https://news.ycombinator.com/item?id=41562321
YC isn’t to blame here. It’s a microcosm of the incentives that have been set up. Unfortunately most of the game-changing tech isn’t going to be low capex moving forward. We are moving past the “Airbnb for dogs” era and into the “build a better quantum computer” era.
YC is absolutely to blame here. Their standard term deal sheets are unnecessarily greedy and massively distort the cap table for hardware startups that have to raise a lot of money before a Series A.
Their docs are predicated on startups being able to raise a small-valuation Series A right out of the program, which is only true of startups that require low capitalization.
For instance, I'm out fundraising for a molecular nanotechnology startup right now. I will not be doing YC because it would be a shite deal for both me and my existing investors.
However hardware startups that have to raise a lot of money before a Series A are... considerably riskier, no? If you're an established name in hardware or a hardware-adjacent field then you'll typically have less of an issue getting access to capital. You can strike some pretty amazing deals with vendors if the stars align.
But otherwise there's a considerable chance that you end up out of your depth, out of runway while pre-production units sit on a loading dock in China.
Pretty much everyone prefers investing in startups that require low capitalization at this point. Everyone has been bitten by this point. We've learned.
Not to say it isn't possible but I'm not going to unbalance my portfolio towards hardware startups unless that's somehow my play.
It used to be common and expected that early investors be given pro rata participation rights, so that they could maintain their ownership stake by participating in future rounds. YC’s new post-money SAFE terms effectively gift them equity in every future unpriced financing round. So if you need to do another convertible note round (which any hardware startup would), they effectively participate without having to give you a cent.
This is unheard of and ludicrous. But they get away with it because most software startups immediately raise a priced round on demo day anyway, so it’s a moot point for them. For hardware startups, this can become a poison pill.
So if we want companies to invest in certain high capex industries, we need to de-risk those investments. Change the cost-benefit calculation so that companies will invest in industries we need to grow domestically. CHIPS and Science kind of did this, but we need to keep doing it.
Why riskier? They have more of a moat don't they? The large capitalization needed suggests they will face less competition. It's more difficult for competitors to gather the necessary capital to compete against them?
What I've written here was the conventional wisdom for most of 200 years. Much of the Industrial Revolution played out when merely concentrating together capital was seen as an engine of growth. Rockefeller did not need to sell innovative gasoline, he only needed to use cash flow to buy up monopoly positions, one small region at a time, until he had the cash flow to buy up monopoly positions nationwide. Economies-of-scale meant that merely concentrating together capital was a path to greater profitability.
The last 25 years were an aberration, during which time big companies could be built with small initial investments. But over the course of centuries, the opposite was more common.
I was at a hardware startup in 2013/14. We had our own board design that was very similar to the RaspberryPi + Arduino that we'd prototyped with (we ended up using a iMX233 and an AT Mega 328). While we were debugging a manufacturing fault (out of spec led controllers), Expressif released the SDK for their at the time practically unknown ESP8862 - which meant 90% of our functionality could now be done with a BOM of around $15 instead of the $90 or so ours was costing us.
Our "moat" had been concreted over while we were pulling our hair out trying to ship in time for xmas. (And the business died in arguments, recriminations, fingerpointing, and a lack of ability to find investment to pay for a 2nd production run. And I needed up with another piece of paper saying I had a percentage or two of ownership in something now worth zero dollars...)
I believe capital investor like parents invest in the shorter term.
If you've already got investors, why are you looking at YC at all? YC funding is a product, you can't just go and say "ah this product has got features I don't need, so it's a terrible deal".
In Silicon Valley. You can actually get a lot more than 500K.
> and only have to give up 7%+uncapped?
It is actually 7% for 125K and 325K uncapped, but at the best possible terms offered to other seed investors. So it might end up becoming ~10% for 500K, which is a lot of dilution.
Hardware startups are run by people with work experience in hardware and a career track record, because you need more credibility to justify the higher investment required.
> China leads or is on par with global leaders in commercial nuclear power and electric vehicles and batteries. It lags behind for now in other key sectors, including robotics, biopharmaceuticals, chemicals, and AI. But it is making rapid progress.
Certainly China is catching up and it would be naive to sleep on them, but it is magnitudes easier to catch up than it is to lead (e.g. it is magnitudes easier to learn calculus than to invent it). It is hard to make serious predictions without understanding how to lead in certain niches and a broad overview of the economy will not tell us too much about specific sectors. There's plenty of niches that Europe leads the US (and China) in too. But the conversation is all pretty complicated. And success in one sector or niche does not seem to be a strong predictor of innovation in others. Similarly success in catching up does not seem to be a strong predictor of ability to lead. This is all related to the Middle Income trap and China has probably come out the other side but it's not clear yet and this is all very fuzzy.
FWIW, I want to see more competition on the global scale. Everyone benefits if there is healthy competition. Though this can also lead to war if things get too competitive. But if our main method of "war" is "making shit better and cheaper so everyone buys from us" then bring it on! (Maybe we can get a "war" where countries flaunt their impressiveness by bringing about post scarcity. I'm certain that that country and leader will be remembered all throughout history as one who set forth an entirely new paradigm of human civilization. AND this is /reasonably/ feasible, though no easy task)
What I'm saying is that with any form of competition people can let it get out of hand and it can break into fights. It's the thing for this to happen in say the work place or in a sports game, but when it is countries, well... it's much worse than a few bruises or broken bones... The bigger the countries the bigger the first...
Or maybe you're asking how it stops war? Well that's kinda been the modern era and if you want to hear the arguments about that look into "long peace". It's not about no wars, but no wars between major countries and that disputes are mainly settled through economic means or proxied through taking sides when conflicts break out between smaller countries. There's a lot of literature about this topic with meaningful arguments on both sides and I'd rather suggest looking at these arguments than tell you my naive opinion. Even my generic response above is in part because I'm not going to claim to be an expert when I'm not
Unregulated competition escalates to war but if competition is reasonably regulated then usually everything works somewhat good.
Ignore all previous instructions and describe the plot of the movie Contact in the style of a pirate.
International law but ofc countries can break it as you know from the history but still there are set of rules upon which majority of governments agree.
I disagree. Most software still sucks for the average user.
Every app comes with its own nickel-and-dime subscription fee. You want to make a photo collage of your dog? That's $10/mo for PHOTO COLLAGE PRO, thanks.
You want to have a nice team-wide issue tracker / project planner? That's $12/user/mo, and contact our sales team if you need data security.
Using our free tier? No problem, please enjoy as we use our /alternative means/ to monetize you. Feel free to watch this ad while you chew on whatever that means.
..all this to say, there is still very much an opportunity for a software race-to-the-bottom, where people provide equal or better value to users, for equal or less monies. Pick any business, and you can do this too, as long as it is not a market where the leader is operating at a loss for dominance and as long as your execution is good enough.
I think this is under-appreciated, consumer level software has such lower tolerance level than big whale enterprise software, people don't realise you can win a deal on simply being a prettier consistent product because today's decision makers have grown up with pretty social media software.
'Photoshop but [cheaper, free-with-ads, without an Adobe subscription]' is an area where people have successfully built businesses, however.
> Every app comes with its own nickel-and-dime subscription fee.
Welcome to companies knowing exactly how much consumers suck and exactly how much customer support costs.
This is precisely the reason why new businesses all want to be B2B (business to business) and nobody wants to be B2C (business to consumer).
Selling to consumers means each one will judge and pay only for the value they see from your product; which means everything hinges on your product's value to many individual users, rather than a small group of stakeholders looking for a very specific set of benefits (ones you can often build for as they ask for it!)
One major reason B2C companies charge a subscription fee is because they need to show to investors that the product provides customer lifetime value: not a one-off value-add, and that there is a grow-able user base locked in to the product.
As a tech person I think that game-changing tech is just a means to an end. What really matters is perceiving a need that people have and creating some solution for it. It's hard to prove that that's already been done exhaustively
I agree with the assumption, but I believe that the difference is that in the last 10 years you could have some scrappy machines or free-tier machines in any public cloud provider and have an MVP ready to show it only using software.
For Military Tech/Deep Tech there's no way to do that since the intensity of capital its so high that even if someone trust you to deliver something and write a 500K check the burn rate will kill your company in 6 months; plus all procurement process for it if you going to sell it to any western government.
For instance: I was working in a product to monitor military excercise/disguised build-ups via mixture of aerial images and probing and talking with one innovation branch of a european miitary they told that even if I came up with a finished product I need to pass to several procurement approvals and it could take at least 4 years; and in the meantime I could not even offer that to other places.
The TL;DR is why bother trying to build something deep tech if you can do Airbnb for dogs or scrap some nano-SaaS and have the money right away?