Seed funding has declined | Hacker News Reader

Seed funding has declined

techcrunch.com

219 pointslnguyen136 comments

Given that they define ‘early’ as before A, they simply mean seed fundings have dropped off a lot. There’s a lot of reasons this could be true, but a couple that resonate for me (an investor in three pre-A and two post-A companies) is that 1) the series A cliff is real and is backpropogating to seed rounds and 2) seed is full of dabblers (me included) who have hopefully realized the economics aren’t great unless they have quality deal flow and can afford to invest at least $1M+ being an angel (which means they should have overall portfolios in excess of $10M minimally).

Bonus theory: the bloom is off the crowd-funding rose. Crowd funding was producing a lot of low quality startups that tanked fairly rapidly and probably never had a chance.

Bonus theory #2: few IPOs means few newly minted angels.

Bonus #3: huge companies still sucking up VC like Uber are crowding out smaller investments.

I buy your first one but not so much the second. People and funds investing in seed rounds aren’t putting money into Uber right now.

No but might Uber and similarly sized financing rounds be taking money from people who typically invest in seed/A/B? So those investors' funds flow away from the seed rounds? Just postulating.

Not really. These are completely different classes of investors, and different classes of investment.

Yep. A fund looking to deploy 8 or 9 figures a pop would not otherwise be putting that money into seed rounds.

I like to imagine that maybe Uber and money-losing ventures like it will help bring some balance to the universe by taking away the billions accumulated by super-rich investors and redistributing that money to working-class drivers through subsidies.

Like, I don't know: does all that red ink have a positive effect on the Gini coefficient?

(This pipe dream might not be supported by actual facts.)

I would argue the subsidies are going to the customers. The drivers, who often take out leases only to be surprised by Uber pricing changes, are often just treading water.

Karhoo is a more flagrant example - they allowed multiple referral codes per account, and people quickly circulated lists of codes that together came to over $100 in free rides.

In many cases, I expect customers are getting subsidized by both VCs and by drivers who don't have a good handle on their costs.

Regarding drivers who don't have a good handle on their costs, almost definitely. Mr Money Mustache just did a piece on this recently.

https://www.mrmoneymustache.com/2017/11/22/mr-money-mustache...

> Given that they define ‘early’ as before A, they simply mean seed fundings have dropped off a lot.

Thanks, we've updated the title to reflect this.

To your second point, do you foresee increased consolidation of angels/seed investors into angel groups/networks (even more so than is the case now), so that those investors can share in higher-quality, lower-cost deal flow/lead gen?

Honestly what I’ve seen is the highest quality startups don’t need to talk to those groups, so being part of one merely encourages dabbling. That’s probably a controversial point of view, but I’ve gained zero value from being part of some of them. My best investment came from being a domain expert who has legitimately been able to add value beyond cash.

Isn't crowd-funding just changing names to ICO? I'm not saying it's any better, just that there's as much talk about it now as there was for crowd-funding. Curious what the numbers are for that in comparison, and what percentage of seed stage was crowd-funded.

> I'm not saying it's any better

Donation based funding verses decentralized equity.. And we're not going to say one is better.. Crypto has become so politically incorrect on this forum that we now have to preface logical observations with these sorts of disclosures to avoid the downvote brigade.

If we look at the crypto market cap it becomes clear where early stage capital is going. To where the innovation is happening. But you'd never realize it based on this echo chamber.

Edit: And your comment is in the negative. Keep it real HN

Equity based funding is available on traditional platforms: https://equity.indiegogo.com/

The term crowd funding is not being replaced by ICO. ICO is just one method of crowd funding.

Other strong factors that are not mentioned:

1. Seed funding has long delays to liquidity. The glut of seed investors, money and excitement in 2012-2015 got a lot of investors interested but none of them have got returns yet so they got tapped out.

2. Accelerators like YC have built up a strong brand so seed funding is more concentrated as well.

3. You need less and less money at seed stage so expectations are higher and one would expect less funding activity.

Overall a gentle decline in seed funding from its slightly bubbly levels is a healthy sign for the ecosystem.

You need less and less money at seed stage so expectations are higher and one would expect less funding activity.

It's definitely true that starting a tech company is cheaper than ever ... but only for a certain type of tech company. If you're a developer starting a SaaS business in an industry you know and you have connections to get customers already you can get to the stage where you have your first paying customer by spending about $5/month (write the code, stick it on Digital Ocean, take payments with Stripe's pay-as-you-go tier).

However, there are a lot of businesses like physical manufacturing, knowledge-driven research, complex software, etc that you can't do that with. You need the money up front or you can't even start. If seed money falls away then only the already wealthy will be able to start in those industries. I think we'll miss out on some great ideas that could turn in to huge businesses if that's the case.

"complex software" as far as I can tell, the complexity of problems solved by startups decreases over time. The true hack isn't coming up with a hard solution to a hard problem, but in finding the simplest thing that people will interact with and share.

Yes. So many articles about funding and startups live in this small little bubble of thinking that all startups make a silly little app and that their trajectory will be that of the social mobile craze a few years ago (get users, retain, monetize).

I run a hardware startup and this is really obvious as most funds simply can't understand how you can make a thing, sell it, and grow the business to a large size, as if selling atoms instead of electrons is so weird. Even when that hardware has its core value in software.

We are lucky enough that we already make money and don't need VC. From the meetings that I have been asked to, I get this sense that many VCs won't seriously look at businesses that do anything substantial in the seed to A funding stages. There is no shortage of ppl that will write a 5M check with a couple other similar sized checks, but few will write a check for 500k/1M.

The classic descriptions I have always heard are seed = build and find product market fit. A = with that fit, do your first bit of aggressive growth.

But when you talk to folks right now, their requirements for an A seem to be that you have already grown a lot. And if you're a cashflow business like ours, it leaves me scratching my head, as at that point I dont need their money and def won't take their 'raise another seed' type offers.

The number of times I have gone into meetings, been told that they werent sure if it was a 1B business is my favorite. These guys dont want to buy shares but they and their buddies buy the product! lol

I think early VC is scared. They have no idea what makes sense and what doesnt. They have all these rules of thumb that apply to a narrow type of company and now that the barriers to entry on those are so low, the noise is overtaking the signal.

What about ICOs didn't they some kind of seed funding?

Were there any legit icos?

there are some. checkout https://coinlist.co/

No, they're a way to part fools from their money.

ICOs are a more recent phenomenon and I don't think the volume of ICOs (though high) can account for the drop over 3 years.

My main takeaway is that there seems to be little incentive to invest in new companies, just invest FB, Google, Lyft, Spotify, etc.

That can't be good long term for the tech sector.

If you are looking for a steady ROI this has always been true.

You don’t invest in startups unless you’re hoping to make huge returns. Investing in FB or Google at this point will never get you 100x returns.

I see it as a difference in investing $100K in 50 startups and one gives 100X increase vs $1million in 5 companies all giving like 50% increase. The risk/reward for more medium-large companies is far too appealing these days to avoid

Perhaps so, but it's a reflection of the opportunities, or rather lack thereof.

Well, VCs don't just stop funding stuff for no reason. I'm sure this is an effect and not the cause. I suppose, VC must be getting less returns on Seed rounds and everyone's starting to see that most of the new opportunities are gone. It's now all about established businesses that already have a user base. We've already seen this play out with the gaming bubble when it peeked in 2012.

There is also far less apetite for "tech unicorn" startups and IPOs on Wall Street now than a few years ago. The gold rush is over and now people are waking up to the fact that most of those super hyped companies will never turn into the next Facebook. The Fed having turned of the money faucet (i.e. quantitative easing) probably has something to do with that, too. Plus we have seen a sector rotation from tech to financial stocks recently.

Without a greater fool to sell the VC's stake to after a few years at most, the whole VC business case wouldn't work. That means VCs have to be far more discerning.

Not surprising when half the shit people fund was dog shit to begin with. Half of the time I read about start ups with the most trivial ideas ever and wonder how dumb and blind people are to throw millions at them

Most big internet wins started as little ideas. Its about the market and timing? More than how shiny the idea is. If there's a customer for it, then it can make money.

They started out as fundamental ideas, not little ideas.

What do they mean "no one's talking about it"? That's just clickbait, it's been talked about widely that seed funding has been declining, but Series A and later rounds are staying about the same.

Just a google search for "decline in seed funding 2017" shows how many big outlets have had stories this year on it.

Perhaps the ~10yr life-cycle of many funds started in 2007 have ended in disappointment for many LPs. I wish there were comprehensive statistics on GP performance.

It would probably be very educational to see the same sort of post-mortems from those funds that we've seen from their investments.

What more could they say really? They already expect most of their investments to fail expect for a few big outliers.

"We expected X, Y happened, and we learned Z" would work for me.

Failed VC fund : "We expected 90% of our investments to fail. 100% of them failed. We learned that choosing the right company to invest in is harder than we thought."

Successful VC fund : "We expected 90% of our investments to fail. 80% of them failed. We learned that we are awesome at choosing good companies"

Realty : They both gambled. One of them won, the other not so much.

Hence Funds were being raised 2-3 years ago to record amounts. The amount of capital that can be deployed right now, if desired, should still be very large.

There also seems to be a contraction in digital publishing. I think the money well is starting to run dry and we might be seeing the beginnings of a flight to quality.

http://talkingpointsmemo.com/edblog/theres-a-digital-media-c...

The reasons for the contraction are well explained by the author in that article, though, including why venture capital investing has slowed in the sector - the business model for most of these companies doesn't seem to have the same explosive potential previous investors predicted and it's clear the expected returns won't happen either. Not an attractive market at the present moment.

The gold rush is over and the profits go to the big five.

This is unfortunate because a lot of the 'innovation' in the big 5 comes from acquisitions, and without the VC money startups won't exist to be acquired

Following your model, then 'innovation' at the big five will slow down and there will be greater incentive for people to create new start-ups... and the cycle will continue.

"It's different this time", but, it's different this time. As the Information Age advances, entrenched players can use their information advantage to outcompete. For example, Facebook has analytics on every small startup that gains traction, and can due much better due diligence than the startup's own investors, and so can buy the most promising ones out for cheap.

The companies still have to be willing to sell, and there's greater and greater liquidity in the market. While the ICO fad will fade, there will be new financial innovations to take the place of ICOs.

More than some of that is the ongoing contraction in publishing as a whole. That's been going on for ~20 years, but knowledge transfer has been incomplete. Even in good times, successful publishers don't often throw off the multiples VCs prefer.

A flight to quality would be great.

Y Combinator partners have been saying for a while now that accelerators were a bubble. I see what they mean now.

Speaking of which, I wonder what this artcile means when they say "early stage".

Do $200k "angel rounds" count the same as $5M Seed rounds involving actual tier 1 or 2 VCs?

Early in this case means before Series A.

I feel like a lot of it includes angels who instead chose to buy Bitcoin.

Sure, but its also in their interest to push that narrative. Doesnt mean its wrong, just that its not as simple as a neutral observer. That and when ever any prediction is right, there are always tons of people that predicted it as a result of just large numbers. I think they wohld rather just convince investors that their program is the only quality accel. around. If they can, it means more funding for their investments and less for their competitors...

Fwiw, there seems to be a push from VCs to bring you in talking about a 'normal' seed round (a smallish figure, debt-financing or simple equity-financing), but then try and talk up doing a large Series A immediately (with all the complexity that brings).

The idea being that you then have enough money to go and do whatever you want, at any cost, and work your way to a Series B. In the mean time, the VC(s) get their share and have some/all board control.

That doesn't really make sense from the VC perspective.

At seed a startup normally has a much cheaper valuation so the VC can get the equity stake they want at a much cheaper price. VCs can also take a board seat at seed level (most don't because they don't have the time to take board meetings for all their seed companies).

Do you really mean Series A or do you mean priced? I did see a presentation from a seed fund that insisted on a priced round recently.

Can anybody explain this sentence?

>> More worryingly, it comes at a time of unprecedented stock market valuations worldwide.

So people are putting their money into stocks because interest rates are low and there’s nowhere else to put it? It’s worrying to startup investment because...there aren’t many good opportunities to invest instead of the stock market? Not sure I’m understanding this correctly..

When interest rates are low and/or stocks are overvalued, interest in alternative asset classes like venture is supposed to increase. Think of it like a BATNA in negotiations.

Right, so what are possible explanations for interest in alternative asset classes not increasing, and why is that worrisome?

I'm not sure it's worrisome but putting your money in asset classes with low appreciation potential is still an improvement over setting it on fire.

I think it's worrisome because it means people are keeping their money in stocks - they aren't acting as if the market as overvalued, even when everyone's talking about it (which could contribute to a bubble pop).

Essentially:

1) Stocks are super expensive, so future yields from stocks are expected to be low. (Since price increases will be low and dividend per invested dollar will be low.)

2) Bonds yields are super low, because interest rates are super low.

This means that logically you should put your money into other investments. Which just isn't happening that much . Uncertainty has led to a "flight to safety" into US stocks and cash. Investors currently seem to prefer buying big, expensive companies instead of gambling on higher yield/risk investments.

Congress' and the SEC's diligent efforts to regulate markets and prevent another 2000 have also prevented another 1999.

Now companies don't IPO... they suck up all the funding that would otherwise be aimed at actual startups (as opposed to companies that should probably be listed in the Fortune 500).

The stock market is white hot right now. Why take a huge risk on a startup when your index fund is up 20% in just one year?

The point of investing in startups is not to get better returns, it’s to get different returns. If you already have a ton of money invested in stocks, diversifying a bit by throwing some capital into startups is not a bad idea in case the market tanks.

They are related, in that you are hoping your startup will become a future stock. So if stock prices are down, so is your E(V) at startups.

Becoming a stock is only one way to exit. The startup could also get acquired for a ton of money by a bigger company.

Like NASDAQ: GOOGL or NASDAQ: FB?

What actually changes hands in a typical startup acquisition? Hint: it's usually not cash.

Where do you think the venture money comes from? Mostly from investment banks and faceless funds, not a bunch of rich guys.

These funds have diversified portfolio. They are paid to produce good returns, so a small part goes into "alternative investments" and such, which is potentially high-risk, high-yield.

The article does a good analysis but they forget to mention another factor: cryptocurrencies. It's clearly the biggest bubble right now, which means it'll draw the money used to gamble.

Cryptocurrencies are also used to directly invest in startups via ICOs. The ICO market is reportedly bigger than the venture capital market as of a couple months ago; the numbers in this article are completely consistent with a shift in early-stage fundraising from seed funds to ICOs.

https://www.cnbc.com/2017/08/09/initial-coin-offerings-surpa...

Is the quality of seed stage ventures as bad as the quality of nearly all these ICOs? If so wowza.

If you take as your universe the set of all ventures that pitch to seed stage, probably yeah. Most of them are weeded out by investors. I suspect a good many ICOs are weeded out by "investors" as well, but if you pitch to enough people, there's always someone willing to suspend disbelief. (This goes for seed stage ventures as well...some truly idiotic business models have gotten funded.)

Most seed-stage companies aren't trying to raise $150mm. And you actually have to tell people who you are.

Yes, but ICOs as a class are not counted as seed investment, at least not of the traditional variety that is known to be legal.

I think the opposite. The stock market is where it is because money has no where else to go.

If there were good opportunities in early stage startups money would be all over them. The opportunities just aren't there.

So you're suggesting seed funding is down because the startups just aren't as good anymore?

A startup growing 5% week on week is worth 1100% more in a year. Of course, it's a lot less liquid and likely to lose everything. Huge risk, huge returns.

Sure, so you have a portfolio with lots of startups to spread the risk. If your total portfolio made less than 20% this year, you wasted a whole lot of time.

Most seed stage investments return 0. The ones that return 10x or 100x are the ones that seed investors are counting on to balance out returns.

If you want to invest in early technology that is vague on substance and has only speculative potential to add true value, then why would you invest in startups when bitcoin has far higher returns?

Because startups create value in the real world?

I’m not a fan of Bitcoin but it creates a lot more value in the real world than many Silicon Valley startups; such as the ones building webcams for animals, or delivery for X.

Yes, the best of one category is better than the worst of another category.

Well regardless of what we think of those startups, massive amounts of money are being poured into them. How much value are they really creating though?

If you look at per energy expenditure, I'd argue that "webcams for pets" or "delivery for X" are probably delivering more value per unit energy used, because of relative efficiency.

Lots of alt-coin startups... ICOs are mini IPOs

I'm worried about a world where everything is tokenized. I feel like this needs to be talked about more and no one is willing to because there's still so much money to be made.

Are we really going go be expected to use and understand what essentially amounts to one token per service we use?

Is your primary concern where everything is tokenized at all, or where everything is tokenized differently? The latter will have enough exchanges, commissions, arbitrage to create markets. There should be more angles covered re the former.

Because bitcoins are monopoly money with technobabble.

I have known about it for two years or so and I can't say that I'm terribly well connected.

It is all going to Bitcoin.

... and into the air as CO2. Last I heard mining consumes as much power as the entire nation of Ireland.

Yes, but did you hear how much power nation of Ireland is consuming? Last I heard as much as whole Bitcoin blockchain! </s>

I assume this is blatant speculation. Do you have any data or any other indication that indicates that venture funds are putting money into Bitcoin? Or if the investors in the funds are pouring money into bitcoin.

Could be - or it could be going to ICOs. It seems the initial scams phase is (mostly) over* and they are becoming more and more like regular investments.

EDIT: * not to say you should invest in ICOs without proper research and without knowing what you will get out of it.

That would be a cruel joke, given that bitcoin is essential to very few people.

It seems to me that seed funding was treated too much as a disconnected financial bet instead of a connected reasoned instrument? I mean, the seed as a small lump sum of money plus closed-circle services buys time but nothing organic. More consideration seems being given to industry-tailored, vertical seeds aka the big players playing with startups as prospective, cheap, external, disposable, temporary r&d departments.

It’s much easier and faster to raise seed round amounts of money via an ICO than it is to deal with the huge time sink that is courting angels.

Let’s be realistic - something that’s happened a (relative) handful of times over the past 12 months does not explain a dramatic 3+ year trend...

It has happened hundreds of times actually. There have been tons of ICOs. I would not underestimate it.

>The data shows by far the sharpest fall in activity has been in early- and seed-stage rounds. In fact, later rounds have remained fairly flat the last three years, and A and B rounds have fallen, but not nearly by as much.

A/B rounds I guess is being called "mid stage" in their graph. For both early and mid stages, we're back to lower than 2011 numbers. Mid stage rounds may not have grown as much in frequency than early stage, but they're back to levels just as low as early stage, comparatively. Given that, the author's observations look very biased and reeks of trying to interpret the data to fit the narrative.

It would be interesting to see what is defined as "VC Funding" - specifically, I suspect it may exclude accelerator programs (or measure the whole accelerator program as a single funding activity for a VC fund).

The drop in VC fundings seems to align reasonably well with the increase in accelerator programs[1]. That makes sense - as tech companies are getting cheaper and cheaper to start.

[1] https://www.entrepreneur.com/article/271000

That can explain the trend in #fundings, which is a silly metric anyway. But $$$ has also plateaued and started to drop.

Maybe?

Depends how and when it is measured. If the 2017 figures cut off at the start of September (which isn't crazy if it gathered quarterly) then it is on track to be the most ever. If it cuts off at the end of November, then it's a real drop.

Reporting from Singapore. Yes, seed funding has dried up here as well.

On the other hand, the TechCrunch chart shows that the amount is still higher than, say, 5 years ago.

How much of the early investment done in startups is motivated by QSBS (pre-$50M)? Maybe the virtuous cycle has stalled as participants haven't reproduced.

https://news.ycombinator.com/item?id=15594177

I doubt it has a major impact, but it may be a small part.

I think the effect of QSBS is quite small. It has only really come into force with Obama's initiatives in 2009+2013 and it seems that few people know of it and understand it.

Unlike 83b, not many people are even aware of QSBS. For example, it isn't mentioned at all in the 3rd edition of Venture Deals. I've been in a few Silicon Valley workshops (Morrison Foerster and also Berkeley Law) and neither mentioned QSBS. YC doesn't seem to provide any guidance. I see very little on it from SV law firms. I've asked and I get a recital of the basic mechanics. First Round Search doesn't mention it.

https://search.firstround.com/search?query=qsbs

Anyways, I've been looking into QSBS myself. I don't know why QSBS isn't a bigger thing, especially since the maximum capital gains rate increased to 20%.

https://g.foolcdn.com/editorial/images/433057/maximum-capita...

I don't think startups are handling this well for either their early employees (which includes founders themselves) or for any individual angel investors who could qualify. Empirically this lack of interest in QSBS is the case. But I don’t know why it is the case.

i figured the opposite might start happening with Softbank's gigantic fund coming online. But I guess if they're going to go after late-stage "winners" and that's how everyone else is going, then maybe tech startups will have to start thinking about starting business the traditional way.

There's a cap on governance that these funds can do, no matter what the size (ex: 10 companies per parnter, or whatever the standard is). So if SB has a $100B Fund, that predisposes them to very late stage deals. In fact their deals will look more like PE than VC.

I would view Softbank as more of a holding company than a VC investor. They do make some speculative investments but it seems more of their investments are in industry specific established companies.

I believe at least 50% of SoftBank's $100 billion Vision Fund is dependent upon Saudi Arabia, which recently arrested several prominent businessmen and investors that were integral to securing the deal.

As far as I know, the status of Saudi Arabia's $50 billion investment into the Vision Fund is uncertain right now due to the arrests.

I don't see this as being too terrible. Hopefully it causes companies to focus more on selling things to customers, instead of just "growth hacking" to get more users that don't actually contribute to the bottom line.

it's official, we are running out of ideas

more accurately, running out of solvable problems

It's time for another innovation unlocking to occur. Someone needs to build a platform that does what the internet did for software, but apply that platform to the world of hardware and the real world.

I still need a robot to clean up my kitchen and put the kid to sleep.

You mean something like a web of value vs the web of information we have currently?

Where we can meld physical properties with digital and interact in both worlds seamlessly through AR.

In order to do that we would some sort of immutable database where many parties can come to a consensus on its values...

Well, i was think more along the lines of reducing barries to the point where anyone can create a real product. For instance, anybody with basic coding skills can create a website or social network. Imagine if anyone with some basic programming skills could build a house, a new car, a form of transportation, a cheaper form of medical insurance, a new robot, etc. We'd see an explosion of new innovation, that really would benefit society. As it stands right now, all the above requires enormous amounts of legal knowledge because even if you had the hardware/AI skills to do it, it's illegal and politically insurmountable.

I realize this won't be popular with this crowd.

One big reason is the campaign against patents in general, and against software and e-commerce patents in specific.

Why would an investor put down money for an idea for a new website where FB Google Amazon Apple MS will simply copy the idea and use their economy of scale to remove even the hint of success?

Do you have any evidence for this hypothesis?

As an early stage investor, I don't find that logic compelling. What makes a company an exciting investment isn't that they are doing something that is protected via intellectual property from $BIGCO. It's that they have a compelling team and a unique set of advantages (maybe product, niche market, timing).

Even with patent protection, $BIGCO can still win that battle. Litigating and protecting intellectual property in that context will kill the startup anyway.

I don't find that logic compelling either.

If $NEWCO_A and $NEWCO_B are effectively equivalent (team, advantages, etc.), but $NEWCO_A has a provisional patent application that protects the idea and $NEWCO_B does not, then the value of $NEWCO_A should be greater than the value of $NEWCO_B. Thus, patents (i) should add value and (ii) may make an average investor more likely to invest.

If the value of the patents of small companies is being reduced because patents cost more [1] and are harder to enforce [2], then $NEWCO_A will have less of an advantage and won't receive as much funding as it would have otherwise. Thus, there may be fewer investors willing to invest because of the decrease in the value of patents of small companies.

[1] http://www.ipwatchdog.com/2017/07/16/real-staggering-cost-ge... [2] http://www.ipwatchdog.com/2017/11/16/ipr-petitions-virnetx-p...

Not sure what “campaign” you are referring to, but patents rights are still strong and there is nothing to stop someone from applying for them.

Filing patent applications isn’t all that cheap and can easily cost 10k per application in legal fees. Not sure that is the best use of resources for a pre-series A company. These early stage startups usually die off from not getting customers/users. I imagine seed investors are more worried about their companies not getting traction. By the time they have enough users that facebook and google start to notice, they can raise a series A and file for patents.

Also, let’s say Facebook does copy a seed startups patent protected product. What are the company going to do, sue them? Seed funding might be able to pay lawyers for like a week. Patents are a big company’s game.

TLDR: no, patents have absolutely nothing to do with the decrease in seed funding.

I expect you are biased against patents and had your TLDR conclusion in mind before writing your post. While patents may not be the only thing affecting the decrease in seed funding, saying that "patents have absolutely nothing to do with the decrease in seed funding" seems a little extreme.

The "campaign" includes Supreme Court opinions [1], Inter Partes Reviews [2], the Patent Trial and Appeal Board [3], and biased government actions that favor, e.g., Google over smaller companies and inventors [4].

"patent rights are still strong ..." Yes, anyone can file a patent, but the costs for enforcement are higher and higher [5], while the probability of successful enforcement is lower and lower [6].

"What [is] the company going to do, sue them?" Yes. If patent rights were "strong" like when BlackBerry got sued and settled for $612M [7], then investors would be lining up to fund the company and its litigation.

[1] https://scholar.google.com/scholar_case?case=778413475528498... [2] http://www.ipwatchdog.com/2017/08/08/problem-inter-partes-re... [3] http://www.ipwatchdog.com/2017/07/22/ptab-number-one-enemy-i... [4] http://www.ipwatchdog.com/2017/11/13/ptab-targeted-advertisi... [5] http://www.ipwatchdog.com/2017/07/16/real-staggering-cost-ge... [6] http://www.ipwatchdog.com/2017/11/16/ipr-petitions-virnetx-p... [7] http://money.cnn.com/2006/03/03/technology/rimm_ntp/

And every startup would again be having to worry about patent trolls.

Patent rights have not diminished one bit. What has diminished is the ability of patent trolls to abuse the patent system, and more review allowing for patents that should not have been granted in the first place to be revoked.

> Patent rights have not diminished one bit.

There are several that think quite the opposite of this extreme statement. [1]

More to the point, the courts have finally addressed one of the major problems with patent trolls, which is the cost difference between a plaintiff and a defendant for adjudicating an arguably frivolous case. [2] [3] With this new interpretation of venue, it is significantly harder, if not impossible, for plaintiffs to pick a friendly venue where plaintiff costs are 1/10 to 1/100 the cost of defendants for arguably frivolous adjudication.

However, past attempts to whack patent trolls (the AIA, IPRs, and PTAB) are still harming the patents of small companies and inventors. [4] [5]

[1] http://www.ipwatchdog.com/2017/08/11/us-inventor-patents-on-...

[2] http://www.ipwatchdog.com/2017/05/26/supreme-court-reverses-...

[3] http://www.ipwatchdog.com/2017/09/21/federal-circuit-strikes...

[4] http://www.ipwatchdog.com/2017/08/08/problem-inter-partes-re...

[5] http://www.ipwatchdog.com/2017/07/22/ptab-number-one-enemy-i...

With the cost of litigation so high, it would seem this is a really "hair on fire", "big problem" to solve. why aren't more start ups in the legal space? I know one company that's doing something like it, but haven't seen many that are actually in the IP space handling this issue.

Excellent point.

The issue is more than simply the increase in cost. To address the issue, small companies and inventors would likely have to file appeals to the Federal Circuit and then file appeals to the Supreme Court AND and hope that enough judges go against the grain of the current environment to help with the plights of small companies and inventors.

By definition, small companies and inventors do not have the money for this litigation and investors are unwilling to fund litigation that will probably not be successful in the current environment.

I have no opinion on patents one way or the other, and you have some interesting points about the evolving statues and case law surrounding patents. No arguments there.

But I don't think the things you mentioned are really relevant because patents are just not a viable strategy for _seed_ level startups, and that was just as true 2012-2016 (the seed boom) as it is today. Litigation may be getting more expensive, but it is a moot point because it was already prohibitively expensive for seed startups when it was "cheap." For a company that has only raised in the 500k to 1.5m range with negligible revenue (as would be usual for a seed startup), litigation is off the table.

I also find your reference to the BlackBerry case to be totally out of left field. Under no possible definition of the word "seed startup" could NTP possibly ever be considered one. So how is the example relevant?

Do you have any examples of actual startups that use patents as part of the strategy? There are different definitions of startups, but no one considers a non-practicing patent holding company founded in 1992 to be a startup.

I feel like you have an axe to grind about patents, which is fine, but I honestly don't think there is any relation to the decrease in seed startup funding.

I'm not buying that. The reality is early stage companies dont bother with patents as mich because of money and time constraints. Really well funded compa oes sure, but the reality is patents are a tool for the big guys, if you have to do battle with google, your startup is probably screwed either way.

This is exactly the problem. Patents used to be a tool that little guys could use against the big guys. Like when Google started with a patent on its search algorithm that prevented Yahoo from copying its idea.

Interestingly, this was also a form of wealth redistribution that forced large companies to give money to smaller companies with good ideas.

If you assume that the patent system is being weakened, it is interesting how it aligns with a reduction in seed funding while at the same time seeing massive market valuations for already enormous tech companies.

Yes, but this ignores the fact that those patents are transferred to an acquirer upon the sale of your startup. Yes, the patent is largely useless to your startup. However, if you've proven the market, a patent could be an attractive perk to acquire your startup (rather than just copying and crushing it) since they can use that patent to keep other big players out.

Anyone know why the title was changed away from the actual title of the article?

https://news.ycombinator.com/item?id=15822097

Hopefully seedy people along with it.

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