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Startups Struggle For Survival As Investors Turn 'Picky' ( 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.
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Startups Struggle For Survival As Investors Turn 'Picky'

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  • The main problem (Score:5, Insightful)

    by 110010001000 ( 697113 ) on Saturday April 29, 2017 @01:58PM (#54325665) Homepage Journal
    It doesn't take 120 people and $120 million to sell cars online. What were those 120 people doing?
    • by Anonymous Coward

      Playing ping pong and golf from the sounds of it.

    • Re:The main problem (Score:5, Interesting)

      by fnj ( 64210 ) on Saturday April 29, 2017 @02:05PM (#54325697)

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

      • Much of the money goes the people who rented them the real estate.
      • Re:The main problem (Score:5, Informative)

        by R3d M3rcury ( 871886 ) on Saturday April 29, 2017 @02:43PM (#54325805) Journal


        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.

        • 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.

        • 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.

          • 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

    • by nnull ( 1148259 )
      Burned through 120 million dollars in 18 months at practically zero operating costs?
  • Due Diligence (Score:5, Insightful)

    by vlad30 ( 44644 ) on Saturday April 29, 2017 @02:04PM (#54325691)
    you mean that investors are finally doing due diligence before investing had to happen sooner or later
  • That a business that turns a profit that isn't just churning out shit that burns money could would be something that investors want.
    • 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.

  • by Anonymous Coward

    But call it a blockchain and get plenty of suckers.

  • by zifn4b ( 1040588 ) on Saturday April 29, 2017 @02:22PM (#54325745)

    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.

    • 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.

  • by 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 wr

    • by Sique ( 173459 ) on Saturday April 29, 2017 @02:52PM (#54325821) Homepage
      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.
    • by rfengr ( 910026 )
      Mod you up if I had points. Time to remove the Silicon from SV, maybe replace it with Silicone.
  • by ErichTheRed ( 39327 ) on Saturday April 29, 2017 @02:27PM (#54325761)

    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 or VA Linux or -- 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.

    • by Anonymous Coward on Saturday April 29, 2017 @03:05PM (#54325853)

      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.

      • 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?

    • 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..

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

  • 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.

    • by dgatwood ( 11270 )

      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

  • Why depend upon big investors for your startup company? To proud to ask community banks? Credit unions?
  • Rationality? (Score:4, Insightful)

    by argStyopa ( 232550 ) on Saturday April 29, 2017 @04:11PM (#54326051) Journal

    "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)

      by 140Mandak262Jamuna ( 970587 ) on Saturday April 29, 2017 @05:42PM (#54326325) Journal

      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."

  • 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 d
  • My startup is funded by customers.

  • Beepi doesn't exist anymore.

    # Bye Bye Beepi, Beepi Bye Bye

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

  • 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.

"If you lived today as if it were your last, you'd buy up a box of rockets and fire them all off, wouldn't you?" -- Garrison Keillor