Startups Struggle For Survival As Investors Turn 'Picky' (gerbsmanpartners.com) 83
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.
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.
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The main problem (Score:5, Insightful)
Re: The main problem (Score:2, Insightful)
Playing ping pong and golf from the sounds of it.
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Re:The main problem (Score:5, Interesting)
More precisely, exactly what were those people doing with ALL THAT LOOT??? Where did it go?
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https://www.youtube.com/watch?... [youtube.com]
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Re:The main problem (Score:5, Interesting)
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.
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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, the
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California voters did, not voters in Utah, Arizona, Nevada, Kentucky, etc. So yes California most certainly did enact that proposition....
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 app
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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 [bizjournals.com]
Re:The main problem (Score:5, Informative)
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.
Still, where? (Score:2)
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.
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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.
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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
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Due Diligence (Score:5, Insightful)
Re:Due Diligence (Score:5, Informative)
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...
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Who would have thought (Score:2)
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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. (Score:1)
But call it a blockchain and get plenty of suckers.
US Capital Reinvestment Problem (Score:4, Interesting)
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.
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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.
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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.
Most companies now are not bookstoores (Score:2)
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...
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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 t
Tax on repatriation is a bullshit excuse (Score:2)
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.
there's no more substance. (Score:1)
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 wr
Re:there's no more substance. (Score:5, Insightful)
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One man's picky is another man's prudent (Score:5, Insightful)
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 (Score:4, Insightful)
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.
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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?
In 2003 (Score:3)
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..
"Who said anything about 'respectable'?" (Score:1)
"You find that man and you fuck him, Richard! THAT man I will PAY you to fuck!"
Not a struggle (Score:2)
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.
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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
Don't talk to strangers. (Score:1)
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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.
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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? (Score:4, Insightful)
"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? (Score:5, Insightful)
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."
Another bust cycle (Score:1)
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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 w
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You are the fertile ground where dictatorship grows...
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Better Investors (Score:1)
My startup is funded by customers.
Bay City Rollers (Score:2)
# Bye Bye Beepi, Beepi Bye Bye
(Don't make meeeee cry) ... /#
Take the money (Score:2)