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Comment by pg | Hacker News Reader

Founders nowadays think about selling about as much, and in about the same way, as they always have. But it's meaningless talking about startups being "designed to flip" because you'd do the same things regardless of whether you wanted to sell early or keep working on the company for the rest of your life: you have to make something great and thereby get rapid user growth.

Ironically, the only externally visible sign that a startup's founders are hoping to sell early is when they don't do something she attacks founders for doing: raising a lot of money. Raising series A from a VC fund means ruling out an early, small acquisition, so founders who want to keep that option open try to raise as little money as possible.

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Editing your post to say something entirely different after I've written a rebuttal to it but before I've posted it is cheating ;)

So there's three main methodologies I see at play in the startup world. There's the go-big-go-home crowd, the facebooks and groupons and squares and so forth. There's the ramen profitable crowd that operate like typical small businesses: the fog creeks and the like. Then there's the flippers.

We all know the story of the Go Big or Go Home guys; they've been a part of the SV psyche for decades. Similarly, the ramen profitables/small businesses are pretty standard. My uncle started a small game development house about a decade ago that makes FPS training programs for service rigs in the oil industry.[1] It's a new take on a very old business model, and while they make a very comfortable living they're under no illusions of a $40MM buyout. They expect to be doing roughly the same thing ten years from now that they were ten years ago.

Compare the above with flippers. We have founders who come up with an idea for a cool, if maybe gimmicky app. They build it; it's flashy and does something interesting. They iterate, pivot, and find a userbase. Then they sell to Google/Apple/Microsoft/whoever. Now, there's nothing wrong with this per se. The issue that the author and I both have is that this appears to have been the plan all along. There appears to be no desire on the part of the founders to build a business, rather they're spending a couple years on a fancy tech demo in the hopes of landing a sweet job with a fat signing bonus. It's almost like a practicum as opposed to a business, something that you do for a few years after college so you can get a better job. The defining question for me is this: how many of the founders would be happy if in 10 years their company had experienced healthy growth and they had 15-30 employees, taking home $300k/year? Alternatively, how many are shooting for an IPO and a company that will still be around in 50 years?

I'm not saying flipping a small startup is a bad idea, just that it feels a bit disingenuous to call these ventures businesses. They feel more like a graduate degree combined with an innovative investment engine. And, while I understand why you took umbrage at the author singling out YC, these ventures are exactly the kinds of startups that YC churns out.

[1]Shout out: http://cooleimmersive.com/

I think you have a misunderstanding of why people invest.

There is no correlation between the type of business and the willingness of the founders to sell out quick vs ride it for the long haul, assuming in each case the founders are equally rational.

There is however a difference in aptitude for running an early stage startup and building a business that will pay you $300K per year. Many times the founders intend to do this but fail b/c it's not their strength. Let's face it, a lot of success has to do with timing and luck.

This is where something like YC is hugely valuable. You're working with seasoned entrepreneurs who can help avoid common pitfalls (which looks like luck) and funding is also more readily available so you're less likely to make a decision out of financial desperation.

I think you have a bit of blindness (no offense) in your argument to the way that market forces dictate what the right decision is. Given equally rational and equally risk-hungry decision makers, the decision to be acquired vs sticking it out is not often ambiguous. To argue that it's a matter of the individual psyche is I think fairly silly and overly focused on the personality/pr aspect of startups than on economic reality.

I think you're reading my argument as something it's not. I'm not saying that the current model is in any way bucking market forces, quite the opposite. I'm saying that the current model of entrepreneurship seems to be focussed more on a quick ROI/liquidity event rather than innovation or business-building. That in itself is not bad. My complaint, which I think the author is hinting at as well, is that this model of startup is far more "credit swap" than "mom and pop". It is, as she said, a commoditization of entrepreneurship.

YC, while invaluable for founders, is also an investment vessel factory, and the economic model it embodies shares much more in common with the kinds of financial products we see from Wall Street than traditional venture capitalism. Yuri Milner's offer of $100k to each YC graduate embodies this. It's a scattergun approach that, while likely profitable, incentivizes flipping over innovating.

This sentiment is an insult to the hard work, blood, sweat, and tears that my YC friends and colleagues put in every single day.

YC is made up of brilliant, hard working hackers, designers and hustlers who are trying to change the world through building disruptive software. It's never been about flipping. It has _always_ been about making something people want.

Once you make something people want (which IS none other than innovation), only then do you have the optionality of selling or doubling down. This argument is utterly confused. In so many words: You can't flip something that isn't actually innovative. Because nobody will want it.

Not intended to be an insult, although it's nice of you to go ahead and downvote every comment I made on this thread. Perhaps instead of taking a criticism of the industry as a personal insult (and reacting in kind), you could look at the meat of what I'm saying and address those points?

Edit: Sorry, not just every post in this thread, but every post I've made today. Wow. Way to represent YC. Stay classy, man.

I think you're being oversensitive, especially given that redthrowaway was responding to a comment which said, in part:

"There is however a difference in aptitude for running an early stage startup and building a business that will pay you $300K per year."

...which, at your level of sensitivity, is extremely insulting to the rather large number of people that own and manage the many small businesses that society relies on.

Any angel investor or VC firm resembles wall street. As I'll explain, this is a meaningless assertion:

- Suppose there is high risk. Any investor, whether it's an angel, VC firm, hedge fund, etc., is going to very likely use a scattergun approach. That's just how the numbers must work when you're looking at high risk investments. An exception means that someone got lucky.

- Take a mom and pop business. Suppose it needs capital. The typical approach is to get a bank loan. This is similar to selling shares to a VC but with different terms and a different distribution of risk. Just because something like a farm lends itself to loans and something like a video game for the iPhone lends itself to VC funding doesn't mean that the two businesses are fundamentally different, just that the cash flow and risk result in a slightly different form of cooperation between the individual(s) and the financial firm.

- "Traditional venture capitalism" was simply a more risk-averse type of financial firm. They let angels take the big risks and reap the big rewards and settled for bets that looked more like a sure thing (but still riskier than would have made it suitable for other forms of funding).

- I don't think you have made the case that any of this incentivizes flipping, or that flipping is "bad". I'd argue that to the extent that firms exist b/c they can be flipped, that is innovation that would not have happened if the financial structures didn't exist to match investment dollars with innovation and entrepreneurship -- startups get acquired because an acquisition offers better value and/or lower risk to the acquiring firm than trying to develop the equivalent thing in-house. If you're stretching this into an analogy about elaborate financial instruments, I think it's quite a stretch.

I think that what you're actually seeing is a bit of a credit bubble around startups that resulted from the destruction of many of the risky (but well known) wealth creation instruments that Wall Street had been using. Of course, more investment means another "layer" of startups will exist with another "layer" of risk characteristics. Yes this is similar to wall street, but it's a consequence of the basic laws of economics and nothing else.

> Founders nowadays think about selling about as much, and in about the same way, as they always have.

Is there evidence for this? I get the impression that HP, IBM, Apple, Microsoft, Adobe, Sony etc didn't think about exiting as much (of course, selection bias). Though Xerox and Google did try to get bought.

I don't think that short-term vs. long-term motivations encourage precisely the same behaviour.

when did something great need rapid user growth? Investors often require that to make a return, but does that define that you've made something great? Random example plastic logic, no customer growth, raised ~£1B, will plastic electronics technology change the world more than any Valley based company to date, who knows, but it has a damn good shot at making an entire new industry. They might not succeed as a company, but as an idea they are making something astonishing.

> ...and thereby get rapid user growth.

Only for a small subset of businesses.

(Usually, the ones that investors are most interested in, because it's where they're more likely to make more money.)

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