Pessimistic thoughts on startups (2020)

This is a big part of it. I advised a founder who has gone through 9 startup accelerator programs worldwide (I told him to stop after the first one but he didn’t listen).

Each one gives him some new way to ‘level up’ in the game that is startups, without having to launch a real product or business. It’s all about grooming the startup to look good to VCs.

I joked with him that his real business should be consulting with startups that go through accelerators since he’s a veritable expert at it now.

As someone who has gone through y combinator twice (I recall it just starting to become cool the first time), this problems solves itself right?

They’ll run out of money in 2-3 years if it’s not working.

I see gamified as structured. A lot of new founders, and those who've yet to succeed, don't know how to get organized. YC is helping with efforts like Startup School.

To be fair, what you're talking about isn't exclusively startups but rather the ecosystem around VC-backed startups. Unfortunately there's always some slack whenever scale is adopted and/or prioritized, it's a tradeoff, depends on context regarding its necessity or not.

> The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission.

This is why it's important to really venture out with your network and environment. I used to feel this way regarding startups in general but going out of my way to meet people not in SV, SF, VC and going out of those places really help. There's a lot of cool stuff being done outside of our little bubble here in HN

> The idea was always build something impactful and make it as profitable as possible via fulfilling your company's mission.

Nah, the idea was always to make a lot of money. It was never to build something impactful or useful. Sure that may be stated goal, but without path to monetisation it aint happening, and for so many things that are either good or helpful, they can't be monetised ...

Every recruiter email I get for companies that has funding at all seems to go into 5x more text of what series and how much funding it has than what the company actually does.

Fortunately, I blog for no real purpose than some nice conversations when they happen. So there is no one to impress or anything to sell here.

Caveat: I'm the founder of a VC-backed startup, so my perspective is likely skewed.

The VC mode of thinking becomes a lot clearer when you realize that their returns are completely driven by moonshots. Something like 1% of the portfolio will drive 56% of the returns. As a result:

(1) It costs them nearly nothing if a startup goes to 0. Most of their portfolio will go to 0. (2) Conversely, it will cost them a ton if they miss a potential moonshot. Even if the idea sounds dumb on face, if there's a chance it becomes big, the VC needs to be in it in order to survive. (3) There's reputational risk at play for the individual VC investor. Every VC will have a low hit rate, so they're not worried about looking dumb losing money on some startup going to 0. What they are worried about is being known as the person who passed on the next Airbnb despite getting a look. (4) Later stage VC funding becomes an access game — there's more capital than good ideas, and so these companies can have their pick of the litter. This means, as a VC, you need to prioritize being founder friendly and having a pre-existing relationship with a company. As such, you'll see VCs throw in $1m to $10m checks without much though, with the hope that if the company every does scale, they'll be able to write a sizable follow-on.

It's weird to think about if you're used to public markets, where hit rate matters a lot more and diligence is centered on "why should I invest". In VC-land, the burden of proof is flipped.

This is what you get when leaving your money on a bank account -costs- money, due to negative interest rates. Even a startup with a highly dubious business plan might be better than leaking your cash away.

Money was cheap. I am sure there are many more reasons but in my opinion it all stems from how cheap money was. The great experiment is still unfolding and I am not entirely sure how much the VC -> Startup relationship will change.

I did notice the same pattern: best people I worked with either don't write at all or write very little. Probably because, despite having better thoughts, smart people also have a much higher threshold for releasing their thoughts into the wild. And people who write a lot often tend to be talkers and not doers (there are exceptions of course, but they are incredibly rare).

You'd think that the most truthful content is going to win the public. But the reality is that the most viral content wins. A lot of software development "best practices" are popular not because they are producing value (their value is often negative), but because they make us feel good.

Very similar to religions, it's not necessarily the most utilitarian religions that are dominating the world. It's the most viral ones.

This is certainly true.

However, consider that the 99% who don't contribute on Reddit, may be contributing elsewhere.

I never post on Reddit, only browse. But I comment here.

Maybe that's the case with most people. That the majority contribute somewhere, but just not all in the same place.

This would invalidate the hypothesis that the internet is written by insane people. It's just that any one site only includes 1% of the people, evenly distributed across all the sites.

I feel like there’s a level of irony to linking to a Reddit post given the subject.

Interesting. I disagree with #5 based on personal experience. Some of the best thinkers I know have at times been visible in the comments. In fact, meeting challenges to their reasoning is how they refine their thinking.

Not to mention that the post itself was written on the internet, so by his own admission, he's just someone with time to waste and not the smartest person of our time.

So caveat lector...

Also... it's unclear how most of this is specific to startups. All of these things apply to other endeavors, big and small, whether corporate, not-for-profit, or governmental.

One of the greatest living mathematicians blogs all the time:

https://terrytao.wordpress.com/

It is valuable in the sense that someone productive can extract value from it, i.e. secure funding for a company that may actually produce a product that makes someones life better. That is the same sort of value a natural resource like, say, wood has. It has no value in and of itself, unless imbued with the skillfull work of a productive person. An investor needn't add anything besides capital to the mix. Now, some investors do add expertise or other actual skills of value but that doesn't have anything to do with them being the source of capital, per se. You could argue that investors are proactive in choosing investments that have a good potential for ROI but that doesn't correlate to actual value for actual people, as all the very profitable but very stupid Web 3 and other fad investments show. Sometimes they aren't even profitable, but that's another matter. So yes, investors are as worthless as wool or wood or gold without the time and skill and labor of the worker who preforms the alchemy of transforming this worthless commodity into value.

Coincidentally I tried to value talking to a rich person after this post and decided it was worth about the same as getting a paying customer for $10 per month - https://mrsteinberg.com/the-order-of-payment-you-want/