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Comment by guiriduro | Hacker News Reader

The question should really be: why should the availability of cheap capital condition whether a tech business is viable or not?

That's not to say that coronavirus doesn't pose systemic risks by itself and can have significant effects on consumer behaviour regardless of the VC rumour mill and financial market sentiment; just that these are increasingly irrelevant since bootstrapping, crowdsourcing and lean startup provide better incubation for good tech business ideas than the more capital intensive planning that went on in the dot com boom/bust.

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> why should the availability of cheap capital condition whether a tech business is viable or not?

Cost of capital, fundamentally, measures forward-looking risk. (Ideally, unavoidable risk.) A business that would succeed in a stable environment may not in a volatile one.

Set the rate too low and you waste resources. Set the rate too high and you pass on good opportunities. Hence society's interest in measuring this metric accurately.

From a microeconomic perspective, cutting lean when your competitors are buying market share is risky if the next few years will run smoothly. Likewise, burning cash while your competitors build balance sheet is risky if a recession is around the corner.

> A business that would succeed in a stable environment may not in a volatile one.

True, but specifically a good tech business would be one that ought to at least survive in a volatile and capital-starved environment. Treating "good" here in a self-confirmatory sense, which I accept is something of a True Scotsman argument.

> a good tech business would be one that ought to at least survive in a volatile and capital-starved environment

Good businesses should be able to survive a normal recession. Start-ups aren't good businesses.

They may aim to become good businesses. But if their first customer cohorts go bust, or their bank goes under in a country without deposit insurance, or their employees--who have to be on site to do their job--can't get to work because of transit strikes, et cetera, et cetera, they're not going to make it. Irrespective of how prudent they were.

But if they offer an equal or superior product at lower price, they would have a fundamental advantage: people/businesses would be more incentivized to switch to them when money gets tight, when previously it may not have been a priority.

While I agree with the general gist of what you're getting at, I think you're stating it much too strongly. In a sufficiently volatile and capital-starved environment, I think a straight majority of current businesses would be unviable. Stability, safety, and sustainability I think is not given nearly as much emphasis as it should but I wouldn't want to eg. condemn the entire restaurant industry (volatile economy => not a lot of disposable income => nobody can afford restaurants => restaurants go out of business).

Bootstrapping still means that I, as an entrepreneur, am willing to invest my time and money on an environment that might have a reduced consumption in the future. If I have the same risk assessment, I would be better keeping my day job before going full-time on my idea

Appealing to crowdsourcing you are just saying that you hope less sophisticated and seasoned investors (the crowd) is willing to give you money while professional investors that are paid to assess risk (the VC) are not.

For the first business, you're probably right.

For the second and subsequent attempts, bootstrapping makes way more sense than any other means of funding.

Adding to what JumpCrisscross said:

Capital is cheap when business viability is high. If there is economic downturn and demand deceases, fewer businesses are viable in the new conditions.

If aggregate demand decreases ROI from ideas decreases.

> Capital is cheap when business viability is high.

While that may be true, might it not also be the case that the relationship is the reverse, or circular - ie. some businesses are viable only because capital is cheap. Again, I wouldn't consider a business sustainable, or 'good' in the sense I intended it, if it can only survive because of cheap capital.

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