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Comment by Codhisattva | Hacker News Reader

Wow. What an interesting example of what's wrong with the venture capital model. A great product dies because the founders "spent too much time on the product".

I hope a 9th inning miracle saves the day. If not, thanks for the great product.

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From the article:

"The reaction was positive for you as a team but weak in terms of whether a $B business could be built."

Wow, fuck these guys. It seems like a lot of good ideas are getting left on the cutting-room floor because people are holding out for the next giant thing.

I hope the crowdfunding thing is enough to help unlock capital for things like this.

(j/k crowdfunded equity is going to be a shitshow)

EDIT:

The folks probably blew some money they didn't need to, but the quote I brought is specifically "Yeah, so, you guys are good but we don't see this being a billion dollar business".

A glorified photobucket doesn't need to be a gigantic billion-dollar business. Most startups which solve simple problems and solve them well are very useful to consumers but aren't going to be massive juggernauts; that doesn't mean that they're bad investments.

Had the investor said, "Yeah, we don't see this becoming a $100M any time soon", maybe that'd make sense. But the additional order of magnitude (one billllllllllion dollars) strikes me as unreasonable.

This is a great example of why everyone thinks we're in a bubble folks.

I agree that venture capitalists passing on great businesses because they're "lifestyle ventures" or whatever the politically correct phrasing is is an issue, but that doesn't seem to be the case here? EverPix wasn't trying to become a $B business, yeah, but they were still rapidly outspending their income streams, which is only sustainable if you're an extreme edge case (or receiving the massive, massive influx of buzz and users like, say, SnapChat.)

Everpix's raw product seems to be great in the same way "free puppies for everyone" is great. Their monthly variable costs outpaced their revenues, and their market positioning left them amidst a sea of giants who offered similar services for free.

I think neither venture capital nor crowdfunding should (or can) be a panacea for a bad business model.

Right, I agree that it looks like their business model was flawed. That said, that should've been the rejection status code instead of the billion-dollar opportunity remark.

(j/k crowdfunded equity is going to be a shitshow)

hehe..

I just sunk my last $20,000 in your app, man. Now you are shutting down and getting cushy jobs at Google? Fuck that, where's my money? I will stalk you and your new boss on LinkedIn until you explain WHERE THE FUCK my money is. My wife is leaving me and the kids want to go to Disney World.

Wait, explain? Why should VC's fund something they don't think will make enough money? That seems to be a sense of entitlement - clearly, paid users were not enough to support this product on its own (which by all accounts, is a shame).

I think his implication was that paid users would have been enough to support it in the long run if the goal of investment were a stable business with some amount of yearly profits rather than a VC jackpot valuation exit.

But why on earth should VC's fund it in that case? Isn't that an entrepreneur's decision, not the VC's? Blaming the VC's for not funding this seems ridiculous to me.

But isn't that more the role of traditional sources of capital (banks, &c.) than a SV VC?

To be honest, I've never heard of traditional sources of capital funding websites but I suppose that doesn't mean it doesn't happen.

In any case, I agree that it doesn't match the VC models, but I'm not sure there is another model available to a web business that can probably get enough traction to survive, but not enough to offer massive returns.

In fact, I'd go so far as to say there are probably significant market segments not being served because they offer a modicum of stable profit but have large up front costs without a lot of growth opportunity.

I wonder if this is an opportunity -- the world is not solely composed of moon-shot local social enterprise websites, and worthy businesses are being shut out of the world of cheap money by the prevailing culture. Hmm.

Individually, sure, it makes sense, but the fact remains that the emergent behavior of the system seems to be the ossification of capital.

"A glorified photobucket doesn't need to be a gigantic billion-dollar business."

No... it absolutely doesn't. But this particular photobucket wasn't even a $1 business. It was a NEGATIVE business.

"fuck these guys" is way over the top. there's nothing wrong with deciding you only want to invest in businesses you think have a shot at being worth 1 billion dollars some day.

> Had the investor said, "Yeah, we don't see this becoming a $100M any time soon", maybe that'd make sense. But the additional order of magnitude (one billllllllllion dollars) strikes me as unreasonable.

Startups forget they are one company in a portfolio of companies that comprise a fund.

Venture capital expects a fraction of its portfolio investments to succeed. So it must invest in companies with very large target markets so the handful that succeed can offset the losses of those that fail.

I'm not a SV resident, nor a startup kind of guy, but one thing I've noticed is that VC firms are hit driven. And when there are periods in time when hits are far apart, you end up with events like the Series-A crunch.

I'm wondering if there could be a VC firm that would emphasize a low cost of business (for them) in return for not so many hits, but rather a series of smaller firms that just get on base. They'd build a pool of talent, and one or more of the firms might hit it big (aka got lucky), but the VC would be more about spreading their bets, and having a strong base to generate recurring income. And with a possibility of synergy between the various firms under management. So -- more dividend oriented than IPO oriented.

> I'm wondering if there could be a VC firm that would emphasize a low cost of business (for them) in return for not so many hits, but rather a series of smaller firms that just get on base. They'd build a pool of talent, and one or more of the firms might hit it big (aka got lucky), but the VC would be more about spreading their bets

I think the management and vetting overhead isn't worth it for them. Maybe SV is more hit driven, but I've seen non-sexy start-ups raise small rounds of funding. You don't really hear about them though.

Here in Australia, there are lots of high-tech businesses working on unsexy problems who get funding, that no one ever hears about.

The only reason I know anything about any of them is I ended up in the right place at the right time. It's a shame, but that's how it goes.

There are private equity funds that do this kind of thing at a slightly later stage. I think the window between a startup that burns fast enough that it needs a big exit and one that burns slowly enough to not need VC at all is pretty narrow though.

That sounds pretty close to the 500 Startups strategy.

Looks to like it died because they spent too much by being in the Bay Area. Seriously... they're spending ~$1k/employee/month for office space in a "co-working venue" in SF.

Well in defense of that - it's easy to underestimate the value of a good, creative, productive workspace.

Also very easy to overestimate it, especially when you are targeting a low value niche like a consumer web subscription.

See also: Their $35k/month (Over $5/paying customer!) AWS bill, when they probably could have done the non-sexy startup thing and just leased a couple of beefy VPS servers for a fraction of that.

It's not a great product but a great idea. A great product is one people will either pay for or investors invest in with the assumption is will be more valuable in the future. There is a difference. Sometimes the people with the idea can't figure out the leap to a great product and it fails. I've been there.

From the investor perspective, the company is the product. Not the company's product.

Everpix, from a user perspective is a great product. So says this paying customer.

I disagree. It sounds like they had a great product, but they didn't have a good enough business.

"... and not enough time on growth and distribution." Look at the numbers posted, and even if they cut back heavily on their expenses, the subscription revenue was not where it needed to be.

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