No Exit
wired.com
wired.com
This is the crux of the piece
> All the while, Martino’s ultimate warning—that they might someday regret actually getting the money they wanted—would still hang over these two young men, inherent to a system designed to turn strivers into subcontractors. Instead of what you want to build—the consumer-facing, world-remaking thing—almost invariably you are pushed to build a small piece of technology that somebody with a lot of money wants built cheaply. As the engineer and writer Alex Payne put it, these startups represent “the field offices of a large distributed workforce assembled by venture capitalists and their associate institutions,” doing low-overhead, low-risk R&D for five corporate giants. In such a system, the real disillusionment isn’t the discovery that you’re unlikely to become a billionaire; it’s the realization that your feeling of autonomy is a fantasy, and that the vast majority of you have been set up to fail by design.
The rest is the story of Nick and Chris intertwined with the writers impressions of the people he met at a $1250/mo for a mattress Hacker Pad he moved into.
The author is only slightly contemptuous of the young tech guys who made his beloved San Francisco shitty
> “When you have an early-stage company,” he said, “there’s no time to hang out at a cool, trendy bar.” He was 23. The bar might have been cool and trendy in Miami in 2004.
i kept skimming just to get to the moral of the story. it was good writing to be sure, but i feel like it could have given a little more tidbits to the reader
The article is nearly at the point where you could claim it's drenched in an air of East Cost condescension, but since the author lived in SF before, that's probably too far.
I enjoyed the piece - the writing, the story. It's meant to have a melancholy, no-end-to-the-story tone. That's the entire point of it.
What people have to realise is that most of the rest of the world sees silicon valley entrepreneurs based on what they saw in The Social Network. Ziplines into the pool and young girls hitting bongs while nerds with headphones bashed out code nearby, oblivious. So something like this would serve as a strong counter-current to the prevailing narrative, that it's just a case of hopping the bus and pitching your ideas and becoming rich and famous while still young.
Realistically many career paths have low probability, high reward exit points, and that continues to attract youth. The movie or music businesses are really no different. It could easily have been a story about LA and a bunch of wannabe actors waiting tables and going to auditions - some will luck into roles, others will burn out and take normal jobs, a lucky few will walk into top roles because of connections, family or supreme talent.
I could not agree more. There are certainly exceptions, but they should be that, not the standard/norm. Aside from the high risk from a business perspective, you're putting other people's financial situation in jeopardy, not to mention you have an obligation to investors to return their money, thus you are working for them despite what equity % they have.
My hard-line for my start-up was that I must be able to pay salary from site revenue, and before I could bring anyone on I had to make sure it could support at least 1 person's living expenses (me) because I do not want to risk other's situations/lives on a promise or a "trust me" or a "by the way I need money" sort of deal.
It's certainly a slower process but I'm learning a lot along the way in the area's (non-technical) I'm not as familiar with. I guess the other thing is I'd prefer to be able to travel while I work and I don't feel that'd be possible if I were taking VC-money. Either way, it's a fun game, to work on your idea and bring it to fruition.
Essentially, the moment you have a functioning, profitable company, your value becomes rooted in multiples of ebitda. When you have a pie-in-the-sky idea, gaggles of engineers, huge running costs and no product, your value is based on "????? Profit!"
We're 8 years in, driving about £1bn of ecommerce transactions a year, and there is no exit.
You also have to remember that you got to choose your business strategy to this point, you presumably can't be removed from your own company, and your ownership is worth something. There is always an exit for a well-run business, but it's probably not going to be through a VC funded growth-then-exit unless they can see a way to 10x your existing business at a minimum.
I think it is more probable that many people who decide to do this do it for the lifestyle and for the image they associate with the "startup" life, the same way some people decide to live in hippie communes. It's just a lifestyle choice.
(I think it's a poor policy decision, since it's just another beggar-thy-neighbor system, but that's a separate issue.) If you are trying to get into film you don't have to go to Hollywood these days. Hollywood is still the plurality of US film-making, but I don't think it's the majority any more.)
Of course the tradeoff of that is the costs are higher. Very rarely do you find an arbitrage situation where the optionality of something positive happening to you is higher AND the cost of living is lower
- Is it 500EUR per week or per month? What apt and in what place (good, bad) you live on this kind of money?
- What happens if you don't know German (are willing to lean, but have no lang. skills whatsoever)
- What is medium (after tax) income for programmers there per month?
You can live in Berlin without knowing much German, but services and bureaucracy will be a bit painful. It's not like Scandinavia, where people feel insulted if you ask them if they speak English. Many Germans, even educated ones, are not really confortable speaking English. It's not that they're not willing, many of them actually can't speak it or speak it badly. Of course, everything is easier with younger people.
Average gross salaries for developers range from 45,000€ a year for juniors to 60,000€ for seniors. Expect to earn around 60% to 70% of that after taxes, social security and health insurance.
I LOL'd at this - only someone in the SF bubble could mistake EUR 500 for a weekly rent.
My one-bedroom apartment in Germany is around EUR 350 per month.
I moved to Chicago that summer and couldn't find a livable space for less than $800/mo. That was almost 20 years ago. Today I live in Los Angeles, and you could not find anything livable here for EUR 500 ($700US) per month. You could easily find something for $700US/week, though. I'm sure New York is as bad as San Fran and worse than Chicago, too. I'm not saying our rents aren't outrageous, just that it's not specific to some SF bubble. Just about any large city in the US is going to be costly to find decent living.
There are a lot of tech opportunities here, plenty of startup and also big companies. VC is getting bigger here as well so it's a thriving hub if you want to found your own startup.
Plus, the Netherlands are awesome :)
I went there and lived for some time, whole time weather was pretty dark and cold - is it typical situation or I was just unlucky?
This year, from what I've heard, has been warmer than usual (pretty much no snow in winter). It is very windy all over the year but we've been getting really warm and nice days since the middle of March and it's only going to get better. Winter is dark and cold, but I'd say this is true for any place you go to in central-northern Europe (and even Italy or Spain as well).
Now in certain places we can add tech start-up founders to the list. And unlike the aforementioned, these are generally people who can get a well paid job if they wanted to.
It's part of being young and ambitious, and I don't see much difference between young founders begging for funding and actors going on auditions.
My question is: why do people insist on playing this game the same broken way? Raise money, try to grow as quickly as possible to raise more money, getting massively diluted along the way, and hope that you sell or IPO at $1B+ or $19B or whatever valuation? It's a mug's game given that only a tiny, tiny, tiny fraction of people get there.
What's wrong with growing organically, crafting your product as you grow more slowly and taking less VC money and keeping more equity for yourself? You might make less money overall but you have more chance of actually making it if you have a real idea.
And why do you need that money again? Wouldn't you rather make a great product? Lots of morons have heaps of money, but how many have made great products? If you want big money and don't care about your product and are smart and hardworking, go work in finance, it's much a more reliable way to get rich.
It seems to me most people are taking long, long shot ideas and hoping for the very unlikely best and being some sort of hero.
That strikes a chord.
I thoroughly enjoyed this read. It's a nice counterbalance to all the success stories. Not that I mind reading success stories, but sometimes we forget that not everybody makes it big. Mandatory reading for anyone raising money!
Yes, as long as we stay humble. :)
All jokes aside, you're right, the analogy has some flaws. Or maybe the tools supplier hasn't emerged yet. Talking about a big opportunity here!
- Landlords and real estate developers (who are making a killing in the current bubble)
- B2B companies targeting startups
- Professional services (lawyers, etc.)
Chris Dixon has written about selling pickaxes in a gold rush: http://cdixon.org/2011/02/05/selling-pickaxes-during-a-gold-...
And we know who's getting really, really rich ... and its not 'people selling tools'. Its Google, Apple, Facebook, AirBnB, Dropbox, Stripe, MongoHQ, Heroku, Parse ... i.e. successful tech companies. Its not an unknown.
[1] http://en.wikipedia.org/wiki/Klondike_Gold_Rush#Logistics
Tech is responsible for huge wealth creation. If the Forbes 400 was around in 1849, you wouldn't have seen any gold miners occupying the top spots.
Its as apt as saying people going to Wall Street to make money is like the gold rush. The only similarity is its the same physical location.
I guess everybody should have figured this out by now. This, of course, is exactly how LA and Nashville operate, too, for different areas. The Pretty Womanization of entrepreneurship, if you will.
Well credentialed and talented technical teams.
That degree from Stanford or M.I.T. just opens an incredible number of doors when it comes to fundraising.
Think of the number of startups that basically walked into huge series A but literally have nothing under them!
There's a caste system at play, so how are YOU going to escape it?
The coconut bra thing is clearly facetiously phrased, but I think it captures a fundamental truth of Silicon Valley in 2014, yes. I suspect that if you had that degree and even a remotely plausible sounding business idea, you could walk into an investor meeting alone and walk out with seed money. You probably couldn't literally walk into the meeting with a coconut shell bra and perform improvised bird calls, but the point is that such a person could half-ass things to a much greater degree than someone without such a degree could.
http://grow.cals.wisc.edu/environment/smart-birding
Or:
This is precisely why "What's your runway?" is such an important question to ask before you accept a job offer from a startup.
Let's say you did ask the question and got an as-honest-as-you-can-expect answer. (two months, but we're soon to close a million-dollar round) How does that really help you make your decision? You could look at them and try to judge whether they might make their round, but you're probably better off in Vegas.
If I've read the article right, runway doesn't mean what it used to mean anymore. You can keep raising small amounts of money for a good while before investors will give up on you, and even if the company ends up folding, you're still working and getting experience and making connections.
Have you done the math on how small 2 weeks of funding really is? That should be your follow up question. $50K in the bank? with a $100K line of credit? or $8K in the bank and a vw golf as a backstop?
The two examples are worlds apart.
How doesn't this help you make a decision? Given the number of opportunities out there today, including opportunities outside of Startupville, there's no reason an experienced or talented candidate has to gamble on a startup that might not be able to make payroll if a funding round doesn't close in the next n weeks or months.
By the way: there's no such thing as an "as-honest-as-you-can-expect" answer. There's an honest answer and there's a dishonest answer. A founder, executive or hiring manager at a startup should be able to look you in the eye and tell you how much runway the company has based on its current cash position, cash flow and burn rate. Anything less, including an answer that distorts what "runway" means (hint: funding that you expect to raise but haven't yet raised doesn't count), is a huge red flag that you ignore at your own peril.
You're absolutely right. There's no compelling reason to work in Startupsville. If you're there, then you're already being fairly irrational. Knowing the (current) runway isn't going to make it any less so.
> A founder, executive or hiring manager at a startup should be able to look you in the eye and tell you how much runway the company has based on its current cash position, cash flow and burn rate.
Is this actually true, or a pie-in-the-sky wishful thinking thing? The article seems to paint the latter picture. I've been in situations where overconfidence and unrealistic optimism were the norm rather than the exception. Like auto sales.
You'll fall out pretty quick if you can't get with the program and insist on being a wet blanket. You have to get good at reading between the lines because nobody talks straight. Opportunities are there, but mostly only for the morally loose.
I think you took my comment too far. Working at a startup isn't for everyone, and there are plenty of great opportunities outside of the startup world, but not every startup is a sinking ship that's hiring new employees when it only has two weeks of cash left.
> Is this actually true, or a pie-in-the-sky wishful thinking thing? The article seems to paint the latter picture. I've been in situations where overconfidence and unrealistic optimism were the norm rather than the exception. Like auto sales.
You decide what's important to you. If understanding the financial state of a company that's going to employ you is important, you have every right to ask questions. This is especially reasonable at a startup, where most employees are granted stock options. If a company offers you an ownership stake, why shouldn't it treat you like an owner?
You should turn your auto sales analogy around because you're looking at it the wrong way. If a used car salesman is trying to sell you a car and won't let you take a look under the hood, what are you going to do? Buy the car, or move on? The latter of course. So why would you join a startup if the "salesman" evades questions about what's under the hood of the business?
Just because there are a lot of people who are too naive or timid to ask questions doesn't mean that you should follow their lead. The latest boom has attracted a fair number of shysters to the Bay Area, but there are still plenty of honest people here who will level with you without hesitation. These are the people you want to work for and/or with.
The ones with significant upside potential are. If a "startup job" is really just a normal job with normal job security and a normal paycheck, then you're never going to get the chance to strike it rich. It's just a slightly-better-than-average job.
> You should turn your auto sales analogy around because you're looking at it the wrong way.
No I think you read me the wrong way. I'm talking about you going into auto sales as a salesman, not you trying to buy a car. That's far closer to what you're doing by joining a garden-variety Silicon Valley startup.
Statistically few startups offer significant upside potential to rank and file employees. Period. It's not just because most of them will never have a liquidity event, or a big enough liquidity event, but because employees tend to receive so little equity and their equity is the most vulnerable.
If you look at some of the biggest startup exits in the past several years that produced the best outcomes for a large number of rank and file employees (Facebook, Twitter, etc.), you're going to find few if any that required those employees to take their chances on a sinking ship. Trust me: employee #500 at Facebook or Twitter, who received competitive salary and benefits, has done far, far better than 99% of the first 10 employees at 99% of all Silicon Valley startups.
The notion that joining a startup that's always a few weeks away from running out of cash is the only way to get "upside potential" is pure myth. It's simply not true. In fact, if you are motivated to "strike it rich", working at a startup as an employee is a horrible way to go about it. Well over half of the millionaires in this country are self-employed. You're statistically far more likely to get rich working for yourself/owning a business than working for a startup that gives you basis points in equity, or a percent or two if you're really "lucky."
> No I think you read me the wrong way. I'm talking about you going into auto sales as a salesman, not you trying to buy a car. That's far closer to what you're doing by joining a garden-variety Silicon Valley startup.
I don't know what point you're trying to make, but my point still stands: if you're contemplating a business transaction, whether it's buying a car or joining a company, you have every right to ask questions. And if you don't feel comfortable with the answers you receive (or don't receive), you proceed with said transaction at your own peril.
I remember a moment many years ago when I looked over at the bookshelf behind my desk and my eyes landed on a book titled "Doing Hard Time" (it's about real time embedded systems).
It was somewhere around 3:00AM. I had been in that room, coding, since 8 or 9 in the morning of the prior day. I had been doing 18 hour days, seven days a week, for the last year and a half. If I was awake I was in this little 10 x 20 ft room coding away.
For some reason I saw that book and my first thought was that I now knew what being imprisoned might feel like. Sad realization.
The story got much better after that low point as the product was completed and schedules became sane (but never 9 to 5).
I have to say I would not change any part of that experience. The highs and the lows were amazing. Learning, pushing yourself to the limit and back. Finding out what you are made of. Remarkable.
That said, had it not ended well the story might have been very different.
Who writes this kind of over-dramatizing bullshit? Nobody forces these people to follow their grandiose visions. They could just do useful work like the rest of us, which isn't quite as romantic, but is doing the world as a whole better than another failing "product" (which is the moniker for a useless website that people in 1999 would have put together in 2 weekends without extorting $20000 of VC money).
> They could just do useful work like the rest of us, which isn't quite as romantic, but is doing the world as a whole better than another failing "product"
seems like "bullshit"
† Original submission: https://news.ycombinator.com/item?id=7628952
But, yeah, this was probably to work around the duplicate detector.
Lemme guess, Red Rock?
Looks out window to dingy Soma Streets. Misses Mountain View
I wonder what impact (if any) having a journalist tailing them had on their meetings. Interesting read either way.
I wonder if it's possible to bring "slow" principles (as in slow food) to the world of start-ups? There's nothing wrong with fast and lean, but the interpretation of it has been perverted to a great extent I think.
Personally as a founder I aspire to stay bootstrapped and migrate to financially sustainable to scale. Even if that means $20K for 10 years, that's still enough money to live in SF if you know how, and I don't want to subject myself to pressures from any number of investors demanding returns. I want to focus on the social vision that I want to achieve, not monetization. Yes I'm starting from a more idealist perspective, but hey, I expect some of that to be worn away with time, hopefully by starting from a greater base, I'll still keep some of it by the end!
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I'm not an expert on him but if you want to chat about his main squeeze and intellectual better, de Beauvoir, I'll have more to say.
It reminds me of stories about the American middle class - not tragic, not great, a lot of hard work without much payoff. I think that's his intention.
"[T]he real disillusionment isn’t the discovery that you’re unlikely to become a billionaire; it’s the realization that your feeling of autonomy is a fantasy, and that the vast majority of you have been set up to fail by design."
The story is a sober, measured portrait of the purpose of the SF millstone. It's told through the weight of the exhausted angst in two entrepreneurs, but its a message to the masses dreaming of a glamor that masks the new face of corporate R&D. While not novel, the important lessons and insights need to be told more than once, and this is a well-written telling.
That you feel insulted by the thesis suggests you're squarely in the former set.
What does this mean? Isn't Google Ventures a part of Google?
[1] http://www.youtube.com/watch?v=ikoQLBuIYl0#t=1920 (excellent interview with Kevin Rose on This Week In Startups)
One night I escaped the hacker house to go out with a group of founders from various startups ... At 10:30 the waitress came over to take our orders for a second round. I ordered another whiskey, but everybody else looked at their phones with muted anxiety. At 11 pm the founders rose in pairs to leave, as if they had an exam in the morning. One founder (his company was literally an app that optimized app stores for other apps), who’d ordered a water and had taken off neither his backpack nor his jacket, apologized on behalf of everybody for leaving so early.
vs.
By contrast, on a weekend afternoon I went over to find my young cousin—a talented and good-humored UX designer for Google—with his friends in Alamo Square, where they were winding down a barbecue in the January sun.
IMO, the author has outsmarted himself trying to find a way to 'upend' conventional wisdom.
I just don't think its bad for smart, motivated people to sacrifice bar crawls and bbqs in the hope of accomplishing something important. That doesn't sound like a problem to me ... that sounds like maturity.
http://blogs.reuters.com/felix-salmon/2014/04/21/the-most-ex...
Disclaimer: IANAI
Talent hard to get and hard to keep maybe.
1. Trying to use ZenPayroll as an example of a vapid startup company. That's one of the worst examples to use to try and back up the general sneering undertone of condescension towards startups.
2. All the random, vapid innuendo that's used in an attempt to frame certain aspects of Silicon Valley as essentially stupid. Like mentioning that the GV partner "apparently" went to a Miley Cyrus party. The weird descriptions of an unrepresentative part of SV: the people at the hacker house (I am willing to bet that there is a disproportionate concentration of "wantrapreneurs"). The picking apart of random quotes (the haughty picking apart of SF locales as if the author was a true SF native). Millions of other random observations that are in reality completely inconsequential.
The comments about that investor show the same obliviousness from a different angle -- the guy was too busy partying with random celebrities to know what companies Google Ventures was even invested in.
Where was it shown that was the case? That's just your interpretation. In fact, that's just your interpretation of the author's interpretation of the author's friend's interpretation. You list that out and the ridiculousness of the article becomes evident. In fact, I'm willing to bet that was the author's goal. To make you think negatively of this particular VC by inserting random innuendos.
I'd certainly agree that the engineer does not know anything about payroll. And that doesn't matter. He's there to build out technology. Presumably the people who started the company are experts in payroll systems. If the author had met a wantrapreneur who had never worked a day in his/her life and wanted to start a payroll company, that would be the absurd situation the author is clearly looking for.
The investment fell through when Google Ventures claimed it had a conflicting investment. So the most charitable reading is that the investor was clueless, since if he was aware of the conflict-of-interest from the start that would imply he was simply trolling the founders.
And no, that's not actually the most charitable reading. The most charitable reading is that the investor actually did not know about the competitor. What you stated is like saying "A guy tripped over a rock. The most charitable reading is that he's clumsy," when in fact the most charitable reading is that the guy didn't see the rock.
Of course it is possible he just led them on. I don't personally think that as likely, but given that the underlying thesis of the essay is that the funding/business cycle in Silicon Valley encourages delusional thinking among the young and naive, I don't see how the possibility detracts from the point of the essay....
I revise my point. The most charitable reading is that the investor did not like the company, and gave the founders a polite rejection.
"In the car Chris pounded on the dash. Google Ventures was in! Google Ventures was in! They’d soft-committed to at least $100,000, maybe even $200,000. The partner had really gotten it. He’d totally agreed with their upmarket strategy, unlike the investors who wanted them to focus on a no-cost-to-deploy self-serve product. All he wanted was a revised operational plan and a clear path to a Series A—a path that was a lot clearer when you had Google Ventures on your cap table. The final thing he wanted was for Nick to send their deck over to a guy he trusted on their market space, at a boutique firm in LA."
"Google Ventures’ coinvestor said he was keen to invest but had been instructed by the GV partner in Mountain View to hold off; the GV partner, when they finally heard from him, said he was waiting for a full meeting with his partnership."
"When Chris and I returned to the house, they got the bad news that they’d started to expect: Google Ventures was out. Chris seemed less resigned than he often was, a little angrier and a little more uncomprehending. He wanted to know why they’d given such an enthusiastic commit only to retreat. Apparently, Nick said, the full partner meeting had revealed that they’d already invested in companies in the personalization space."
Whatever words you wish to choose to make Google Ventures look good, there is nothing wrong with the essayist treating this as an example of how the funding/business environment plays on the naivite of many young founders.
Investor says he is interested, needs more info. Investor says he needs to go to meeting. Investor has meeting. Final decision is that the deal is off.
How is that any different from any other business decision? The emotional reactions of the founders have nothing to do with the fact that this is a very cookie cutter and not in anyway abusive business back-and-forth. No different from the kind of back and forth you might have in negotiating between different job offers / juggling interviews that coincide.
God forbid if you're an enterprise company and you're trying to sell to other companies.
Holy crap, there's more?
(i've helped a lot of startups in my time; the story sounds vaguely correct. certainly i've seen the "we're in, we're out" dance plenty of times.)
To avoid the "we're in, we're out" scenario would it be possible to ask investors to sign a commitment agreement when they agree they're in?
E.g. an investor says they're in for $100k. You then ask them to sign a commitment agreement that states when they change their mind they owe you 10% of the proposed investment, or something like that.
Would this weed out the wanna be investors and guys who are tip toeing around so they can stop wasting your time?
Suggesting "A "no" is significantly better than a "contingent yes"" is bizarre.
Think of it like dating. You'll get a lot fewer dates if you ask someone to commit to a series of four dates as a condition of accepting the first.
It's how it is done. That's it.
No. I don't seem to think that, at all.
Let me explain it again, just for you.
A common problem for startups seems to be dealing with investors who say they're in and a week later they're out and then later they're in again and then out, etc.
As a start up you'd like "commitment" from an investor because if an investor claims they're in and then they're out, it would be immensely frustrating right? It means you can't commit to hiring that great developer or rent that office space you so desperately need or pay yourself some salary for a change.
You might have met with an investor a few times and at some point they "say" they are very interested and they'd like to invest $100k in your idea. If you then explain to them that you'd like them to sign a commitment agreement to see how serious they actually are. If they sign it they can still change their minds, it will just cost them x% of the proposed investment. If they are not willing to sign it might just show that they're not actually interested after all, they just like to keep you around just in case something else falls through.
It's just business right?
That's for actual commitments. Investors historically have a very diverse vocabulary of ways to phrase "No" (for example, any sentence which begins with "I will invest if" means "No, but I like option value, particularly when it is free.") and entrepreneurs historically have a reality distortion field where they hear "No" and think "I didn't hear Never so that's practically a Yes!"