Hacker News Reader

Comment by nostromo | Hacker News Reader

(I wrote this comment in reply to the original post, not the new post which is entirely different. Original post: https://twitter.com/neerajarora/status/1521964283466113024)

Fool me once...

It reads as very self-serving for these folks to create a business model that is clearly economically unsustainable and fueled only by venture capital, then sell their company to Facebook for billions of dollars -- and then to pretend like they're shocked that Facebook wants to make their money back.

Of course they do. You knew that. We all knew that. And you still sold your business anyway. That's fine -- good job -- we're happy for you -- but don't act holier-than-though now that you're rich and bored. And don't start a new company backed by venture pretending you're not hoping to do it all over again.

View on HN

Their take, that WhatsApp has been ruined, is weird to me as a regular user of WhatsApp who has been using it for what must be a decade at this point. I don’t have a single complaint about it, and I’ve never heard a complaint about it outside of anti-Facebook sentiment in tech circles, and while we can certainly begrudge Facebook’s behaviour in a lot of ways, it seems absurd to suggest that Facebook have somehow ruined the user experience of WhatsApp — it’s one of the most consistent apps I’ve ever used, and continued growth surely demonstrates that.

Yes. The international standard for getting shit done when you need to order direct.

Also nice that they are building out product catalogs. In the developing world sometimes it is difficult to get a list of products with prices.

https://blog.whatsapp.com/introducing-catalogs-for-small-bus...

Well then, a complaint. It should not require a phone number nor should it require access to my address book.

It probably requires a phone number to limit the amount of bots on the platform.

Internationally, whatsapp has been a big (or bigger) source of bullying, mobs, and disinformation in group chats - with even less visibility or moderation capacity/capabilities.

> shocked that Facebook wants to make their money back.

Haha. So true. As if all these people in the heart of the money spinning and raking machine that is SV were so naive and cheery eyed, that they just didn't see what all the "deals" were.

They didn't know that FB has a fiduciary duty to explain its spending? They didn't know that Zuck wants to increase the share price and market cap of FB?

Did they really think that paying 1$ for downloading WA was a good enough revenue stream?

Did they really think that Zuck was such a fool to actually allow that "No Ads..." bullshit paper really run?

He waited for a couple of years, mining user data, then when people mostly forgot about it, went in for the kill.

The thread is a yawn. I can feel no moral force, no genuine passion from it. Even if you ignore how he cashed out and suspend disbelief for the sake of a good rant, it's still boring.

I'd say go wipe your tears with a wad of Benjamins, but I'm not convinced there are any tears being shed to begin with.

“If you’re bored, you’re not paying attention.”

WhatsApp was making decent money and not burning VC money at all when we sold to FB. this was in 2014. There is no such thing as clearly economically unsustainable. It is just harder.

WhatsApp was operating at a loss when Facebook bought it in 2014 and this is when it had 600 million users. Now it has over 2 billion. Source: https://techcrunch.com/2014/10/28/whatsapp-revenue/amp/

yeah read the story. " Its net cash used in operating expenses during the first half of 2014 was $13.5 million, which sounds much more reasonable."

Would the WhatsApp business model of 2014 be able to afford the vital features nowadays of voice calls, video calls, large files, etc? Do you really believe that WhatsApp would have been able to get that 1 dollar from emerging markets as well, which have a tougher time performing online transactions?

Does that mean Whatsapp did not burn 7+ figures a year from 2012 to 2014?

The way WhatsApp used to make money was through a subscription model. It cost $1 to download and then $1 a year going forward. Facebook eventually removed the $1 fee and made WhatsApp a free service, I paid that Dollar!

right. Many around the world paid that 1$.

WhatsApp had 600M users. A dozen million people paying the $1 per year is many people. In the multiple threads about WhatsApp and the $1 charge, most people never paid anything. Looking at the revenue and everything, doesn’t seem like enough were paying.

Yeah, I think former head of business at Whatsapp, who you're replying to, knows that.

I thought it was free to install and didn't charge $1 until the following year?

EDIT: looks like it was $1 on IOS and free everywhere else: https://venturebeat.com/2012/12/03/facebook-whatsapp-talks/

Knowing Apple, I expect that one dollar installation fee being pushed into their coffers, either directly (because the App Store is pay to play) or indirectly (because they force you to use Apple hardware to develop and push stuff onto the App Store)

The problem really starts when you take in venture capital, not when a possible exit is on the table.

Whatsapp was making money, but was that enough for the VCs? Even if it was not burning currently, it might have burned it in the past, so if the VCs trigger the clauses to ask their money back, you might not be able to give the money to them, ending up bankrupt. Plus, VCs might have a majority on the board. They see nothing but money, so they will push for the option that results in the highest payout for them, even if it is immoral, and even if that means using their powers to kick out the founders.

VCs look for businesses that 10x their investment in a very short time frame, and use that money to finance their many more failed ones. What might be a solid business in the wild is something they cull.

What you're saying applies to the majority of VC-backed companies, but none of your concerns applied to WhatsApp's situation.

WhatsApp was (is?) famously lean. They essentially never needed to spend a cent of VC money, even though they took on two rounds.

I think the story goes that when they took on a Series B, one of the cofounders sent a screenshot to Sequoia (repeat, sole investor) of the untouched bank account containing their Series A. Or maybe it was a screenshot of the Series B heading into the acquisition, I forget which.

Why take vc money you don't need?

To have a war chest/insurance in case you need it.

There are plenty of other ways to build a war chest. VC money is the easiest but it comes with the most strings.

.. what other ways? serious question.

Saving from Cash Flow from Operations? Assuming you're profitable, obviously.

There’s a number of reasons.

It helps with hiring as a signal effect; if sequoia thinks the company you’re thinking joining is a worthwhile investment of they’re capital, they’re more likely a worthwhile investment of your career.

The spare capital is good insurance against risks that might make fundraising in the future difficult. For example, needing to invest in PR/marketing, because an entrenched company with more resources released a competing product. Or legal fees, if you get sued for one thing or another.

It’s also genuinely useful to have experienced investors on your board or in your intimate network, to ask for fiduciary-bound advice when waging your own battles. You typically “pay” for this service by raising money. I think this one is generally underrated by people who view the VC relationship as strictly transactional. Running a high visibility young company is incredibly stressful and it’s valuable to have people at the table who have seen it before.

I imagine this last reason is probably the main one for WhatsApp’s choice.

Some one linked to TechCrunch stating WhatsApp lost over $65M from 2012 to mid 2014. How else were these losses paid for?

In the article, it states that the “loss” is an accounting loss attributed to stock compensation, not a cash flow loss. It states that they had positive operating revenues the year over year.

If I pay you 1000 shares that I think are worth $1, I count it as a $1 expense, even though I’ve lost zero “dollars”. If that equity grows to be worth $10mm, at the end of the year I need to report a $10mm expense in stock compensation. This doesn’t mean I’m $10mm poorer, it means I’m 1000 shares poorer and the valuation has changed. You’ve already “paid” for the loss with the shares.

The reason you report it in dollars is because one can theoretically sell those shares to obtain money to feed the business, so it’s important for investors to know if you’re burning through a lucrative pool of equity.

It has no direct impact on cash liquidity, operating margin, or cash flow. I think many commenters in this thread missed that distinction. There’s a huge difference between reporting a loss and running out of money.

I subtracted the stock compensation for my figure already.

My number still stands. Or if looking at net cash, it was never enough to cover all expenses.

You can see the source directly, rather than the article [1].

The gist of the misunderstanding is that there are many more things that register as "expenses" when calculating net loss without burning your cash pile. Stock compensation just happens to be the biggest one.

They had $10.21mm in revenue in 2013 and $3.82mm in 2012. [page 4]

$9.94mm net cash used in 2013. $3.5mm in 2012. [page 6]

[1]: http://web.archive.org/web/20141031201145/http://investor.fb...

Not sure why you would be dishonest about this when it's easily verifiable to be false[1]. Even ignoring the meager revenues with 600M(!) users, WhatsApp had no way to realistically meet their equity obligations without a fat exit. And then, FB wanted to make their money back (duh).

[1] https://techcrunch.com/2014/10/28/whatsapp-revenue/

I’m not sure how this meme got started. I think it was something like WhatsApp may have been profitable in its first year when it was barely started but that doesn’t appear to be true either. Whatsapp was always a money pit, even if that meant losing 7 or 8 figures a year vs some startups burning 9 figures a year (there would have been less of this 8 years ago too, before the tech stock explosion).

They make it sounds so magnanimous that they are using a different tactic to exploit users for profit. If the motive is profit, the motive is not healthy conversations. It may end up being less bad than Facebook by coincidence but it's not an exercise in civil discourse.

Somehow he doesn’t seem to regret the money he made however…

Reply on news.ycombinator.com