Ask HN: If I believe there's a tech bubble, how should I proceed?
13 comments
This is from my completely anecdotal observations so take it with that grain of salt. But I actually think a bubble is good for people like you. To explain that let me give you my advice...
1. Ramp up as quickly as possible. If there is a bubble than it will pop and funding will dry up. So you need to get funded as soon as possible.
2. Run Lean. Take whatever funding you get and figure out how to live off it for as long as possible. That means staying on Ramen for the time being.
Here's the reason for my advice. People treat the end of the first bubble like it was a dead period with no investments. That is not how I remember it. There was maybe 6 months where funding dried up but after that investors went looking for slightly safer bets. Companies that had survived the collapse and still appeared to be running well. Those companies had their pick of the VCs.
Most VCs will tell you their #1 criteria for funding is smart founders. Nothing proves how smart you are than out living your competitors. So if you can build a good product and survive the initial burst I think you're golden.
At least that's my 2 cents.
1. Ramp up as quickly as possible. If there is a bubble than it will pop and funding will dry up. So you need to get funded as soon as possible.
2. Run Lean. Take whatever funding you get and figure out how to live off it for as long as possible. That means staying on Ramen for the time being.
Here's the reason for my advice. People treat the end of the first bubble like it was a dead period with no investments. That is not how I remember it. There was maybe 6 months where funding dried up but after that investors went looking for slightly safer bets. Companies that had survived the collapse and still appeared to be running well. Those companies had their pick of the VCs.
Most VCs will tell you their #1 criteria for funding is smart founders. Nothing proves how smart you are than out living your competitors. So if you can build a good product and survive the initial burst I think you're golden.
At least that's my 2 cents.
Good points. My biggest question was if funding was a good idea. Seems like the general consensus is to get it while it's easy.
Don't build bubbly products.
Startup/VC bubble seems to be a very popular topic in hacker circles, as if all web businesses might get wiped out when the bubble "bursts".
It's wrong to think of all startups as being susceptible to the same sorts of valuation bubble concerns -- tons of "web startups are just businesses with a web component". Tons of web startups are just retail outlets that happen to do most of their business on the web.
Airbnb, Etsy, Amazon, etc just connect buyers and sellers, which is something brick and mortar retail outlets have been doing for time eternal. The valuation of Color doesn't affect their (Airbnb's, Etsy's, Amazon's) business model.
Don't build bubbly products. Investors will always invest in cashflow, whether its web based or otherwise.
Edit: Clarify ambiguous referent.
Startup/VC bubble seems to be a very popular topic in hacker circles, as if all web businesses might get wiped out when the bubble "bursts".
It's wrong to think of all startups as being susceptible to the same sorts of valuation bubble concerns -- tons of "web startups are just businesses with a web component". Tons of web startups are just retail outlets that happen to do most of their business on the web.
Airbnb, Etsy, Amazon, etc just connect buyers and sellers, which is something brick and mortar retail outlets have been doing for time eternal. The valuation of Color doesn't affect their (Airbnb's, Etsy's, Amazon's) business model.
Don't build bubbly products. Investors will always invest in cashflow, whether its web based or otherwise.
Edit: Clarify ambiguous referent.
Well, I'd disagree that Color's valuation doesn't affect their business model. When you take $40M then you're saying a few things including: we're going to build a great (ala expensive) team, we're going to build it fast, and we're going to get users right away. That impacts one's business model greatly.
Also, I don't want to build products to appease investors. Cashflow is the goal, investors are a less important detail if you want to go that route.
Also, I don't want to build products to appease investors. Cashflow is the goal, investors are a less important detail if you want to go that route.
That was unclear on my part. What I meant is that Color's valuation doesn't affect Amazon's business (obviously a simplification and subject to some overlapping macroeconomic factors).
i.e. Who cares if some investments are bubbly, so long as you're building businesses that are less susceptible to bubble dynamics.
Editing previous comment to reflect the original intent.
i.e. Who cares if some investments are bubbly, so long as you're building businesses that are less susceptible to bubble dynamics.
Editing previous comment to reflect the original intent.
Gotcha. I agree with that. So I was curious if taking funding now has any implications that are not present if there wasn't bubbly activity.
Your point about building a business regardless is the key though.
Your point about building a business regardless is the key though.
It seems to me that any "bubble" which exists is on the funding side, I'm not seeing a ton of seemingly irrational exits (which is the strange thing about this "bubble")
Seems to me the smart play is to try to get as much startup funding as you can right now, build a really long runway and a huge, sustainable company.
Seems to me the smart play is to try to get as much startup funding as you can right now, build a really long runway and a huge, sustainable company.
Interesting. So you're saying to capitalize on the money which is being made available. I was wondering what the pros and cons of this are.
I agree that the bubble exists on the funding side. When you take investments aren't you then participating and abiding by the rules of the bubble?
I was wondering if staying away from the funding (bootstrapping maybe) would let you make decisions that didn't include pressure from the bubble.
I agree that the bubble exists on the funding side. When you take investments aren't you then participating and abiding by the rules of the bubble?
I was wondering if staying away from the funding (bootstrapping maybe) would let you make decisions that didn't include pressure from the bubble.
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There was an interesting link here the other day, a post titled "What are the picks and shovels of the digital Gold Rush?". It makes some good points.
http://erehweb.wordpress.com/2011/03/17/what-are-the-picks-a...
Other than that, take advantage of the number of willing investors!
http://erehweb.wordpress.com/2011/03/17/what-are-the-picks-a...
Other than that, take advantage of the number of willing investors!
bubbles shake out all the weak hands so when it is over everyone left standing hits it big. We barely made it through 2009, but we have more in sales in 3 months than all of last year.
It is difficult to internalize how hard you need to work to hoard cash before a recession, especially when times seem great and money is easy. Even after surviving the 2001 and 2009 recessions it is easy to get sloppy when you have a lot of money in the bank account. We knew the 2009 recession was coming in 2007 and it was still dicey.
Also I dont think we are near another recession, this bubble will have some time to play out.
It is difficult to internalize how hard you need to work to hoard cash before a recession, especially when times seem great and money is easy. Even after surviving the 2001 and 2009 recessions it is easy to get sloppy when you have a lot of money in the bank account. We knew the 2009 recession was coming in 2007 and it was still dicey.
Also I dont think we are near another recession, this bubble will have some time to play out.
"Disregard hype, acquire savings", whether by taking on project work at high rates or getting investments (if you feel you need them).
A bubble is a good time to build your reserves, especially if you're aware it's a bubble and stay frugal. This'll put you in a good position during the inevitable slump.
A bubble is a good time to build your reserves, especially if you're aware it's a bubble and stay frugal. This'll put you in a good position during the inevitable slump.
Invest in things that you believe can actually be self sustaining.
Stay away from things people think are easy to do and look at things people think are hard to do. And then figure out where people are very wrong about the latter, as they often are.
Stay away from things people think are easy to do and look at things people think are hard to do. And then figure out where people are very wrong about the latter, as they often are.
Gold rush? Sell shovels and picks!
I'm not kidding. Find a way to supply something to the people seeking to get rich. And profit from their efforts whether they succeed or not.
I'm not kidding. Find a way to supply something to the people seeking to get rich. And profit from their efforts whether they succeed or not.
While it's painful when the bubble pops, it does serve to clean out all the shit that shouldn't have been funded in the first place.
Go ahead at full speed — the best time to start a startup is when everyone else is running away.
Well, I'm proceeding by shorting Netflix in about 6 hours. We'll see how that goes.
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Discuss!