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Comment by gmarx | Hacker News Reader

Whenever I see articles about how easily the investment money flows or had flowed all I can think of, from a purely self-centered point of view, is "what kind of loser am I that I have never been able to raise a single round?" Seriously, my ideas aren't objectively stupider than the ones I see funded. Even in this article, I mean, home eye exams? Did I read that right? How about a startup that will come to your house and groom your dog? These can be good businesses but are they on topic when we're talking about the angel investment environment? Apparently so. Not that I'm bitter (stop being bitter, dammit!)

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It took me a long time to figure this out, because no one tells you, but it's actually very simple. There are two ways people raise money in Silicon Valley:

1. Traction (rapid week-over-week growth, significant press)

2. Reputation (elite background, connections)

It's very easy to get some initial traction for these local services businesses, so investors fall for them easily. They lose money on every transaction but will make it up in volume ala Kozmo.com, Pink Dot, etc.

Despite the fairytales, no one actually invests in technology startups based on their products in Silicon Valley. Really, no one.

Oculus VR is a great example of the kind of business that investors had no interest in. They reluctantly jumped on the bandwagon very late, and only after it had lots of traction. Very few investors were interested in SpaceX or Tesla. That's how bad Silicon valley investors are at what they do. It's an industry ripe for disruption (see: YC).

I like this comment but I'm unsure how to parse the penultimate paragraph. What counts as "their products in Silicon Valley"?

The false narrative told in Silicon Valley is that VCs are in a constant search to fund new innovative technology products. That they consider it their job to actively seek out great new products to fund.

In reality, they sit around waiting for winners to emerge and then try to pounce (traction). Or they back people that have such prestigious credentials no one will blame them if it fails (reputation).

Palmer Luckey could have gone door-to-door with the Oculus Rift prototype and not a single investor in Silicon Valley would've been interested (product). Without reputation or traction, he had nothing they valued.

It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.

this has been my suspicion that it's a game of hot potatoes where the goal is to pass it to the next sucker for profit. Almost like a Ponzi scheme where the last guy to buy the company bears all the risks, often the public IPO market, while the train of VC and underwriters have already made their money.

The guys who work for VC has to make number of investments and it's not like investing in the stock market, it's far far riskier and uncertain (hence the huge returns). So it makes sense that they would gravitate towards low risk bets by betting on momentum to piggyback on.

This explains why there's crowding towards 'hot & flashy' startups on techcrunch and not as much to individuals focused on technological innovation. This crowding naturally leads to unicorns with unsound valuations that I've been qustioning.

The comments on HN after some hiatus is starkly different than those of 2014 or 2015. In 2014 I said the bubble will pop and I was ridiculed and downvoted to hell. In 2015 more people agreed and now majority of the comments are people ringing alarm bells now.

I think the coming years where unicorns drop left & right, we will also witness the beginning of the end for Twitter & Facebook and towards a decentralized, peer to peer, cryptographic replacement.

>It's actually a very exciting situation because it means there's huge untapped potential waiting to be unlocked. YC has tapped into this just a little bit.

Very much agree. The root problem stems from people's inability to independently measure value. They rely on external signals (traction, reputation, etc), because believing in a team and product independently is hard work. It's a leap of faith, where you have to believe in yourself first. Most people would rather run with the herd.

That said, there are more and more people who don't follow that pattern. As they become successful and turn to investing and supporting the next generation, I think we'll see a lot more daring ventures come to light.

I had (and have) a similar reaction. It was strongest when I was raising money back in 2000 for my first startup.

My co-founders and I were pretty dismayed by the anecdotes of "20 year-olds raising millions with just an idea!" because we were, well, 20-year-olds with a great idea, and the millions were NOT being thrown at us. (And not to sound too arrogant, but we were pretty much in the target demographic for that easy capital -- Harvard & MIT guys with a great idea and great demo.)

In the end, we did end up raising money -- after a LONG slog and MANY disappointing meetings. So we proved it was doable, but certainly not easy.

We came to a pretty simple conclusion back then: The anecdotes were either exaggerations, extrapolations from a tiny number of actual examples, or outright falsehoods. Remember, this was the first dot-com boom, and the story about kids with big ideas and tons of investor cash was a new one and played well in the press, so it's easy to understand why it got play.

These days, the story is different - and to staunch's point above, the "easy money" stories today are either coming from inexperienced/naive investors who think that's how things are done in Silicon Valley, or experienced investors throwing money at folks who have made money for them before (and why not? If your investee made you 10X on your last investment, it's understandable why in some cases, simply as a thank-you, you'd throw one of those Xs back at the new idea.

As a founder who has raised both angel and institutional $$, these articles can have the same effect on me. For nearly everyone, raising money is hard, especially in the beginning. Uber had trouble closing its first money. There's a lot of luck, hard work and network involved in getting $$ in. The first money is less about idea and more about reputation and hustle.

+1 (as a founder, too).

The obvious things: traction, good business plan, viable market, reputation/track record, team, etc. help. But luck and hustle are required, too.

I think the point is, they are good businesses short term. They have a minimal terminal value, short lifespan, and there is virtually no barrier to enter the market.

Sort of like when google launched. The only surviving niche of google X is travel. You just google pets, not petsearches.io.

The equities market is so broken, and interest is so low, that there is an overspend into private markets. Value capture takes 20 years, company lifespan, i would baselessly guess, is 5 maybe. So this shit makes no sense.

Best bet is still make something you like working on, to the extent you represent other people, is pretty much your product demand.

But yeah mate, you could throw up a squarespace site and be the next cat bubble baths on demand startup.

I realized as a super shitty developer, that I will probably totally fail at this side project, but at least when someone gets it done i can say i was years ahead of the curve, just didnt have the chops.

...not that im bitter

While I agree with much of the sentiment (esp in today's Silicon Valley), there are a bunch of caveats:

- A lot of ideas sound dumb when they first come out

- A lot of signals are used to decide which companies to invest in (I don't agree that this is right, but it's easier to get cash when you're in a prestigious incubator, or graduated from a top eng school)

- Many successful companies are a good idea, a good market, and good execution - so an idea is just a (limited) starting point

They're some really (what I consider) dumb ideas out there (esp in the seed part of the space), but I wonder to what degree the unicorns are actually good ideas that raised way too much - and tried to grow way too rapidly.

One thing to really internalize is that a business is not a product.

If you just look at some product that's gotten investment and think "why would they invest in that?", you're thinking about it wrong.

The entrepreneur that's been out raising that round has been out pitching a vision for a large billion dollar business, with that product as just one of the initial steps on the road to getting there.

To raise money from investors, you'll need to on the one hand present a vision for a large business like that, a clear road-map to getting there and sufficient proof to convince them that you and your co-founders are capable of executing on that vision and that road map.

Sometimes you prove this with a working product and traction around it, sometimes you can prove it because of a stellar background (having done it before) and sometimes you prove it because you're pitching to people who already know you very well and believe in you.

Feel comfortable sharing one idea? Just curious, completely understand if you'd prefer not to.

Search. Turns out everyone was wrong. The next google is actually a google.

Most of the ideas and products I attempted to get funded were around the idea of transforming the electronic medical record (in the broadest sense) from a mostly free text entity to a mostly well modeled discrete data entity. For more specific ideas I would be happy to discuss outside this board.

Thanks! It's a good idea, but I can see why it was hard getting funding - it's a difficult market to enter: a lot of people are trying to do this, including large well entrenched competitors, there's a high regulatory burden, and you're selling to a conservative customer base (doctors who need to change their working habits + hospital admin who need to make a significant investment).

(I'm sure you know all of that, by the way, just reflecting on how difficult it would be to convince an investor).

Yep. I'm currently trying to figure out a "back door" to sneak in. I had a meeting with a VC yesterday (not to raise money) and she added an idea to one of my ideas and the result has me pretty excited. Of course, I've been here before ;)

Nothing about any of this is objective, though.

I disagree. Judgments are difficult in the vast formless middle but some things are objectively good business ideas and some are objectively bad. Unless we are having a philosophical discussion about the possibility of anything being "objective", I submit it is possible to define some criteria for a good business idea, then assign by consensus a probability with which each idea meets these criteria.

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