,700 per car on ads and then they guaranteed that if your car didn't sell they would buy it and they were losing about $5,000 per car when they had to do that.

Re:The main problem

[Anonymous Coward]

Up their noses.

Re:The main problem

[dgatwood]

California did not enact Proposition 13, the voters did.

California voters did, not voters in Utah, Arizona, Nevada, Kentucky, etc. So yes California most certainly did enact that proposition....

It was enacted during a time when valuations were climbing at a high rate, and older homeowners were being forced from their homes by increased property taxes.

Tennessee recently had the same problem, but they were smart enough to learn from California's huge mistake and made it so that the "no reassessment" bit applies only to people over 65, applies only to people below a certain income threshold, doesn't cover rental properties, doesn't cover second homes, etc.

California's Prop 13 has been the single biggest train wreck in the history of California's proposition system. It has primarily benefitted people who own multiple homes and who use them as rental properties, rather than the elderly (who are having a harder and harder time buying homes at all because all the property is tied up in rentals, in part because nobody wants to give up that sweet tax break). It makes it exorbitantly expensive to move into the state, and has depressed essential property tax revenues that pay for our state's schools very badly. Worse, the impact on property tax revenue disproportionately impacts areas where the poor live because it is mostly rental property owned by people who have owned it for decades. The net result is that the schools that can least afford funding cuts have seen their funding cut more and more.

Yet despite the fact that experts consistently agree that Prop 13 is a net negative for the state of California and should be overhauled, this giant pile of hurt is still on the books, largely unchanged. It's one thing to say that it made sense at the time. It did. But we've learned a lot since then about how not to do things, and it is long past time to gut Prop 13 and replace it with something less ridiculous.

Due Diligence

[vlad30]

you mean that investors are finally doing due diligence before investing had to happen sooner or later

Re:Due Diligence

[93 Escort Wagon]

you mean that investors are finally doing due diligence before investing had to happen sooner or later

Yup - and, incidentally, this is exactly how the original dot-com bubble burst.

Ah, Kozmo.com, I still miss you...

Re: Due Diligence

[Anonymous Coward]

What is this so called "due diligence" you speak of? I have fresh pure authentic snake oil for sale right now for a very low price, and supplies ar limited. But wait, there is more! If you call in the next 5 minutes, we'll throw in new freshly filtered antioxidant pure extra special air, for free. For free! That's an infinite savings! Now shut up and gimmay all your monies.

Re: Due Diligence

[barrywalker]

Is your snake oil gluten and GMO free? If so, where do I send the check?

Who would have thought

[hsmith]

That a business that turns a profit that isn't just churning out shit that burns money could would be something that investors want.

Re:Who would have thought

[Anonymous Brave Guy]

Exactly. If you're taking 9-figure investments, you ought to have a sustainable business model sorted out by now. At that level, raising more is supposed to be for things like accelerating growth in existing markets or expanding into lucrative new markets that have high barriers to entry, i.e., work that builds on an existing successful formula. Investing that kind of money in a business that couldn't survive without it was always a dubious proposition.

Still money in pyramid schemes.

[Anonymous Coward]

But call it a blockchain and get plenty of suckers.

US Capital Reinvestment Problem

[zifn4b]

US Capital Reinvestment is a problem in general. Large corporations and investment firms with $2.5 trillion is in off-shore bank accounts citing that 39.6% corporate tax rate as the reason why they refuse to repatriate the money. We're also still on the tail end of the one of the most abysmal job markets since The Great Depression. Companies and investment firms are still squeezing every last whiplash they can get out of the poor labor market conditions to get more value of existing offerings and employees.

TL;DR there is a lack of incentive for anyone to invest in the US job market and policy makers haven't really done anything to address the problem other than offshoring jobs and hiring H-1B visa's that work twice as hard for half the pay but are also twice as incompetent. Great situation we have in the job market. It's pure insanity.

Re:US Capital Reinvestment Problem

[Anonymous Coward]

policy makers haven't really done anything to address the problem

What, that employers won't hire people to sit around with their thumbs up their ass all day?

If the current labor force has the productivity the companies need to get everything done, what can the government possibly do as "incentive" to convince them to hire one more person? Other than directly paying them to hire people to pretend that we don't have a problem?

Re:US Capital Reinvestment Problem

[beelsebob]

That's not how economics works. There's always more things to be done. If there's spare capitol, then there's spare ability to start doing new things, and hiring people to do them.

Re:US Capital Reinvestment Problem

[dgatwood]

True, though there are thresholds below which expansion makes no sense. Say I have a bookstore. I have ten employees and overlap them to keep the store open during reasonable business hours.

• Adding five more employees is unlikely to provide any additional ROI unless I can claim to be the only 24-hour bookstore in the region, and only then if there's actually a group of people who wake up at three in the morning, think to themselves, "I need to read something to help me get to sleep", then put on their clothes, drive to a bookstore, buy a book, drive home, take off their clothes, curl up, and read the book.
• Adding ten more employees would be enough to open up a second bookstore in a nearby town. Assuming there are enough customers to keep both businesses alive, then yes, given available capital, there's more work to be done.

In big businesses, the interesting thresholds tend to be even bigger and more dependent on things other than available capital. You have a lot of opportunities for bringing in a new person in various parts of the company as workload increases over time, of course, but the really interesting, rapid growth happens when the company decides that they want to go after a new market segment, which means they have to ramp up their staff fairly dramatically. That requires more than just capital; it requires big ideas and a reasonable probability of making enough money to make it worth the effort.

That's why even though Apple's U.S. profits alone could cover the cost of hiring on the order of 700,000 full-time software engineers, they have on the order of one percent of that number. So probably only about one or two percent of their revenue goes into staffing (ignoring C*O and VP bonuses). Even if you double or triple that number to cover the cost of renting or building office spaces, assuming you ignore the occasional massively over-budget project like the spaceship, total employee costs still probably fall down in the single-digit range percentage-wise. In other words, if they needed more people, they would easily be able to afford many more people, so bringing more money into the U.S. won't change their hiring at all. This tends to be true for all sufficiently large businesses. In other words, there's a threshold of capitalization beyond which adding more money won't result in more jobs.

The bottom line is that if you want to increase the number of available jobs, the best way is to raise taxes on big businesses and use that to offset a reduction in taxes on smaller businesses. Those smaller businesses still have room to grow, and every dollar that they pay in taxes is a dollar that they can't pay their employees; for bigger businesses, every dollar they pay in taxes is just a dollar that they can't pay their shareholders, which although certainly beneficial, does not create jobs.

there's no more substance.

[Anonymous Coward]

The Silicon Valley tech companies founded by the post-WWII generation had substance to them. They were predicated on designing and selling real products. They designed and created integrated circuit CPUs, fiber optics, consumer printing technology, electronic test equipment, and a whole lot more. They were started by people with actual engineering backgrounds, creating real, tangible technology.

Now, the SV companies I see are some form of "social media" startups that either have no product, or at best wrote an "app" to let people do things they can already do without the app, except now they can monitize and track your behavior while doing it. This is what the Selfie Generation has created. Not transistors. Not lasers. They made.... social media apps.

There was a fundamental shift away from core technology, towards marketing fluff and "social" everything. And people wonder why that is imploding? Maybe because there's no substance to it.

Re:there's no more substance.

[Sique]

This is survivor bias. It seems to you that the companies founded in the 1950ies and 1960ies were solid ones because you only know the names of the companies that managed to stay afloat for some time and leave an impression. No one remembers the dozens of companies that didn't survive long enough, and all of them failed.

Re:there's no more substance.

[rfengr]

Mod you up if I had points. Time to remove the Silicon from SV, maybe replace it with Silicone.

Re:there's no more substance.

[Anonymous Coward]

The early companies that founded Silicon Valley were Hewlett Packard (founded by two engineers, created electronic test products), Shockley Semiconductor (created transistors, then a brand new technology), Xerox, Fairchild Semiconductor, SRI (one of the main contributors to ARPANET), and more like that.

Talking about Silicon Valley in particular, history disagrees.

Re:there's no more substance.

[Anonymous Coward]

Mod you up if I had points. Time to remove the Silicon from SV, maybe replace it with Silicone.

Just replace it with "Silly", it's what have become of it anyways: by far the biggest business there is realty (bursting the startup bubble, wonder what bubble will burst next, care to guess?). Silly Valley...

Re:there's no more substance.

[Anonymous Coward]

I think you just reenforced the GP's point. You know about these "early founders" because they succeeded. You never heard about the failures who died in the process.

Re:there's no more substance.

[Anonymous Coward]

Great idea, but already taken. It's in southern California.

One man's picky is another man's prudent

[ErichTheRed]

Anyone surprised at this wasn't around for the last Dotcom Bubble, or wasn't paying attention. This is exactly what happened in early 2000, when you started to hear the first few whispers that the peak had finally been hit. Investors are just coming to their senses. I don't entirely blame them this time -- the last bubble was about some people having access to the Internet, and this one is about having absolutely everyone worldwide accessing the Internet over a phone, which is with them 24/7 and can generate tons of marketing data.

I'm just glad that there aren't too many individual investors who are losing out with crappy IPOs of companies that will never make a profit. I remember people losing a ton of money speculating on pets.com or VA Linux or theglobe.com -- all companies with almost no hope of doing well in the long run. What I am seeing this time is the fact that there are just _so many_ startups, and how many copycats there are. The barrier to entry is low, the cloud runs their software, they use social media to advertise, and there seem to be 20 different clothing subscription services, food delivery services, etc. I think the sales pitch for VCs this time is "disruption" more than "eyeballs" but it's still the same result.

Just like the last one, I'm sitting out on the sidelines in a traditional IT/engineering job and watching everything fall in on itself again. When I started reading stories about new edgy web startups popping up in California again, all I could feel was deja vu... There's only so much ping pong, foosball, hipster open office spaces, catered meals, and brogramming that VC money will buy, and I think we're about to see that come to an end. Since these startups can just run in the cloud, they definitely have longer to live, but I don't know how much.

Re:One man's picky is another man's prudent

[Anonymous Coward]

And not unique to tech stocks - around 2000 we had Enron, Calpine, Mirant, Dynegy, NRG, etc. Start ups, spin offs, mergers, huge piles of debt, you name it. Lots of money because EWGs were going to build big and trade power like stocks. Stock valuations at 50 times P/E ratios. Then the truth came out, and many went under or into bankruptcy. A few are still around after getting reorganized in bankruptcy court. But many people lost money on that bet.

Re:One man's picky is another man's prudent

[Anonymous Coward]

I blame them for creating bubbles in the first place. It is literally investors being irrational and wasting retirement funds money that makes bubbles exist. $120 millions goings to inexperienced start up with no feasible long term business except ability to spend a lot of money short term kills distorts the market.

Re:One man's picky is another man's prudent

[Anonymous Coward]

If you see it coming why the hell would you sit it out, again. Jump in with both feet and get your share this time around. If you know it's going to pop you have an advantage over the dumb money people and can get out beforehand.

Re:One man's picky is another man's prudent

[Anonymous Coward]

I agree with this to an extent. The boom/bust era continues just like it has for all stock history. Where's the underlying asset? Clearly it's thin on an assortment of companies, but who can resist the allure of instant riches from the venture capital side? Sure some people are betting the house on the next app but there's a lot of funding drawn from firms with calculated risk. As long as the risk is properly managed from the finance side then the risk of the bubble is limited.

Spot on though with the barrier entry being low, and in addition to that the quality level is high! Mediocre products are a dime a dozen whether it's the internet or Wal Mart. What we're seeing is the natural progression towards market saturation in an over-hyped market.

Re:One man's picky is another man's prudent

[drinkypoo]

But the wealthy told us that if we gave them all of our money, they would create jobs!

Seriously, the element missing from your story is that they're spending people's retirement funds on this shit while the one-percenters are literally just sitting on cash that could be invested in such business ventures. Didn't they tell us that's what they were going to do with the money? Invest it, and create jobs?

"Who said anything about 'respectable'?"

[Kargan]

"You find that man and you fuck him, Richard! THAT man I will PAY you to fuck!"

Not a struggle

[thegarbz]

If you can't run a website with a $120million dollar investment then you're just plain incompetent and no one should send you a dime.

Re:Not a struggle

[dgatwood]

This. I mean, you should be able to invest that in the stock market and average at least $8 million per year, permanently, allowing enough extra money to compensate for inflation. That's enough for a team of at least 20 engineers plus renting space for them to work, equipment costs, health insurance, etc. So barring the website being insanely complex, you should literally be able to run it on that without even touching the principal, even without bringing in a penny of revenue. What the heck are these people doing with all that money?

Re:Not a struggle

[Anonymous Coward]

Totally agree with your larger point, but you're omitting a few costs that would eat into that $8M substantially.

* Office space. Particularly newly-remodeled, with all amenities and amusements - ping-pong, putting-green, etc. not to mention furniture - top-of-the-line office chairs, adjustable height desks (some with motors for doing so). Kitchens with commercial-sized refrigerators, espresso machines, etc. and seating for the entire staff.

* Consumables. Coffee, snacks, fresh fruit, etc. Catered lunches for the staff several times a week. Delivered fresh baked goods for breakfast.

* Equipment. In addition to company-issued laptops, at least 2 large screen monitors per developer.

* Creative. Visual designers, UI designers, etc. with additional equipment needs (even larger monitors, digital drawing pads, etc.).

* Marketing/sales. Someone has to advertise your product/service - social media campaigns, adword buys, etc.

* Management. To ensure you are getting the most out of your engineers/creatives, 1 project manager for every 3 engineers, one product manager for every 3 project managers. Marketing managers over every 3-5 sales/marketing staff. Director level management over all of the product managers (and perhaps separate director-level over project-management. VP level management over all of the directors. EVP's for the VPs to report to.

* Operations. The cloud can be lower-cost than other alternatives, but it's not free. DevOps engineers to build and run the CI/CD pipeline to get the software being built and the creative assets (images, copy, etc.) out onto a publicly visible site. A dynamic website also requires additional cloud-hosted resources - servers for the site, servers for the DB, maybe servers for a CMS ... etc.

It sounds trivially cheap - just get some engineers to work remotely on their own equipment and collaborate via Github or similar. But it's not.

Re: Not a struggle

[Anonymous Coward]

You dont need super expensive office furniture and 24 hour high end food. When my company boot strapped, it was used computers, cheap furniture and basic office space. We even went to Home Depot to buy whiteboard material to save money instead of getting a ready made white board.

This is why Silicon Valley is going to have another crash. You get to have all of those nice things *after* you're a success, not while you're still deep in the red with nary a profit in sight.

Re: Not a struggle

[Anonymous Coward]

You get to have all of those nice things *after* you're a success, not while you're still deep in the red with nary a profit in sight.

But it is all somebody else's money. None of it is real.

In 2003

[future assassin]

I was working at a local ISP and was pretty much burnt out as there was only 3 of use running an ISP with 4000+ customers and me having do to web design, support and sales. When I finally gave my walking papers in the two weeks before my departure where were 80+ resumes sent it with a big part of them being guys who not a year earlier were running "multi millions worth internet companies" in Yale Town Vancouver which were now defunct. My old employer was like this guy was the ceo of this and that and etc.. He never hired any of them as all they wanted was to get their foot into the door with another internet company.

Don't talk to strangers.

[Neuronwelder]

Why depend upon big investors for your startup company? To proud to ask community banks? Credit unions?

Re:Don't talk to strangers.

[Anonymous Coward]

Because banks want their money back. They call them loans. They also want to make sure you have a sustainable business model before they throw a lot of cash at you. Blowing through $120 million with nothing to show for it doesn't appeal to them for some reason.

Re:Don't talk to strangers.

[__aaclcg7560]

Blowing through $120 million with nothing to show for it doesn't appeal to them for some reason.

Unless the banks are using someone else's money and the federal government bails them out because they're too big to fail.

Re:Don't talk to strangers.

[Anonymous Coward]

Because the banks were forced at the stroke of a pen to loan money to deadbeats who had no ability (or desire) to repay.

Re:Don't talk to strangers.

[__aaclcg7560]

Because the banks were forced at the stroke of a pen to loan money to deadbeats who had no ability (or desire) to repay.

You would rather blame Bill Clinton than acknowledged that unrestrained greed drives Wall Street? Sad.

Rationality?

[argStyopa]

"much of the money still being invested is pouring into the upper echelon of highly valued start-ups like Airbnb and WeWork or younger ones with clear paths to profit," leaving "scores" of previously well-funded startups now struggling to survive."

If they're not a highly-valued (ie speculative) startup, or one with a CLEAR PATH TO PROFIT, why the fuck would/should anyone be investing in them?

Re:Rationality?

[140Mandak262Jamuna]

If they're not a highly-valued (ie speculative) startup, or one with a CLEAR PATH TO PROFIT, why the fuck would/should anyone be investing in them?

It is called the "the greater fool theory". It is investing in a venture even after knowing it has no real prospects, investing in ponzi schemes knowing well it is a ponzi scheme etc. Basic idea is, "yes it is a scam. I know it is a scam. I might be a fool to invest in this thing, but, I will flip the investment to some greater fool before the whole thing comes crashing down."

Re:Rationality?

[Anonymous Coward]

When a company is already profitable, the shares are going to be much more expensive. When the product (website, app, gadget, whatever) is out for just 1 day and still getting their first customers, you'll look for some sort of "plausibility", and buy their shares 100x cheaper.

When Facebook had no clear path to profitability except a presence (monopoly, actually) in a few American universities, it managed to get 500k from Peter Thiel when the world was barely recovering from the dot com era. The next round was already 12 million, which was still buying in at growth stage. 2 rounds later Microsoft poured in 240 million, the fractions of shares sold in each of them was probably similar.

And it turns out putting 500k in 1000 Facebook prototypes can be profitable, if just one of them can net you a billion.

Re:Rationality?

[Anonymous Coward]

I just checked and it turns out Microsoft bought less than 1/10 as many shares. So Microsoft bought in 100x more expensive than those before them.

Re:Rationality?

[Anonymous Coward]

Exactly. Very healthy. "People aren't investing in complete bullshit, the way they did for a short run between 2014 and 2016."

Still, where?

[SuperKendall]

Staffers enjoyed quinoa salad and turkey meatball lunches

For $120 million I better be eating something nicer than ten thousand year old grain and the meat of a bird you eat when you are too poor to afford chicken.

Another bust cycle

[Steve-Oh]

IMO, we are seeing another bust cycles as big, if not bigger, than the dot-com bust of the late 1990's to early 2000's and before that the "peace crash" of the Cold War ending in the late 80's. With a conservative backlash harder than the Clinton to Bush transition occurring, many institutional investors are holding onto their cash waiting to see where the dust settles. From that, they are not playing as many cards as before while looking for "sure things" over the latest prospecting trend of mobile app driven retail endeavor. Franky, I'm curious to see of Uber, Lyft, DoorDash and others are around this time next year. What is an entrepreneur to do? Look at more conservative endeavors such as next generation products with incremental improvements and servicing infrastructure projects. Again IMO, when Trump is done with his Federal housecleaning and he's reelected into his second term, the economy will upswing and it will be go-go again. However, others will be at the helm taking a more Americana business plan over a globalist view. Perhaps Google and Facebook will be broken up creating opportunities akin to the break-up of Ma Bell in the 80's.

Re:Another bust cycle

[Anonymous Coward]

I would really like you to explain how Trump is housecleaning. Adding more old white billionaires into the govt? Or is it rolling back regulations to designed to keep people and the environment safe? More "cooperation" with Russia? I really want to know how you define housecleaning.

Re:Another bust cycle

[Serge_Tomiko]

Unfortunately, this AC is the reason why the left just can't function. Everything is about race, or sex, or queers, or whatever.

The OP was not making a value judgment. He was describing a sociopolitical trend. Economics is a social science, and relates directly to human behavior. Understanding the cycle of political whims is integral to these economic trends.

As it stands, it should be clear Trump isn't doing anything differently at all. In fact, he hasn't really done anything at all. It doesn't matter who is president, it matters how people perceive the president.

Step back from politics. Accept that it is outside of your control. Pretend we live in a monarchy. And live your life accordingly. Obsession with politics is a symptom of childish weakness.

Re:Another bust cycle

[imnotanumber]

... Accept that it is outside of your control. Pretend we live in a monarchy. And live your life accordingly. Obsession with politics is a symptom of childish weakness.

You are the fertile ground where dictatorship grows...

Re:Another bust cycle

[Anonymous Coward]

Fucking Trumpanzees.

Once that orange moron is impeached and the fascist GOP splinters, then we can finally progress.

Re:Another bust cycle

[Steve-Oh]

IMO, the mistake you are making is applying Scientific Method to human behavior. That has been the folly of the left for decades, look for a pattern, keep it to themselves and exploit it. It does not work. If anything, life is an art and what you create of it. Make things instead of trying to treat the whole world population as one big cattle herd, you'll do much better.

Better Investors

[downright]

My startup is funded by customers.

99.999% of startups suck

[Anonymous Coward]

Investors deserve their losses.

Guess they wised up

[Anonymous Coward]

after the spectacular failure of 3D printing to become a thing.

Tax on repatriation is a bullshit excuse

[radarskiy]

Corporate income taxes are on earnings, not revenue. Money spent for reinvestment purposes is an expense, therefore would never be subject to corporate income taxes.

Re:Tax on repatriation is a bullshit excuse

[Anonymous Coward]

Yes and no. If you reinvest it directly into your business, then yes, it's an expense. However, moving it between subsidiaries makes it vulnerable to income tax. The revenue held offshore is all in subsidiaries, and therefore will necessarily be taxed when it comes in.

Bay City Rollers

[Hognoxious]

Beepi doesn't exist anymore.

# Bye Bye Beepi, Beepi Bye Bye

(Don't make meeeee cry) ... /#

Take the money

[manu0601]

You proposed a non profitable business to venture capitalists and they funded it. Now they changed their mind. Do not whine, just enjoy the money you should have saved while the scam worked.

Most companies now are not bookstoores

[SuperKendall]

Especially companies that hire programmers, can scale easily more work for larger numbers of programmers - much more so than a bookstore possibly can, which it can run out of physical space or only has so many customer to help...

Re:Most companies now are not bookstoores

[dgatwood]

Which means if they haven't increased at an exponential pace, there's a reason that has nothing to do with lack of money.

One possible reason is that larger development teams don't scale well. At some point, unless you move into unrelated technology areas that are way outside your main focus area, you end up with teams working on similar projects who don't know that they're essentially competing internally. At that point, any advantage to hiring more people goes out the window.

Another possible reason is that there are a limited number of good programmers out there in the world; the faster you grow, the lower your average programmer quality is going to be, because you'll have to take more chaff along with the wheat.

A third reason is that management tends to get deeper as it gets wider, resulting in administrative bloat that makes it painful to grow beyond a certain size.

Whatever the reason, the point is that there are definite barriers to scaling up that occur particularly in large businesses, such that merely having spare capital isn't enough. When businesses get big enough, they often find that it is easier to just buy new startups in the space that they want to move into. Let the startups take the risk and fight it out, then consume the winner along with its staff....