Startup tsunami in silicon valley

[_metamorphosis_]

Recently, I started scoping out the job landscape in Silicon valley. And holy cow!!! it's startups everywhere. Every tom, dick and harry is doing a startup! Which makes me skeptical of 99% of these startups, including some of those 'decacorns'.

What's going on in silicon valley? Are startups really making that much of money or just getting a free ride on investor's expense? Or is valley deluded with young-20-something-programmers who are just starting pet.com variations?

[tathastu]

I think it's important to separate out two things -- the startup boom vs the housing boom.

The startup boom in some sense has always been there. There is a bubble-like environment but I don't think it equates to 1999 -- most of the high-value companies are doing fairly well, having either good exits (Whatsapp, Tumblr, Etsy), or raking in decent revenue (AirBnB) or having marketing executives fight over the chance to advertise (Snapchat, Pinterest).

As other folks have pointed out, VC firms have gotten rich and there is money to go around so the amount firms are being offered is a little higher than normal especially for late-stage rounds when it looks fairly sure that the company is on solid ground.

The housing boom on the other hand is simply an effect of not enough housing. Startups aren't the major employer in Silicon Valley. The major employers are Google, Facebook, Apple, Microsoft, LinkedIn etc -- all employing thousands of people, all generating loads of profit and they aren't shutting down anytime soon; nor are they going to relocate anywhere in the near term. These people need places to live, but SV suburbs don't want to authorize extra housing, leading to the spike in prices. Even San Francisco they city has had way lower housing built than a city like Seattle over the last few years, though the demand has been far higher.

The housing boom / bubble will burst if there is a sudden, huge surge of new housing projects; but I doubt it.

[TheFullStack]

I'm in New York, not in SV but there's a lot startups over here too. I am a contract developer and have worked with startups for about three years. I can honestly say there are founders that are getting a "free ride" on investor expense - taking long vacations over the summer, building product forever and not releasing (this gives founders an excuse not to be out talking to customers - after all, the product isn't ready), and so on. It's a scam. It's a great way to avoid getting a real job while being able to say to friends and parents that you're doing something exciting - just on the beach on Montauk.

[dquail]

There's a perception that raising money is "easy" in the current climate. The reality though is that it's simply not that easy and that there most certainly isn't many founders coasting on beaches. I know a lot of entrepreneurs and founders here in SF/Bay, and every one of them is working much more than 9-5 5 days a week. And none of them got a "free ride" from an investor - but rather went through the slog of building product / traction to raise every penny. Sure, there's more capital floating around - but there's a lot more competition too.

[rubyalex]

You can do this once, but rarely ever twice. The world is surprisingly small and word gets around quickly when you take that "free ride" at the expense of the people funding you. Besides, it's different from 1998 in the sense that VCs are placing more money on later-stage startups than seed/A-stage startups.

[zpatel]

How do these founders get funded without traction..Everyone i talk to in my network says I need to launch and get traction first, although they like the product so far.

[spiritplumber]

Yeah it's 1998 all over again.

I wish I had the gab to cash in on it some... as it stands, I just make and sell my hardware. It's a good living, I paid off my mortgage at 32 and have enough money to not streess and enough free time to write.

[vonnik]

It can be a shock to come to SV/SF and realize how many startups there are here. It's probably unique on the planet. Sure, most startups fail. That's been said over and over. And in this economy, it's not really a problem. The risks for each individual tech worker are fairly low, because if your present employer fails, there are many others desperate for software engineers, designers, marketers, etc.

There are lots of good ideas and lots of bad ideas getting built here. Some founders are deluded, others are ambitious, and

Startups get founded in the Bay area because there's a lot of talent to draw on, a lot of experienced investors, and a lot of services that support young companies.

More generally, startups don't make money, they make promises. And the promise they make is that if VCs invest X amount of money, they will get back 5X in a few years. Or something like that.

Most startups end up not returning 5X, and a few return a 100X, and them's the breaks.

[_metamorphosis_]

I have been in SV since 2008, so not shocked by startup culture. What shocks me is so many startups with very trivial product/service which could easily be just a feature in their competing product. May be I'm questioning their value and overhead involved in developing that 'feature'. But again, there are some really good startups, and totally worth trying whatever they are trying to build. It's just their number is still no better than it was in 1999 or earlier. I wonder if there are any hard numbers of startups - how many? how many employees? their average experience/age? rate of 'success'? etc.

[Balgair]

This is called a bubble. Where a lot of these start-ups are getting their funds is from the Bank of Mom&Dad, regular old credit cards, or they are 'bootstrapping' out of their jobs at places like Starbucks. Not many investors are actually doing this, it just seems like it because most of the people are lying, trying their best not to lie per se, really good at saying their cousin is a big time investor because he gave them 20$ for pizza and they got too stoned to buy pizza.

Do not believe the hype out of SV, this is going to crash no sooner than 4 months from now and no later than 16 months from now. Evidence: Housing prices. The property bubble is back, because people think they can flip houses again and make a quick buck. Why is it back? Because people think that other people are actually buying houses to live in for that price because they think there are 100,000 people that FB employs because they are, like, as big as Boeing, right? And, like, they all have like bucco bucks from all the stocks, right?

Surprisingly, Mark Twain has written a lot about this kind of stuff. His "Roughin' It" talks about his time in Virginia City, Nevada and all the leeds that folks would buy and sell from adventures in the silver country. The lessons there are very good.

[_metamorphosis_]

> most of the people are lying, That's bit harsh. There was a report few days back on HN, where a company claimed that while typical VC are slowing down in investing, private hedge funds and such are pumping unprecedented amount of money in tech startups. Although, I might have to agree about SV being in 'bubble'. I live there and see shacks being listed for $1mn.

[sjg007]

It's Phil's man, not Starbucks.

[codeonfire]

Why does no one think it odd that there are several large tech companies with 100k+ employees each, but think something is wrong if there are thousands of small five person companies? Tech workers don't need the resources of large tech companies anymore and they certainly can't pay for huge management overhead.

[SoBe1]

I think it's perfectly normal to have so many startups nowadays, the cost of starting one has gone way down and it's a much better environment (but highly competitive) than late 90s to try out an idea. You can slap some code together or get it over the counter/plug&play and rent some cheap server power and you're good to go. The question is how many will be able to make money? US stats say 95% of them fail, but you could have 1% making some serious money, VCs/investors are not dumb to repeat late 90s mistake and they now gamble with smaller bets, pool money & collaborate alot.

You should go out and try out your idea. It's fun but hard work as I'm in middle of one, taking a break writing this :)

[srameshc]

I don't think investors are that ignorant to give away money without seeing any value in person or his idea. Its a good thing when people are trying to build business, many of those might fail, but someone of those tom, dick or harry might leave a mark.

[neals]

I have very recently switched from 'startupping' (bootstrapping for over 5 years) to doing more contracting and consulting.

There is 200 million Euro of government subsidies (+ private capital) going out to startups in my (rural!) area and I'm taking everybody in. It's crazy right now.

[michaelochurch]

The answer is that there's a lot of passive capital in the world in pension funds for teachers and police officers. Much of that passive capital is invested in bonds and equities, but some of it gets invested into private equity, of which VC is a subset.

Now, what happens is that a large proportion of the passive capital ends up in Northern California. It has to be invested somewhere. In VC, it has to chase ideas. The problem is: most ideas are lame, and most people don't have the ability to tell which ones are lame (and lame ideas can succeed in the short term: see Pets.com and Snapchat).

The passive capitalists are people like retired teachers in Ohio. If they voted, they wouldn't want all of that passive capital (and the job-creating power of it) going to a small geographic area. They'd rather have it spread out more: this would mean a greater number of jobs in Ohio, and it would take the rent/housing pressure off of the Valley. Of course, what passive capitalists care the most about is returns on investment. If VC were a successful investment vehicle, then passive capitalists would favor the California concentration, and what is happening would be the right thing. The problem, of course, is that it's not a successful investment vehicle. VC works for the careers of the venture capitalists, and the cronies they can place in high positions, but the passive capitalists whose funds are being invested in it get utterly screwed.

This may answer your question and, yes, many of the startups being funded right now are bogus. However, there are some that aren't. It's not all bullshit. I'd say that it's right to be skeptical, but there are companies with genuine products and strong cultures and plausible futures. It takes a lot of time to get a sense of which are which, though.