Calacanis: Collapsing Economy Will Kill 50%-80% Of Startups(alleyinsider.com)
alleyinsider.com
Calacanis: Collapsing Economy Will Kill 50%-80% Of Startups
http://www.alleyinsider.com/2008/9/calacanis-collapsing-economy-will-kill-50-80-of-startups
36 comments
>>He's positing that 50-80% of venture-backed start-ups will die before making it to their next funding round or reaching profitability.
I guess this is a semantic issue. But essentially, yes, he's defining sratups as those things dependant on investment of some kind.
>>Our company costs $3,000/mo to run, including living expenses for two people, and we technically have a staff as well -- we just pay them with kickbacks instead of ridiculous salaries.
Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive? Founders & employees living low in exchange for potential future earning are also investors. An they are also influenced by the same sort of things other investors are influenced by.
I'm not saying I agree with this piece, but would you admit that it might get difficult to hire someone with noodles & options if there hadn't been any exits in your vicinity for a while, little startups where going bust left & right, and a few big scares hit home (eg Facebook shuts down).
I agree with your basic premise. A business that makes more money then it spends is safer. If it's in the business of selling bread & butter, even better. But startups as a sector are less like that.
I guess this is a semantic issue. But essentially, yes, he's defining sratups as those things dependant on investment of some kind.
>>Our company costs $3,000/mo to run, including living expenses for two people, and we technically have a staff as well -- we just pay them with kickbacks instead of ridiculous salaries.
Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive? Founders & employees living low in exchange for potential future earning are also investors. An they are also influenced by the same sort of things other investors are influenced by.
I'm not saying I agree with this piece, but would you admit that it might get difficult to hire someone with noodles & options if there hadn't been any exits in your vicinity for a while, little startups where going bust left & right, and a few big scares hit home (eg Facebook shuts down).
I agree with your basic premise. A business that makes more money then it spends is safer. If it's in the business of selling bread & butter, even better. But startups as a sector are less like that.
>>"I'm not saying I agree with this piece, but would you admit that it might get difficult to hire someone with noodles & options if there hadn't been any exits in your vicinity for a while"
If we chose to hire someone full-time we'd pay them an above market salary. Luckily, we probably won't need to do this for a while (at least a year).
>>"Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive?"
It's only temporary as not only are we already profitable, but our sales & traffic are growing every day and we've been launched less than two months. We could last two years without revenue anyways (even though it doesn't apply).
The launching of concerts, improved crawler speed, SEOism (once Google updates their PRs) and some other non-public things we're working on should improve revenue & traffic significantly as well.
We're almost certainly not taking investment, and we're certainly not exiting anytime soon. We're going to issue dividends without balance sheet risk - like real companies do.
If we chose to hire someone full-time we'd pay them an above market salary. Luckily, we probably won't need to do this for a while (at least a year).
>>"Is that an equilibrium? Without investment, exit or revenue increase in the mid-term future, are you still going to survive?"
It's only temporary as not only are we already profitable, but our sales & traffic are growing every day and we've been launched less than two months. We could last two years without revenue anyways (even though it doesn't apply).
The launching of concerts, improved crawler speed, SEOism (once Google updates their PRs) and some other non-public things we're working on should improve revenue & traffic significantly as well.
We're almost certainly not taking investment, and we're certainly not exiting anytime soon. We're going to issue dividends without balance sheet risk - like real companies do.
The idea I was trying to put forward is that employees taking a high stock/salary ratio & founders are investors. This is obvious on the theoretical level. But the point that I am making is that they are also subject to market 'whims.' In fact they constitute their own sort of a sub-market with it's own whims (as is the VC market, IPO market, etc).
A year or two of bad news & bad predictions could sour it. Employees & founders might start to favour corporate jobs.
Not saying it has to be drastic. VCs pulling purse strings a little tighter. Founders ready to bail a little earlier. Employees a little less willing to take stock. Angels preferring to take a year or two off. Most 'startups' would be affected by at least some of these.
A year or two of bad news & bad predictions could sour it. Employees & founders might start to favour corporate jobs.
Not saying it has to be drastic. VCs pulling purse strings a little tighter. Founders ready to bail a little earlier. Employees a little less willing to take stock. Angels preferring to take a year or two off. Most 'startups' would be affected by at least some of these.
Is Google a real business?
It took them few years to be profitable.
It took them few years to be profitable.
That's not even remotely close to the point - you're looking at it using the magical power of hindsight.
Not being a VC myself I can't really comment with any certainty, but plain logic dictates that they would try to make investments based on the information they have available at the time.
I think what the original commenter was trying to say is that in times of economical uncertainty, a lot of people looking to invest will probably invest in places that have potential for larger than average returns.
So making those kinds of comments don't particularly add to the conversation I wouldn't have thought.
Not being a VC myself I can't really comment with any certainty, but plain logic dictates that they would try to make investments based on the information they have available at the time.
I think what the original commenter was trying to say is that in times of economical uncertainty, a lot of people looking to invest will probably invest in places that have potential for larger than average returns.
So making those kinds of comments don't particularly add to the conversation I wouldn't have thought.
This seems like most things Calacanis writes, there's about 3 lines of argument, and 200 lines of self-promotion. He manages to get Mahalo, Silicon Alley Insider, TechCrunch50 and his BA of Psychology into the piece. But my favorite part is how the Holocaust is used as a leadin to his experiences in the first bubble.
Wow, you're right. I wish my brain had a better crap filter.
Perhaps the mention of the Holocaust would speed the descent towards Godwins law in any rebuttals to his blog post ;)
It's 5000 word treatise on name dropping.
So it's a typical arts/humanities paper. His GPA must be through the roof!
i do not reference the holocaust in reference to the first bubble. i reference Victor Frankl and his experience developing logotherapy during the Holocaust and I specifically mention the two things are not comparable. Fine if you don't agree with my position, but please don't make stuff up. best jason
I never said "reference", I said "used as a leadin." Though, really its pretty well the same. I wanted to go check the document again to see if I was being unfair, but apparently it's a case of "...if you can't stand the heat." - "Post has been deleted by request of the author"
Add that to the 50%-80% that die of natural causes and we'll end up with a negative number of startups!!!!!11!! There'll be a startup void and we'll all be sucked in. This is terrible.
Or am I over-reacting?
Or am I over-reacting?
Financial Market's collapsing? - Check
Built a machine large enough to destroy the world? - Check
Yahoo still #1 site in the world according to Alexa? - Check
Created a negative business void? - Check
Cyndi Lauper staging a comeback? - Check
These are truly the end times my friend... be afraid, be very afraid.
Built a machine large enough to destroy the world? - Check
Yahoo still #1 site in the world according to Alexa? - Check
Created a negative business void? - Check
Cyndi Lauper staging a comeback? - Check
These are truly the end times my friend... be afraid, be very afraid.
The 50-80% is a safe bet because the failure rate is at least that anyway. But it would be remarkable if startups started to die of a bad economy instead of the usual cause: not making something people want.
Exactly. I can think of scores of mediocre startups that took too much money and failed, but I can't think of any great startups that failed because they didn't take enough money.
If you're a pre-ipo startup selling pricy products to high end financial firms, then you're probably in deep doo doo now.
However this looks to me like a huge opportunity now for new startups to displace established firms, particularly for those offering essential features at lower prices. I'd be very worried if I were Microsoft.
Also I think startups offering online services and games could possibly see a huge boost in their subscriber base if the doom scenarios play out and we have large numbers of formerly employed people with a lot of time on their hands.
However this looks to me like a huge opportunity now for new startups to displace established firms, particularly for those offering essential features at lower prices. I'd be very worried if I were Microsoft.
Also I think startups offering online services and games could possibly see a huge boost in their subscriber base if the doom scenarios play out and we have large numbers of formerly employed people with a lot of time on their hands.
Oh no! 100% of those running startups today will be dead in 95 years!
Wall Street != Main Street != Startup Street
Wall Street != Main Street != Startup Street
I think it might end up worse than that before this is done sir.
In 95 years I predict Yahoo! will stage a comeback and become the supreme Internet superpower (after several more buyout attempts from Microsoft), being led by Jerry Yang's head in a jar (think futurama)
I also predict Google will change their name to Google!!!1!lol! in an attempt to stay relevant.
At least one thing will remain consistent, the general stupidity in comments on YouTube. Perhaps that's what the world should base their financial economy on instead of the gold standard. It would seem a safer bet if you ask me.
In 95 years I predict Yahoo! will stage a comeback and become the supreme Internet superpower (after several more buyout attempts from Microsoft), being led by Jerry Yang's head in a jar (think futurama)
I also predict Google will change their name to Google!!!1!lol! in an attempt to stay relevant.
At least one thing will remain consistent, the general stupidity in comments on YouTube. Perhaps that's what the world should base their financial economy on instead of the gold standard. It would seem a safer bet if you ask me.
Might kill off 50-80% - might also foster a bunch of new ones.. Maybe even ones that have better fundamentals than the ones that died.
- e.g. market analytics, risk reporting, compliance... Or startups that drive efficiency and productivity gains - companies will be desperate for these kinds of ideas in the coming 6-24 months.
- e.g. market analytics, risk reporting, compliance... Or startups that drive efficiency and productivity gains - companies will be desperate for these kinds of ideas in the coming 6-24 months.
Businesses fail for one of 3 reasons:
1. Bad idea 2. Bad execution 3. Outside forces.
Astonishing! what a revelation!
1. Bad idea 2. Bad execution 3. Outside forces.
Astonishing! what a revelation!
Something ignored here is that lots of people will decide not to start startups because they become more risk averse in a downturn. That will kill many more, I suspect.
LOL - reality kills 90% of all startups anyway.
"This post has been deleted at the request of its author."
Was it really that bad? Calacanis can come across as a bit full of himself, but I've often gained an insight or two from his posts.
Was it really that bad? Calacanis can come across as a bit full of himself, but I've often gained an insight or two from his posts.
2001 saw the crash of a startup and technology bubble, so it was brutal for startup companies moreso than for the economy as a whole. Although the 2000s saw an increasing number of technology startups, this change was based on fundamentals rather than a bubble, per se.
The 2008 crash is worse than 2001 from a broad-based, whole-economy perspective, but since the bubble's been in real estate and finance, it's the people in those industries who are going to get hurt the worst, not startup entrepreneurs. It's going to be like 2001 for investment bankers and real estate agents, but not as bad for technology.
The 2008 crash is worse than 2001 from a broad-based, whole-economy perspective, but since the bubble's been in real estate and finance, it's the people in those industries who are going to get hurt the worst, not startup entrepreneurs. It's going to be like 2001 for investment bankers and real estate agents, but not as bad for technology.
he is absolutely correct, and it will take out more than just startups
we were told that reflating the dot-com bubble on the back of real estate as opposed to letting a recession clean out malinvestments would be bad. we didn't listen
we were told that low interest rates at the fed wouldn't help, just make commodities more expensive. we didn't listen
we were told that $100 billion in stimulus checks would not have a measurable impact on the economy. we didn't listen
now the kicker is that the $700 billion dollar near-nationalization of mortgage lending won't help either. in six months people will wonder how $700 billion could seemingly vanish with no positive results
people are really bent on this idea that things will be fine by mid 09
next to go is whatever is left of the dollar. at some point people will realize the dollar has become a black hole and they will evacuate it. i would suggest that the dollar is already dead, no fiscal restraint can save it now
US dollar gone by 2025 -> USA gone by 2025
we were told that reflating the dot-com bubble on the back of real estate as opposed to letting a recession clean out malinvestments would be bad. we didn't listen
we were told that low interest rates at the fed wouldn't help, just make commodities more expensive. we didn't listen
we were told that $100 billion in stimulus checks would not have a measurable impact on the economy. we didn't listen
now the kicker is that the $700 billion dollar near-nationalization of mortgage lending won't help either. in six months people will wonder how $700 billion could seemingly vanish with no positive results
people are really bent on this idea that things will be fine by mid 09
next to go is whatever is left of the dollar. at some point people will realize the dollar has become a black hole and they will evacuate it. i would suggest that the dollar is already dead, no fiscal restraint can save it now
US dollar gone by 2025 -> USA gone by 2025
> US dollar gone by 2025 -> USA gone by 2025
I was with you right till the end. The thing about property is that it doesn't go anywhere. It is all still here. While credit will be hard to get, it was similiarly hard to get in the past. Other countries are not in a perfect position to take the "superpower" status away from the United States. China is too closed (currency, politics, etc), Russia is turning back to communism, France can't keep there own people happy, Iran might start an arms race, the EuroZone has there own problems, etc. Considering everyone else, the US for the most part is pretty stable.
I was with you right till the end. The thing about property is that it doesn't go anywhere. It is all still here. While credit will be hard to get, it was similiarly hard to get in the past. Other countries are not in a perfect position to take the "superpower" status away from the United States. China is too closed (currency, politics, etc), Russia is turning back to communism, France can't keep there own people happy, Iran might start an arms race, the EuroZone has there own problems, etc. Considering everyone else, the US for the most part is pretty stable.
Well the dollar seriously could go, when the world stops trading oil in it. That's already starting to happening.
Also the chinese and other large sovereign banks don't need to necessarily dump their dollars. That would be shooting themselves in the foot. Kind of like Gates selling all his MS stock. All they need do is change the mix and slow down their purchases of dollars, replacing those with euros.
That's also happening, started several months ago now.
I'm not sure credit will be so hard to get. There's plenty of money around, just a lot less stupid money. For folks who are credit worthy there will be credit. This will be a new concept to many people.
Also the chinese and other large sovereign banks don't need to necessarily dump their dollars. That would be shooting themselves in the foot. Kind of like Gates selling all his MS stock. All they need do is change the mix and slow down their purchases of dollars, replacing those with euros.
That's also happening, started several months ago now.
I'm not sure credit will be so hard to get. There's plenty of money around, just a lot less stupid money. For folks who are credit worthy there will be credit. This will be a new concept to many people.
> This will be a new concept to many people.
Here's a little anecdote about your point as it is unbelievably true.
I have a cousin, she's not too bright. Her first credit card was maxed out at about $10,000 so she applied for a second credit card to help pay off the first. It didn't quite dawn on her that she might have to stop the luxury spending.
Here's a little anecdote about your point as it is unbelievably true.
I have a cousin, she's not too bright. Her first credit card was maxed out at about $10,000 so she applied for a second credit card to help pay off the first. It didn't quite dawn on her that she might have to stop the luxury spending.
Not unlike eating a popsicle, reading this made my brain hurt. +1, but ouch.
The Euro stumbling is the only thing that I can see that will stop that. It is very possible, just the focus right now is on the US. Greenspan would have inflated another bubble (of some sort) and started talking down the Euro already. Bernanke is just too nice of a guy to even think of that.
> Considering everyone else, the US for the most part is pretty stable.
You kinda forgot about Japan & Australia, if all those things happen I would bet that either of the two would become a standard.
Being an Australian I would like to say us, but it would no doubt be the Yen.
You kinda forgot about Japan & Australia, if all those things happen I would bet that either of the two would become a standard.
Being an Australian I would like to say us, but it would no doubt be the Yen.
Australia has too few people and is behind Texas economically.
Japan has less than half of the US (or Euroland) population and insignificant natural resources. Its GDP is way behind that of the US, China, and Euroland. (However, it does beat California, not to mention Texas.)
An economic union of the reasonable Asian countries could be big enough but what would China do?
Japan has less than half of the US (or Euroland) population and insignificant natural resources. Its GDP is way behind that of the US, China, and Euroland. (However, it does beat California, not to mention Texas.)
An economic union of the reasonable Asian countries could be big enough but what would China do?
Australia has too few people and is behind Texas economically.
So what does population have to do with it? I thought we're talking about economic strength.
Also way to compare apples to oranges eg the whole of a country to the 2nd highest producing state of the United states.
If we were to make this assumption true, then we would have to compare apples to apples, 2nd highest producing state to 2nd highest producing state (based on a per capita basis)... in which case Western Australia would beat Texas hands down. (nearly $61k USD per person compared to about $41k USD per person)
So while the biggest topic of discussion with the American's seems to be just the financial crisis, Australia is experiencing a weird dichotomy, financial crisis and resource-driven economic boom at the same time.
So what does population have to do with it? I thought we're talking about economic strength.
Also way to compare apples to oranges eg the whole of a country to the 2nd highest producing state of the United states.
If we were to make this assumption true, then we would have to compare apples to apples, 2nd highest producing state to 2nd highest producing state (based on a per capita basis)... in which case Western Australia would beat Texas hands down. (nearly $61k USD per person compared to about $41k USD per person)
So while the biggest topic of discussion with the American's seems to be just the financial crisis, Australia is experiencing a weird dichotomy, financial crisis and resource-driven economic boom at the same time.
There is still more capital in the US than in all other countries combined.
Anyway, it's not a race nor a zero-sum game (there's no real point in being the "first" country); every country can be a winner in the global economy (or could be, if the bureaucrats running them understood this concept).
Anyway, it's not a race nor a zero-sum game (there's no real point in being the "first" country); every country can be a winner in the global economy (or could be, if the bureaucrats running them understood this concept).
On the other hand, if you have a real business with revenue and lacking excessive costs I'm going to predict that you'll see a smaller bottom-line, but that's about it. Our company costs $3,000/mo to run, including living expenses for two people, and we technically have a staff as well -- we just pay them with kickbacks instead of ridiculous salaries.
Even given his actual prediction (which, again, the title fails to illustrate), I still think he's overreacting. VCs still have tons of investor money that they need to do something with and given the fact that many previously "safe" investments are becoming unsafe, giving money to VCs actually, at least to me, starts to sound like a better bet than it did previously.