7Figures2Commas

The big question for all of the companies that want to be the last mile: can they run sufficiently profitable businesses without classifying their workers as 1099 employees?

Mark my words: most of the "on-demand" startups that are relying on contract workers are not going to be able to defeat the misclassification lawsuits they're facing. Some might have the funds to delay the inevitable by strategically settling the first cases they're hit with, but the laws and legal precedents in this area are quite straightforward.

> Whereas companies like Splunk or Hortonworks it's pretty much predictable how they will keep making money...

Huh? Neither Splunk nor Hortonworks are profitable.

Which is the point: the OP is clearly confused about how this works, which is why he should retain experienced counsel.

> ...most seed companies aren’t actually burning that much money. A lot can be done today with a small team and $50,000 a month.

> In many of these cases, the founder simply didn’t raise enough to hit the milestones they promised. Product development often takes twice what was anticipated, and many early stage companies simply didn’t have the capital to achieve what they hoped in advance of an A round.

This is contradictory. On one hand, the author claims "a lot can be done today with a small team and $50,000 a month" but on the other he's admitting that many of these companies aren't able to do what the founders "promised" they'd be able to do.

> Valuations tend to be flat or flat-ish.

> In the end, however, the entrepreneur benefits because they usually see a step up in valuation from the first to second seed.

Which one is it?

> These differ from your classic seed. They tend to have new participants, unlike the more classic extension, which is merely the insiders injecting additional capital into the company.

This is the perfect demonstration of what happens when there's too much money chasing too few opportunities. New investors are willing to put more money into a company that underestimated its funding needs, missed its targets and can't raise a Series A, and do so at the same or slightly higher valuation as previous investors. Insanity.

The "seed extension" phenomenon also demonstrates why early-stage startup employees should be skeptical about equity. These "seed extensions," which look like dumb money bridge rounds, can be really destructive. Just do the math on what happens when a company raises $1 million at a $10 million valuation, and then raises a $2 million "extension" at a "flat-ish" valuation.

Answer: retain experienced counsel to assist you.

> I just got an offer from a late-stage startup, that is offering me a small number of shares at a strong price (the latest valuation is already 2x the strike price I would get).

If you are being offered options with an exercise price less than their fair market value (as established by the company's latest 409A valuation), you could face adverse tax consequences. It is unusual for a company to offer discounted stock options, so this suggests that you either don't understand what you have been offered (most likely scenario) or that the company is intentionally or unintentionally exposing you to a huge tax headache (least likely scenario). In either case, you'd be wise to seek professional advice.

> uBeam promises it will being showing demos to people outside of its team, investors, and partners next year.

In May 2012, more than three years ago, Michael Arrington, who participated in uBeam's seed round through CrunchFund, wrote "In a year or so when this thing is productized you’ll be hearing a lot more about Mary" on his blog[1].

[1] http://uncrunched.com/2012/05/23/serendipity/

This Matt Henderson[1], who is the "Chairman & Chief Executive Officer at Juhász & Associates, LLC", "a digital branding agency passionate about genuine and sincere human engagement," has been retweeting Rumblr's Twitter account. You really can't make this stuff up.

I wonder if the founders are going to eat their own dog food. By the looks of their photos, I'd guess not.

> “We're kind of all hands off after people meet,” said Jack Kim, the second half of the Rumblr duo. “Beyond that we don't condone any specific type of violence and we do specifically state when you sign up, we're not legally supporting any of what you're doing here.”

This is perhaps the best proof yet that you can get into a school like Stanford even as an idiot.

[1] https://twitter.com/juhaszhenderson

I really hope so. If it is, the creator needs to drop better hints because clearly the absurdity of the concept in and of itself is going to be lost on most people, as the VentureBeat post demonstrates.

The registrant email associated with the getrumblr.com domain is me@jackk.im. jackk.im is the website of Jack Kim, who lists himself as the co-founder of OneTune.fm, a current Stanford student and former founder of Benelab, "a web-based nonprofit startup dedicated to harnessing the immense power of web search to fund incredible causes."[1]

[1] https://www.linkedin.com/in/jack7kim

> ...it's just that the internet has democratized the technologies used to ask randoms for money.

You hit the nail on the head.

You can fool all the people some of the time, and some of the people all the time. Services like GoFundMe simply make reaching "some of the people" much, much easier.

1. Since when did "tech company" come to mean "non-startup"? Lots of startups are by definition technology companies.

2. Many people in the Bay Area are employed by angel and venture-backed startups, so how does it make sense to ignore them? If and when there's a significant downturn that results in the unsustainable startup herd being culled, not all startup employees are going to find six-figure replacement jobs at companies like Google and Facebook. People who lived through the first .com bust know how fast the job market can dry up for a large subset of employees.

3. It is absolutely not true that the Bay Area's unprofitable publicly-traded tech companies have "unlimited money" relative to anything. Review their SEC filings and you can determine how much money they have down to the dollar. You should not be surprised when those that struggle to reach profitability sooner or later take cost-cutting action, which may include layoffs and adjustments to employee compensation. Twitter just did this. Even profitable tech companies, like IBM and HP, have laid off significant numbers of employees. Bottom line: when push comes to shove and the shit hits the fan, companies tend to use large knives, not scalpels.

> Multi-billion dollar companies happen when non-obvious ideas and huge market needs meet perfect execution. We've seen it before our eyes — Uber, Airbnb, Dropbox, Stripe, Instacart...

It's kind of funny to see some of these companies uses as examples of "perfect execution." Two of Dropbox's latest late-stage investors have already reportedly written down their investments by ~20%[1], and Uber and Instacart are facing class action lawsuits that, in worst-case outcomes that are not entirely improbable, could upend their business models.

> ...it's not about avoiding loss or minimizing downside.

This is silly. Good fund managers are always concerned about downside. That doesn't mean they don't take on risk, but they try to understand and mitigate risk as approprite for the kind of fund they're managing. In the world of VC, there's a reason liquidation preferences, ratchets, etc. exist.

Just because FOMO in this market has made it difficult for VCs to get terms they'd normally like doesn't mean they aren't exposed to downside risk. As Warren Buffett once said, "Only when the tide goes out do you discover who's been swimming naked." When the cycle turns, we'll learn which VCs didn't have their speedos on.

[1] https://www.theinformation.com/mutual-funds-mark-down-dropbo...

You can probably find IRR figures. But there's a wise saying in private equity, "You can't eat IRR."

> Believing spending well under one engineer's annual salary made a bad outcome more or less likely is nothing other than dumb.

Now you're being obtuse. It is the cumulative effects of leadership having out-of-whack priorities that can lead a company to the deadpool. Get it?

In any case, I'll take being Common Sense Dumb and having a successful, profitable business over being Silicon Valley Smart and handing out pink slips any day of the week.

> But my question: where is the evidence that tech companies are not able to be profitable with their high payroll costs?

You could look at the growing number of layoffs at post-seed stage companies[1].

Or you could look at startups that voluntarily publish financial information. Take, for example, this one[2], which, as of June, was spending $525,000/month on payroll (equating to an all-in cost of $146,000/year per employee) when it had less than $300,000 of monthly bookings revenue.

A lot (perhaps the majority) of venture-backed Bay Area startups are entirely dependent on investor money to sustain their workforces at their current sizes. Even some of the tech companies in the area that have gone public aren't profitable. FireEye and Marketo are two that come to mind.

Everybody has been trading profitability for growth, and that's a game most will eventually lose.

[1] https://news.ycombinator.com/item?id=10517445

[2] https://news.ycombinator.com/item?id=10049808

> He probably spent hours (invaluable hours!) thinking about those ceiling panels.

When you run an unprofitable company that subsists on investor money, every single hour of leadership's time is invaluable.

> I dunno, should their office be a hovel?

So the choice for startups is a) a swagged-out office in one of the most expensive commercial real estate markets or b) hovel? What world do you live in?

> Because you appear to have some sort of issue with this founder outside his attempt to make their office a nice place to work.

You're free to believe this office represents a modest attempt at creating "a nice place to work," but outside of bubbleland, most people will see excess.

By the way, "a nice place to work" is just as much about how people are treated and interact with each other than it is about all of the "stuff" that gets put in the office. Unfortunately, leadership teams at many early-stage startups today don't seem to recognize this.

> And why on earth would I finance ceiling tile purchases for some random company?

It's only "THOUSANDS!!!" of dollars. You seemed genuinely concerned by the noise levels.

> while it's fine to be surprised at companies lighting money on fire, gloating about a company laying people off is all class.

I started my career at a dot bomb in the first boom/bust, so I have been on the other side. It taught me one of the best and most profitable lessons of my life: don't work for people who seem better at spending money than making it. Hopefully some of the younger folks who get laid off for the first time in this cycle will come away with lessons of their own that will help them avoid being fooled again in the future.

Finally, you seem to be missing the fact that lots of people are not surprised startups today are lighting money on fire. We see it every day, and many of us frequently point it out. What baffles me is that folks like you are surprised at where this leads and indignant when somebody points out that a bad outcome was more than likely. Shouldn't your indignation be directed at the people who are responsible for the incompetence, excess and waste?

I consult in this space. A few points:

1. Square provides merchant cash advance. This is not a loan.

2. Payment processors like Square have knowledge of a company's credit card receipts but cannot determine a company's cash flow unless they obtain additional documentation from the merchant. Calculating cash flow requires not just incomings but outgoings of cash. Payment processors obviously don't have the latter.

3. Merchant cash advance is a last-resort financing option for small businesses. Despite your implied suggestion that merchant cash advance providers have underwriting advantages over banks, there's a reason merchant cash advance is frequently the most expensive form of small business financing.

It doesn't matter how much it cost. It's about priorities. If you watch the video and get the sense that this company's founder has his priorities straight, maybe you can chip in and buy the next set of panels.

On second thought, it appears that the office is going to be pretty quiet soon enough.

> However Square believes they can do this better than other services because they can effectively secure the advance by taking a piece of each card swipe at the merchant's point of sale system.

Payment processors have been active in the merchant cash advance space for a long time. What you describe (split withholding) is not new, nor is it something that only Square does. Where split withholding isn't available, merchant cash advance providers set up lock box accounts. This is not a complicated process.

Also of note is the fact that according to Square's S-1, it "fund[s] a significant majority of these advances from arrangements with third parties that commit to purchase the future receivables related to these advances."

There are a growing number of layoffs at post-seed stage startups (Gumroad[1], Zomato[2], Flipagram[3], Good Eggs[4], Famo.us[5], Quirky[6]), many of which have raised sizable rounds from prominent VCs.

It's hard to see a light at the end of the tunnel for many of these companies.

[1] http://techcrunch.com/2015/11/05/layoffs-hit-gumroad-as-the-...

[2] http://techcrunch.com/2015/10/16/restaurant-search-app-zomat...

[3] http://www.businessinsider.com/flipagram-cuts-20-percent-of-...

[4] http://techcrunch.com/2015/08/05/good-eggs-layoffs/

[5] http://techcrunch.com/2015/11/06/nopen-source/

[6] http://www.businessinsider.com/quirky-layoffs-2015-6

"One of the things I wanted to sort of like inspire people with that worked here is you always feel beautiful while you're here." Those are the words of the chief interior designer himself.

Bottom line: this company crapped on itself. You're deluding yourself if you truly believe office managers are driving decisions to waste time and money on stupid sh*t like beautiful noise panels.

> I said there's nothing wrong or particularly wasteful with the office.

Just because you said there's nothing wrong or particularly wasteful with the office doesn't mean others agree. Outside of bubbleland, most people are going to struggle to understand why the CEO of a company that almost certainly doesn't have a cent of profit spent any time whatsoever thinking about how he could avoid "boring noise panels."

"Why not make this a piece of art as well on the ceiling?" Really?

When will folks learn[1]?

[1] https://news.ycombinator.com/item?id=9778832

Yeah, I don't see what's wrong either. The CEO is a fantastic interior designer. And his LinkedIn self-summary[1] is a real piece of art in its own right.

I find it hard to believe any of what this former employee wrote[2].

[1] https://www.linkedin.com/in/stevenewcomb

[2] http://techcrunch.com/2015/11/06/nopen-source/?fb_comment_id...

GSV Capital (ticker: GSVC) is an investor in Lyft. As of June 30, its investment in Lyft represented 2.9% of its portfolio.

Alibaba (ticker: BABA), Rakuten (which is listed on the Tokyo exchange) and Tencent (which is listed on the Hong Kong exchange) are also investors in Lyft.

I believe GSV Capital participated in Lyft's Series D, while the others were Series E investors.

Thanks for the clarification. I'm assuming you probably can't help me find a sarcasm detector for $640?

> Thus, the extrapolation that they have no idea where any of the total budget went.

This is patently false. We know where the money went. Toilet seats. Lots and lots of (very comfortable) toilet seats[1].

[1] http://articles.latimes.com/1986-07-30/news/vw-18804_1_nut

Booze, beanbags and bike workstations are now the signs of a "thriving" startup environment?

> Well considering the 50K is basically a rounding error to most VCs the money is not an issue. Given the difficulty of assembling a world class team to let one disintegrate just because their current idea is poor is not a good use of a limited resource.

You do not seem to understand how fund management works in the real world. A venture firm simply cannot deploy a nine-figure fund by writing $50,000 checks to keep on ice every entrepreneur it thinks has potential.

Furthermore, I don't see how you can conclude that founders who thought it was a good idea to "lock customers into discount rates that even with infinite retention won’t become profitable" represents a world-class team. The post-failure behavior of one of the Homejoy co-founders[1] is even more damning.

[1] https://news.ycombinator.com/item?id=10468700

Yes, investors should be putting twenty-something would-be founders who think it's a good idea to "lock customers into discount rates that even with infinite retention won’t become profitable" on $50,000 retainers to come up with ideas that they can then fund.

That's an efficient way to deploy a nine-figure fund if I've ever heard of one. I'm sure LPs will love it.

Which is precisely why Silicon Valley needs to get over its infatuation with young, intelligent engineering types who have no experience successfully applying software to business.

Giving a "talented" engineer with no demonstrable business acumen tens of millions of dollars to build a profitable, sustainable business is sort of like giving a "talented" pianist tens of millions of dollars to build commercial real estate. Just because an individual has "talent" and knowledge in one area doesn't mean they have it in all areas.

> ...the point I am trying to make is that the Homejoy team was exceptionally talented and did amazing things...

> Homejoy was led by two software engineers. Both wildly talented humans...

> Homejoy and ‘fail’ have gotten tethered together in the tech headlines recently but for myself and many of my colleagues Homejoy will always be more synonymous with success than failure.

The entire post describes a litany of horrible business decisions and mistakes that are hard to reconcile with the author's compliments of the Homejoy team.