Venture Capital in the 1980s | Hacker News Reader

Venture Capital in the 1980s

reactionwheel.net

78 pointstheyeti16 comments

Worth the read - really picks up in terms of relevance towards the end.

"Technical risk [betting on new technology working] is horrible for returns, so VCs do not take technical risk...Market risk [betting that a new market will emerge], on the other hand, is directly correlated to VC returns.

"[T]he only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise.

"The 1990s are not our map, the 1980s are. Don’t worry about irrational exuberance fueling a bubble, that is not what is happening. Worry about fear of risk."

Having worked with hundreds of private enterprises (so much smaller visions), I've seen this play out. The owners that take risks achieve growth (and some implode or explode). The ones who don't take risks either buy themselves a job, or die with a whimper.

I'll often suggest my potential clients go online and take a Risk Indicator test my team developed. Many won't even risk the $40 that costs (let along my coaching fees), which is a good sign they wouldn't get an ROI on investing in my team anyway.

The more of a macro view I take on businesses of all sizes, the more relevant I see the Risk discussion. Really enjoyed this piece for examining it in a field where I have less experience.

I moved to the valley in '84 and worked for startups for 20 years ..... the main big difference pre-dotcom boom was very simple: a rule of thumb that you couldn't go public without 5 consecutive quarters of profit (dare I say increasing profit) .... imagine that

The VC industry as a whole was profitable from the late 1970s to 2001 or so. In the first dot-com crash, it tanked. It didn't come back to profitability by, at least, 2011. Too many companies were being VC-funded too far into their growth period, rather than going public.

Most VC funds have a 10-year life, so profitability data runs some years behind.

Previously: https://news.ycombinator.com/item?id=8908463

"the only thing VCs can control that will improve their outcomes is having enough guts to bet on markets that don’t yet exist. Everything else is noise."

Priceless.

It is an error to mention Microsoft in the context of Venture Capital backed firms except as a point of comparison. Microsoft was not VC funded. That's one reason why its IPO made the world's richest person and created 10,000+ millionaires. It is also what allowed Gates and Ballmer to retain enough shares to act for the long term and ignore Wall Street's quarterly horizon for over 25 years.

Microsoft did take venture money, albeit when it was further along. Microsoft began its hypergrowth in 1981, after they contracted with IBM to provide the PC's operating system. It wasn't until then that they needed outside capital to support their growth.

Bill Gates' high-school classmate David Marquardt invested through Technology Venture Investors (TVI) and joined Microsoft's board of directors in 1981. (He just stepped down last year.) This was several years after the company was founded in 1975, but well before the 1986 IPO.

[edit: substantiation.

If you check Microsoft's IPO prospectus (available in pdf here: http://www.lannigan.org/pdf/Microsoft_prospectus.pdf), you'll see on page 30 that TVI owned 6.1% of the company just prior to the IPO.]

Thanks.

Excellent read. I'm just going to comment on one thing:

The typical venture-capital concerns used to provide money only after a few hundred thousand dollars or more had been put into a business by relatives and principals, and only after the company had a product well along in development.

One of the major differences between then and now is that normal people could actually save money, because the two-decade (or longer?) Boomer/NIMBY-created housing bubble hadn't happened yet. Bootstrapping was possible, and it was a negative signal if an entrepreneur hadn't put, at the very least, $10,000 of his own money in the show.

In 2015, the it-gets-VC-or-doesn't-happen attitude may seem degenerate, but it's a necessity given that it's no longer normal (but rather extraordinary) for a 30-year-old programmer to have a six-figure net worth, thanks to Boomer-created housing and health insurance costs.

What you're saying isn't necessarily wrong, but it's not necessary to say it's "boomer-created". It changes the conversation from being about why this phenomenon happened (and there's several interesting theories) to something more of a blame game.

A necessity? Only because people have no self discipline. Few people have the ability to save/invest and defer gratification. Spend, spend, spend is the American way.

The life of relative comfort of the average HNer (engineer, likely six figure income, little fear of unemployment) is basically what the middle class was 40-50 years ago (adjusted for inflation, etc). This level of material security used to be common, even expected.

At one time it was possible to own a home, several cars and raise multiple children on a single, average income!

However, because it's getting so uncommon now, it's becoming significantly easier to save up large quantities of money for those people who are fortunate enough to have good jobs.

Think of it this way: you probably have friends, neighbors, or classmates that manage to survive on a grad student or service worker salary (~$20-30K). It may not be comfortable, but they can do it. If they can do it, why can't you? Are you too good for their lifestyle?

Now if you're making $80K after tax and they're making $20K and you're living the same lifestyle, you put away $60K/year. For every year you've worked, you've saved up for three. There's your startup capital.

Over the past 15 years or so, I've saved over 1.2 million USD. I also paid off my mortgage and am completely debt free.

The most I ever made in a single year was around 160K or so.

A 30-something programmer doesn't need a six-figure net worth to put $10,000 of their own savings into a venture.

That's hardly worth the cost of drawing up the investment paperwork. You'd need to pool with nine friends to even make a meaningful seed round.

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