My pessimism in startups is how much its been gamified. Ycombinator has essentially created a class of people who are now chasing their achievements (unicorn status, Series A, B, C etc...) and the startup is only a means to that end.
This leads to a rat race by which instead of making the best product to solve the problem they originally intended, they try to market their company as best as possible to VCs.
The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission. You can see the ramifications already in the last 2-3 rounds of startups, all of them looking for easy money "uber for X" "AI for Y"...
This is a big part of it. I advised a founder who has gone through 9 startup accelerator programs worldwide (I told him to stop after the first one but he didn’t listen).
Each one gives him some new way to ‘level up’ in the game that is startups, without having to launch a real product or business. It’s all about grooming the startup to look good to VCs.
I joked with him that his real business should be consulting with startups that go through accelerators since he’s a veritable expert at it now.
>> They’ll run out of money in 2-3 years if it’s not working.
No. They won't run out of money in 2-3 years, they IPO. Or at least, they did in a zero-interest rate environment.
"VCs pay the angels. PE pays the VCs. IBs pay the PEs. All for the hope of an IPO so the market will pay the IBs."
"The entire market ecology has a tough time adapting to the end of cheap (even free) money, with cash flow, rather than "valuation" being the central focus. Those who entered finance after 2008 are, basically, unskilled labor. Lehman in 2008 was a picnic compared to 2000 if you were doing tech related ventures."
I see gamified as structured. A lot of new founders, and those who've yet to succeed, don't know how to get organized. YC is helping with efforts like Startup School.
Nothing wrong with structure, everything wrong with obsessing over your startup status instead of obsessing over delivering value.
Witnessed it first hand in private equity and now startups. Usually the mission is to build a compelling product and sell it to the best of your ability. VCs are gasoline.
Making the process more gamified changed the incentives to be about getting more gasoline from VCs instead of making a real company that makes its own gas.
> everything wrong with obsessing over your startup status instead of obsessing over delivering value.
This doesn't stop, either. I've been at a company that's over 7 years old, a leader (top... 1? top 3 at least) in their space, over 500 people, and still goes on and on about being a startup. My inner cynic says this is because they can't let go of 'what got them there' and transition to big-boy pants, so they continue with the myth of the fungible tech employee, etc.
+1, it is entirely human to game a system/structure. In the case of YC, I'd bet there's always some slack in their cohorts every season. It could pay off, it could not but they're at a size where they can have it. Startup School is one of those positive ROI things that help tradeoff the gamification
To be fair, what you're talking about isn't exclusively startups but rather the ecosystem around VC-backed startups. Unfortunately there's always some slack whenever scale is adopted and/or prioritized, it's a tradeoff, depends on context regarding its necessity or not.
> The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission.
This is why it's important to really venture out with your network and environment. I used to feel this way regarding startups in general but going out of my way to meet people not in SV, SF, VC and going out of those places really help. There's a lot of cool stuff being done outside of our little bubble here in HN
> The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission.
Nah, the idea was always to make a lot of money. It was never to build something impactful or useful. Sure that may be stated goal, but without path to monetisation it aint happening, and for so many things that are either good or helpful, they can't be monetised ...
Every recruiter email I get for companies that has funding at all seems to go into 5x more text of what series and how much funding it has than what the company actually does.
Building off of another question about VCs. I would go further up the chain, I am more pessimistic about Venture Capital and their parasitic relationship with to startups. Startups are in my opinion amazing and there are still many more ideas that are to be executed on. I have issue with the expectations that Venture Capital brings to the table.
The VC industry to me is in a state that Hedge Funds were prior to their free fall in 2008. You were a high networth individual, you put some money into a hedge fund to be part of the club and paid your 2 and 20. It was often not the best investment decision but it was fashionable. In the past 10-15 years it has become a similar trend. Now of course money has been cheap so there is an argument that due diligence is not as important in many of these investments...but I am curious about returns in VC funds for the past 5 years and going forward. Most of the IPOs that I can recall have been pretty lackluster and the underlying businesses/economic models are pretty lackluster. Everyone was sold on XYZ being the next Google but that has not shaped up to be the truth.
I am not arguing that VC should not exist, same as Hedge Funds. I do think the industry is in a bad spot with how many poor investments were made. This easy money has spawned an entire industry of under performing startups with stellar employee benefits.
What I find amazing is that it doesn't look like a superpower to see that some Startup makes no sense at all... and don't really bring any "revolution" to some market, and yet they seem to have no problem getting funding and to carry on with their non-sense.
The most classical example I can think of is Juicero (remember that one?) - it's not rocket science to figure out it that as an investor, it's not very clever to put your money there.
I wonder why VCs and stuff make these dumb decisions, that even without any sort of "market research" it's obvious it is pure BS, and yet there seems to be no shortage of idiotic ideas getting funding.
Caveat: I'm the founder of a VC-backed startup, so my perspective is likely skewed.
The VC mode of thinking becomes a lot clearer when you realize that their returns are completely driven by moonshots. Something like 1% of the portfolio will drive 56% of the returns. As a result:
(1) It costs them nearly nothing if a startup goes to 0. Most of their portfolio will go to 0.
(2) Conversely, it will cost them a ton if they miss a potential moonshot. Even if the idea sounds dumb on face, if there's a chance it becomes big, the VC needs to be in it in order to survive.
(3) There's reputational risk at play for the individual VC investor. Every VC will have a low hit rate, so they're not worried about looking dumb losing money on some startup going to 0. What they are worried about is being known as the person who passed on the next Airbnb despite getting a look.
(4) Later stage VC funding becomes an access game — there's more capital than good ideas, and so these companies can have their pick of the litter. This means, as a VC, you need to prioritize being founder friendly and having a pre-existing relationship with a company. As such, you'll see VCs throw in $1m to $10m checks without much though, with the hope that if the company every does scale, they'll be able to write a sizable follow-on.
It's weird to think about if you're used to public markets, where hit rate matters a lot more and diligence is centered on "why should I invest". In VC-land, the burden of proof is flipped.
This is what you get when leaving your money on a bank account -costs- money, due to negative interest rates.
Even a startup with a highly dubious business plan might be better than leaking your cash away.
Money was cheap. I am sure there are many more reasons but in my opinion it all stems from how cheap money was. The great experiment is still unfolding and I am not entirely sure how much the VC -> Startup relationship will change.
I did notice the same pattern: best people I worked with either don't write at all or write very little. Probably because, despite having better thoughts, smart people also have a much higher threshold for releasing their thoughts into the wild. And people who write a lot often tend to be talkers and not doers (there are exceptions of course, but they are incredibly rare).
You'd think that the most truthful content is going to win the public. But the reality is that the most viral content wins. A lot of software development "best practices" are popular not because they are producing value (their value is often negative), but because they make us feel good.
Very similar to religions, it's not necessarily the most utilitarian religions that are dominating the world. It's the most viral ones.
However, consider that the 99% who don't contribute on Reddit, may be contributing elsewhere.
I never post on Reddit, only browse. But I comment here.
Maybe that's the case with most people. That the majority contribute somewhere, but just not all in the same place.
This would invalidate the hypothesis that the internet is written by insane people. It's just that any one site only includes 1% of the people, evenly distributed across all the sites.
Interesting. I disagree with #5 based on personal experience. Some of the best thinkers I know have at times been visible in the comments. In fact, meeting challenges to their reasoning is how they refine their thinking.
> 5. Authors and the smartest people of our time aren’t writing internet comments
The internet, which we ALL read, including the smartest people of our time is written entirely by people with time to waste. Oh and marketers too.
We have chosen to fill our head with their thoughts.
Although I'm definitely not one of those, plenty of the smartest people out there are posters. Posting is universal.
Not to mention that the post itself was written on the internet, so by his own admission, he's just someone with time to waste and not the smartest person of our time.
So caveat lector...
Also... it's unclear how most of this is specific to startups. All of these things apply to other endeavors, big and small, whether corporate, not-for-profit, or governmental.
The author needs to rethink point number 4. Investors' time is valuable, whether you like the idea or not. They can spend it listening to your pitch, or someone else's pitch, but if you're looking for funding even a minute of their time is more valuable to you than... cooking yourself dinner.
It is valuable in the sense that someone productive can extract value from it, i.e. secure funding for a company that may actually produce a product that makes someones life better. That is the same sort of value a natural resource like, say, wood has. It has no value in and of itself, unless imbued with the skillfull work of a productive person. An investor needn't add anything besides capital to the mix. Now, some investors do add expertise or other actual skills of value but that doesn't have anything to do with them being the source of capital, per se. You could argue that investors are proactive in choosing investments that have a good potential for ROI but that doesn't correlate to actual value for actual people, as all the very profitable but very stupid Web 3 and other fad investments show. Sometimes they aren't even profitable, but that's another matter. So yes, investors are as worthless as wool or wood or gold without the time and skill and labor of the worker who preforms the alchemy of transforming this worthless commodity into value.
We can disagree on this point. I'd say you can have the best solution, best possible product, best idea, and best people building it, and if you have no capital, you're toast.
In the same way that you could have the best chair design but without the resources, the wood or the steel or what have you, and without the proper tools to shape them, your idea is still just going to be an idea. Would you say that the wood in this scenario has value in and of itself, beyond the value the worker may imbue into it? How about the tools? We as a society have come to recognize the people who dole out access to resources as providing value, but they don't, neither in principle nor in reality. As I said in my earlier comment, the only value one might ascribe to them is only in picking the best ideas and they obviously don't do that. We obviously need a better way to fund creative ideas for the betterment of all.
Coincidentally I tried to value talking to a rich person after this post and decided it was worth about the same as getting a paying customer for $10 per month - https://mrsteinberg.com/the-order-of-payment-you-want/
This leads to a rat race by which instead of making the best product to solve the problem they originally intended, they try to market their company as best as possible to VCs.
The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission. You can see the ramifications already in the last 2-3 rounds of startups, all of them looking for easy money "uber for X" "AI for Y"...