A Minsky moment for venture capital? | Hacker News Reader

A Minsky moment for venture capital?

ft.com

This is just a summary of the substack post, which was discussed on HN at the time: https://news.ycombinator.com/item?id=30413865

The substack post was a great read. I feel like it must be around two years old now

85 days. I can't tell if you didn't remember or you are saying it felt like longer because so much has happened. The IPO window has been closed for more than 85 days for sure.

There are still companies preparing listings.

I’m re-reading this post now and Wow(!) does that Tiger Capital link resonate differently today (it lost $20 Billion, nearly half it’s value, from Dec-Mar 2022)

No alpha left in making asymmetric bets. Mostly because a lot of people can make those asymmetric bets, because everyone has money, which makes it lose its asymmetry

https://www.urbandictionary.com/define.php?term=Alpha%20left

+1, lest we forget the original premise behind VC returns was that seed checks had huge returns because most people weren't willing to take on the risk, timeline or probability distribution of funding startups. Now everyone is willing to, so that arb is gone.

Are VCs taking risk though?

At least in India, most of the venture capital startups are copies of existing products but with discounts and rewards attached through VC investments.

The timeframe for return on investments is too low for any risky bets. You aren't going to end up cashing out deep tech in few years.

Related, maybe tangentially; I'm seeing lots and lots of startups whose basis seems to be "we build X <tool/SDK/API> technology as a service." Data management or transformation stuff. Packages for doing X in the cloud. Analytical libraries. Not products, but infrastructure.

On one level I'm very pleased to see this stuff funded, because it wasn't really 10-15 years ago.

On the other hand, what worries me here is that this stuff is entirely secondary and subservient to other services, its potential revenue completely depends on the success of businesses further up the food chain. And if things start to really slow down, I worry these will be the first to suffer and a lot of these startups (which seem to be hiring for a lot of the interesting work) will shutdown.

Personally, I feel like there are too many dollars and startups in this space now.

I feel like the risk profile is such that I'd never buy most of the products being built. I don't want core business infrastructure sitting in the cloud of a startup which might not exist tomorrow due to missing a VC round or an agile pivot. I also don't want an integration of 50 different cloud services.

I'm glad to use established open-source technologies. I'll also use AWS or similar big players if open source doesn't exist. However, most of the niche proprietary startups just don't make much sense here to me. I'd invest a lot of money and take on a lot of risk.

I do feel like there is big money in value-adds: hosting open-source solutions, consulting, etc. A lot of non-tech companies are struggling with data, ML, and visualizations.

There's a feedback loop here. Once these startups start shutting down, the above problem will be recognized, cascading their collapse.

Yeah I think there's wisdom to what you're saying.

I do think there was a deficit before that this wave of stuff is working to remedy. In the mid-2000s, companies like Google and Amazon had a competitive advantage because they had the inhouse talent and $$ to build e.g. Bigtable, MapReduce, Dremel, Borg, etc. before anybody else had those tools. Then there was an awkward few years (early - mid 2010s) where everyone and their dog was trying to clone those in the open source space. And now we're in a situation where there's startups whose whole business model is structured around providing "big data" or "data transformation" etc. tools etc. They look like compelling places to work, on account of the interesting work they do, but I worry about their viability.

Enterprise SaaS has peaked.

I don't really care about this but:

I've got this friend, he's a really good guy, a stupidly hard worker, maybe a little naive from my opinion in that he doesn't question mainstream narratives a lot but obviously very intelligent. He has busted his ass for years. He has a PhD in Genetics, and an Mba and finally in his late 30s is stepping out from making 35k a year as a post doc to go work at a Bio tech focused VC.

I think he's going to get beat down the first time he sticks his neck out and it sucks to watch.

No idea why I'm saying this. Maybe the takeaway is that this stuff affects people you wouldn't expect.

Womp. Guess I'll be looking for a job in a few months!

A shame, we had a decent idea, but haven't found our fit quite yet, and with sales cycles in our area being relatively long, not really a lot of opportunity to turn things around and self-sustain in time to react to the sudden market shift.

Kind of funny, really, how all this ended up. One crazy guy in Russia and now I have to look for a job.

I highly doubt this is Putin's fault. This is a sentiment problem. The tide has changed basically. Positive feedback loops get replaced by negative feedback loops. From mania to depression.

It's a tale as old as the markets.

The rise in energy prices was obviously going to happen in 2020 (when it was clear lockdowns were leading to reduced oil production). Couple that with recent policy in the US and Europe disincentivizing oil/gas exploration and Russia's actions in Ukraine and you've got a recipe for making a bad situation worse.

The raised US lending interest rates are only partially caused by the crazy guy in Russia. And would probably happen anyway without his help.

This bubble popped in November. The aspect that devs are broadly overlooking still is the abundance of high-paying easy to attain jobs. Those are going to disappear, too. It’ll take a year though.

Why?

This article focuses on returns of VC investment. Nothing wrong with that except it doesn't mean VC is going to tank. The nature of VC generally means a hyper focus of thematic investment. The market has everchanging needs and demands. I expect the direction of VC is changing its focus (already is) toward climate, food, and lifestyle health. VC firms may be cutting back on tech-tech, but they are increasing their contributions toward the topics I listed above.

VC returns to software were high because software has high fixed costs, low marginal costs. So the tradeoff was fund a team long enough to get profitable and grow fast and then you get a big return. That's not true of climate, food, or lifestyle health in general (specific companies/business models may be exceptions).

Thanks, that's a good point. I agree with climate and lifestyle health, especially considering marginal costs. I think food and ag tech will surprise us though. Besides, VC firms have been rapidly increasing funds toward food and ag tech for the past few years, so they decided one way or another that it is worth it.

VC is a good fit for the scam economy. Unfortunately it will probably grow as a sector.

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