AVC: Tough Times Ahead for the Web (...or not?) | Hacker News Reader

AVC: Tough Times Ahead for the Web (...or not?)

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22 pointscolortone10 comments

I think we're all trained to expect a downturn after a sustained run of good times. It does not appear that tech will trigger the downturn (if there will be one) this time, but the question is how much will tech be affected?

Personally I believe that the solid business models will continue to prevail since internet traffic will continue to increase. However, marginal ideas and products will have more trouble finding the quick cash they are looking for.

I agree in total with this take...

The Net isn't going to stop growing in traffic or utility, that's for sure.

My fear is that the glut of mediocrity will put a chilling effect on this "sector" from an investment standpoint.

Based on my recent experience, it's seems like it would be easy to spook Angel investors, and I don't think that would be good for seed-stage NetCo' [even the good ones].

seems like it would be easy to spook Angel investors

My experience is the opposite: since angels use their own money, they answer to no one and can stick with you (assuming they continue to believe in your vision), even as the environment changes.

OTOH, VC firms (or any other organization with limited partners) are subject to more oversight and 3rd party scrutiny, and are much more likely to follow the herd.

There are, of course, exceptions in both cases.

Agreed. If you approach an Angel investor with an actual plan that explains how you make money, they will listen. Just jumping up and down yelling about how quickly social networks are growing isn't going to cut it though.

I was actually told last week by an investor that they had heard a pitch the previous day for a social network that was basically that, just inflated user adoption numbers. We have a much better chance at the funding.

I don't think there's a tech-specific downturn on the way. I think the lessons have been learned from last time, and the arrival of widely available always-on connectivity (some of it at halfway-tolerable speeds) has made the web as valuable as it wasn't quite last time around.

However - I think there's a much more general economic downturn right around the corner. The sense I get about the economy in general is that it's all built on smoke, mirrors, and a whole lot of playing cards... we might still be in good times, but only in the sense of everyone being so scared of the hangover that it's safer to stay drunk, but the booze is really close to running out, and there aren't any more friends to bring fresh kegs around. And I fear that no matter how strong it is internally, the tech world will end up being dragged down when the rest of the economy crashes.

The bright side of starting up during a recession, of course, is that if your business can survive the recession, then you know it's pretty damn strong. :)

I'd expect this to be particularly true for Asian and European countries. As had been said before on this forum, an international focus (or at least awareness) in our business plans (in the general sense), would seems like an increasingly important component.

I agree it seems less likely founders will get money for quick hits based on marginal ideas. I'd bet (and hope ;) that start-ups with more substance to their core ideas, and a revenue model focused first on profitability (and second on exit strategy) would be more likely to get funding.

The ability to control costs while launching a product/service seems like a crutial characteristic that VCs will look for. Somehow I'm thinking this may turn the tide back towards more experienced founders getting funding over smart techies that haven't proven they can wisely spend lots of money.

Startups that make what people really want are likelier to survive the downturn when it does come. For example, Peter Lynch has said that downturns are a good time to invest in companies that make breakfast cereal -- people don't ever stop buying that. A case in point are the Indian outsourcing companies that saw their stock skyrocket during the last recession -- at a time when American companies were using them as a means to cut costs.

The last downturn also saw some companies flourish that made stuff nobody would think of as "really wanting", though. HotOrNot, LiveJournal, FuckedCompany, Blogger, Del.icio.us.

I think the biggest predictor of success during a bust tends to be low costs. Recessions force honesty on business people: you are economically viable if you contribute more value (actual value, not predicted value) than you consume in resources. It's relatively easy for one guy working out of his home to produce more value than he consumes. If his product is at all useful, he's basically got it covered. It's relatively difficult for a startup with $20M of financing to produce more than it consumes, because his product has to be roughly 200 times more useful than the solo entrepreneur.

This ties into a question I was going to ask as a discussion item... how far "ahead of the curve" is best for startups, in terms of maximizing chances of success?

Obviously one can be too far ahead of the curve, and the market, and run out of cash before you can get profitable, but neither do you want to be a me-too player in a crowded market where differentiation is difficult (and the best-funded player wins).

Where's the sweet spot?

It's BS like this that helps actually create a downturn. Repeat the idea enough in the media, and people will naturally begin acting like it's a reality -- making it a reality.

The real cause? Our need to punish ourselves for doing well. "We deserve a good downturn right about now. Things have been too good. We need to feel some solid pain to keep ourselves in check."

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