Comment by ritchiea | Hacker News Reader

Comment by ritchiea | Hacker News Reader

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Can someone tell me what changed? Hasn't this been the climate for a few years? Are people just now starting to get antsy and feel like things can't stay this way? Not because of any real metrics but a group shift in psychology?

Just a few months ago I listened to a principal at a VC firm in NYC talk about how things aren't going to change anytime soon because a bunch of firms just raised new funds. Now he was primarily talking about seed rounds and as far as I can tell the concern about burn rates is targeted more at companies like Uber & Lyft that have raised nine figures. At the very least there appears to be a different climate around seed stage investments than there is around big growth stage C & D & beyond investments. But let's say the big late stage companies go up in smoke and there is a new reluctance to invest at later stages. Is there then an entire generation of companies that received seed funding when the market was hot that are now on quiet death marches? I suppose that's the disaster scenario.

Just a few months ago I listened to a principal at a VC firm in NYC talk about how things aren't going to change anytime soon because a bunch of firms just raised new funds

Timing is famously part of the issue. Alan Greenspan's famous "Irrational Exuberance" speech occurred in 1996–three to four years before the tech bubble burst. People started predicting a housing bubble in the 2003 – 2004 timeframe (Megan McArdle, for one), and if you believed there was a bubble in 2004 you spent four years with people telling you that you're stupid. With other crises, like Long-Term Capital Management in 1998, I don't think anyone saw the bubble coming.

This: http://www.theatlantic.com/magazine/archive/2008/12/why-wall... is the best popular piece I've read on bubbles, ever, and explains why they form and why it is probably inevitable that they will form.

If there is currently a tech bubble—which seems plausible to me—we may find out tomorrow, next month, a year from now, or four years from now.

So, presuming this will all burst at some point... what would you do to protect yourself? What if you want to stay in software, even if it drastically shrinks, or wages contract?

How did folks survive the DotCom bust?

How did we survive? Skills, connections, and some luck. It wasn't that everything vaporized, just a lot of fluff companies built on VC with no profitable business model. Just as when times were good a lot of unqualified people got into the business, when it imploded they got out.

About right. Myself and many others made it through the dotcom boom simply by working at companies that seemed to have rational business models and were diverse in their interests. They never pegged their entire existence on one product or industry.

Prepare to buy stock like crazy when everything gets insanely low.

> Can someone tell me what changed?

At a macro-level: The Federal Reserve started tapering the amount of money being printed. They have also signaled that interest rates are rising. Both of those things affect the money flow to the VCs, as well as the exit options in the public markets.

In truth: People should be happy that the party has gone on for as long as it has.

Yes, I believe that's exactly what's happening. Investors as a whole are able to shape their own reality: If enough of them talk about valuations taking a southward turn or a "bubble popping," then it can quickly become a self-fulfilling prophecy. The opposite case is also true, of course.

This largely applies to companies with high burn rate (pmarca acknowledged as much in a later response).

Even at the seed stage, you're not on any death march if making it to break even is a priority (rather than just continually raising more money).

http://avc.com/2014/09/burn-baby-burn/

More on the same topic (USV, a16z, benchmark etc).

"group shift in psychology" is a nice phrase.

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