Marc Andreessen Sounds Warning on Startups Burning Cash | Hacker News Reader

Marc Andreessen Sounds Warning on Startups Burning Cash

dealbook.nytimes.com

117 pointsstevenj90 comments

VC-funded startups have always burned cash at prodigious rates. There's nothing inherently worrisome about that. What worries Andreessen, Gurley, Wilson, and other investors with decades of experience is that many startups today are burning cash by spending on things that do not increase business value -- and in some cases actually destroy it -- without worrying for even a moment about the possibility of running out of money.

In Andreessen's words: "Lots of people, big shiny office, high expense base = Fake 'we’ve made it!' feeling. Removes pressure to deliver real results."[1]

In Gurley's words: "I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since '99. In some ways less silly than '99 and in other ways more silly than in '99. ... For the first time since '99, in the past 12 months, I've been in board meetings where the company says, 'Our only option is a 10-year lease,' at record pricing on a per square foot basis here in San Francisco, which is two or three times what the rent was three years ago. And so this is why it's all cyclical—because the landlords get greedy. They wouldn't do a 10-year lease if they thought that the rates were low. So they're implicitly telling you they want to lock this in for 10 years, which is its own form of greed because what happened in '99 is half the companies went bankrupt and they couldn't pay the lease over the 10-year period."[2]

In Wilson's words: "I’ve pushed back on long term leases that I thought were outrageous, I’ve pushed back on spending plans that I thought were too aggressive and too risky, I’ve made myself a pain in the ass to more than a few CEOs."[3]

Their worry, in short, is that many VC-funded startups are burning cash stupidly.

[1] https://twitter.com/pmarca/status/515219433695223809

[2] http://online.wsj.com/articles/venture-capitalist-sounds-ala...

[3] http://avc.com/2014/09/burn-baby-burn/

Honestly? I don't buy it. The VCs are the ones that have been pouring cash into these companies so they can blow it on obscenely expensive parties and offices. I think they're just trying to deflect criticism away from themselves and onto the startups.

I mean, there have also been plenty of startups in the past that have blown money and built a product that nobody will pay for. And VCs just pour more cash in.

> The VCs are the ones that have been pouring cash into these companies so they can blow it on obscenely expensive parties and offices. I think they're just trying to deflect criticism away from themselves and onto the startups.

No VC will ever say they invested in a company "so they can blow it". They invest so the company can spend on marketing/distribution, product, etc. Not on just-for-fun items.

I work in a startup and we keep ourselves in check. If we weren't managing our finances it would be our fault first. Mayyyybe blame the VC's indirectly for who they invested in.

> No VC will ever say they invested in a company "so they can blow it". They invest so the company can spend on marketing/distribution, product, etc. Not on just-for-fun items.

They'll call it "Recruitment and Retention"

Just tweeted about this last night:

1/ The data does not support that there is much of a start-up bubble - if you dig into Ernst & Young VC report: http://www.ey.com/Publication/vwLUAssets/EY_-_Venture_Capita...

2/ The seed glut has subsided & declining for a while across both enterprise + consumer segments, in # of deals, and total $ (page 32)

3/ Meanwhile, VC exits from acquisitions at an all time high, $32.8B from first half of 2014, compared to $43B all of 2013 (page 17)

4/ All numbers are USA btw. Same is true for VC IPO exits, first half of 2014 $5.1B vs $8.2B for entire 2013.

5/ For US seed investments median $ raised in enterprise seg was highest in 04&05 for the past 10y. Post-05, its consistently below $1M mark

6/ Median amounts raised is lower for Series A & B as well, in the US and have been dropping since 2008 - page 46.

7/ In conclusion, substantially more exit $$ and lower median $ in. No bubble. If your CEO is spending too much money, it's your problem.

> In conclusion, substantially more exit $$ and lower median $ in.

That's a bizarre way of defining a bubble.

A16Z, Bill Gurley etc. saying startups are spending too much money, and in inefficient ways, and thus there is a burn-rate bubble.

I'm running with their definition and saying that, if 1) VCs give less money to companies - i.e. their max is spending is capped, 2) the companies are able to exit for more $, this issue is certainly not showing up in the data.

Bubble is perhaps an overused term. It has a specific meaning: an investment feedback loop driven by herd effects coupled with a hidden underlying reality of diminishing returns.

There may be a bit of that, but the thing I hear Andressen and others complaining about is like you say, burn.

In that case it's a case of a liquor store owner complaining about drunkenness. VC money fuels a culture of hyper-deflationary short term "dumping" of free stuff into the market to fuel short term exponential growth. This is basically killing any opportunity for revenue anywhere but the extreme enterprise high end-- where costs are highest, sales cycles are slow, and huge teams with high burn rates are needed to address the market. Rinse and repeat.

I'm not sure that's a bubble... More like a tragedy of the commons.

I am not really qualified to determine whether there is a bubble nor do I believe there is much value in speculating constantly about it. If there is one, valuations will drop, cash will be harder to get. Its not going to change the kind of work I like to pursue or the work that makers, builders and engineers do. It will probably change how much everyone is stuffing in their pockets, fine.

One glaringly bizarre thing from my perspective is why anyone would listen to VCs about whether we are or are not in a bubble. I'm sure there are other perspectives, but it would seem someone heavily invested in seeing valuations go up wouldn't want to ring alarm bells... I think instead I would rather gauge things by the numbers which unfortunately, are probably not frequent enough to reach true statistical significance to not have incredibly large confidence ranges. That being said, some of the money flying by on crunchbase every morning is ludicrous.

> Its not going to change the kind of work I like to pursue or the work that makers, builders and engineers do.

As someone who lived through the original dot-com bubble, I would respectfully argue that this viewpoint is naïve. There were lots of "makers, builders and engineers" who had to settle for things other than the work they liked to pursue for many years after it popped.

It took several years around silicon valley for things to get interesting again. I think I became a better developer during that time because it forced me to do/learn things I might never have. Nevertheless, yes, it TOTALLY changed the kind of work many of us were doing at the time.

you listen to VCs about this because their whole job is to be sensitive to any risks to their investments, including systemic and idiosyncratic risk. they also have more breadth across the early venture market than most people. that said, they're guessing based on what they see, so it's not a perfect predictor. you're at least getting a glimpse of what they see via articles like this though.

>I am not really qualified to determine whether there is a bubble nor do I believe there is much value in speculating constantly about it

Bubbles exist when enough investors decide that a bubble exists. When markets crash, nothing has actually happened...other than people deciding that equity values are going to drop. When they stop buying based upon that belief, it becomes a self-fulfilling prophecy.

That said, of course we're in a bubble. Someone gave "Yo" $1 million ffs. I won't even go into Clinkle - a failed experiment in Silicon Valley cronyism. While those investments are poster children for this problem, there are hundreds of other equally absurd investments and valuations going around.

Fortunately, there is a way to protect yourself that has worked since the beginning of time. Create a scalable business that produces both revenue and profits, even during its growth phase. One that actually creates value both for customers and shareholders. Like magic, you'll still have a fantastic business while reading about how horrible things are for everyone else.

> Fortunately, there is a way to protect yourself that has worked since the beginning of time. Create a scalable business that produces both revenue and profits, even during its growth phase. One that actually creates value both for customers and shareholders. Like magic, you'll still have a fantastic business while reading about how horrible things are for everyone else.

This is less foolproof than you think. Cisco and Sun both had a business like you describe going into the bubble. They had tons of revenue and profit during the bubble. But when it popped, all the funny money that had been flowing to them through startups went away and their businesses took a huge hit. You have to make sure that not only do you have a stable business, but also that the majority of your customers are stable too. I would be very worried right now if I was any company that startups rely on. The obvious one is AWS and the other cloud providers, but they're not the only ones. If there's disruption to startups, there will be a ripple effect that will hit a lot of the tech world.

That's something I had overlooked. There is definitely a ripple effect in the event of a bubble popping, and if we are in one and if it does pop that will potentially ruin a lot of 'for devs, by devs' companies.

Waitwaitwaitwaitwait someone gave Yo money? Yeah run for cover.

Yo money? Mo' problems.

Couldn't resist.

VCs aren't oracles, but they're invested on 5-10 year cycles. Moreover, big VCs are always in multiple funds at once, so one is beginning while another is halfway through it's life. So even if you think they trade more on reputation and influence than actual value, I think it'd be incredible to claim that they're totally divorced from actual value creation.

> If there is one, valuations will drop, cash will be harder to get. Its not going to change the kind of work I like to pursue or the work that makers, builders and engineers do.

It might change the work that makers, builders, and engineers can get paid to do (and, thus, what work they will do, if they need money from work to pay the bills.) Becuase "cash will be harder to get" mean that "people paying you for what you want to work on will be harder to find".

I'd just like to point out that the "why now?" question is probably related to a major shift in America's monetary policy. Since the 2008 crash, the Fed has been using a policy of "Quantitive Easing" (QE) to keep interest rates artificially low and thus encourage lending and spending. It's been known for while that the Feds were looking to end this policy sometime this year and it's looking like the end of October will be that time. Although the Feds seem to indicate that they won't actually raise interest rates until sometime next year, halting QE will have the affect of making less money available for lending. No one is really sure what is going to happen but this is an event that will affect the economy as a whole. To me, it's sounding like one of the industries that could be particularly affected by this policy is Tech and the result will be a market correction in startup valuations.

Links! http://www.investopedia.com/terms/q/quantitative-easing.asp http://www.economist.com/blogs/economist-explains/2014/01/ec... http://www.forbes.com/sites/investor/2014/09/23/the-end-of-t... http://blogs.wsj.com/moneybeat/2014/08/05/goldman-sachs-here...

They've actually been scaling QE back for quite a while now.

Is that a 1% drop every year? I don't know. I do know that interest rates on savings have stayed near zero.

No, the drop has been quite substantial. From what I can tell the Fed was buying $85B worth of bonds monthly at peak. It's down to ~$45B now and they are planning on a final $15B in October.

I wonder if there's a loophole to explain why interest rates haven't budged.

You are correct, the Fed has said they would be ending this policy sometime this year and they're on track to do that. How I understand it, the big news here is that they've changed their language about raising interest rates from "we'll do it sometime in the future" to "we're going to do it sometime soon".

I don't think investors agree with you. If you look at the yield curves for the 1 year to 5 year treasury bonds[0] over the last year they have stayed relatively stable. Which means the investors expectations of future interest rate have been relatively stable. I don't think this supports you're theory that the Fed will be raising interest rates any time soon.

[0] http://www.treasury.gov/resource-center/data-chart-center/in...

Good info. Supports my theory that the plan is to kick the can down the road until it inevitably falls off a cliff.

I really don't have much grasp on the macro-econ stuff. Do you have an idea on what would such a cliff would be? Liquidity trap?

It think it would be a worse version of the 2008 crash. Many of the issues that led to that crash, instead of being fixed, were temporarily bandaged with accelerated borrowing and spending, like a credit card junkie who staves off the inevitable with ever more cards.

The yield curve has been relatively stable at close to 0. Indeed (as I understand it) that's the entire point of quantitive easing: it artificially keeps interest rates on long term securities down to encourage that money to be lent and spent http://marketrealist.com/2014/03/fed-taper-quantitative-easi....

The short term rate is 0. The yield curve is the curve if you plot interest rates on the y axis, and length of treasury bond on the x axis. This creates a curve that tells you what investors think will happen to the interest rate over the next 3 months to 30 years.

Hasn't the Fed been warning they'll halt QE "soon" for many years now? I think the actual policy is to keep interest rates low until it's impossible to do so. At present it seems there's no limit in sight to how many $trillions can be borrowed to keep QE going. Why wouldn't the choice always be to keep kicking the can down the road, when the alternative is to pay the piper?

As I understand it, the Feds actually have certain metrics like unemployment that they're trying to achieve. The big announcement from last week was that they're starting to hit their numbers and so they'll shift away from using QE (which is somewhat of an emergency tool) back to their main tool, setting short-term interest rates.

No, not really. They have been saying that they are scaling back with eye toward ending it, but not before the unemployment rate is under control. For example this is from July 2013.

Fed Chief Ben Bernanke announced in late May that the central bank intends to start slowing down the pace of its purchase “later this year” if the economy continues to improve. He said the purchases could conclude by mid-2014 if the unemployment rate is close to 7%.

http://www.marketwatch.com/story/fed-gives-no-hint-on-qe-tap...

There's a feedback loop to consider. Conclude the purchases when the unemployment rate is close to 7%, then the unemployment rate hits 9% because the nearly-free money tap is off.

Part of Marc Andreesen's tweetstorm yesterday said, "Worry." Andreesen hasn't said "worry" since 2008, so between that and the fact that he is generally very bullish and optimistic (to the point that when A16Z makes a bet they can put in an order of magnitude more money than other investors would), I began to stress out more than a little bit, especially having just closed our round.

This may be anecdotal to my experience, but there was a time last year when the advice we were getting from mentors changed from, "Figure out how much cash you need to meet your next milestone and go raise that with a bit of cushion" to "Money is everywhere right now; get as much as you can and build the biggest war chest possible." Neither of these approaches are particularly wrong -- it would be weird to turn down money when it's on the table, but we opted to raise significantly less than what we could have raised, and keep our team where we wanted it instead of hiring enough people to become "sexy."

Part of that is because we didn't raise at a super sexy Y-Combinator valuation and didn't want to give away the farm, and part of that was intentional. In short, we wouldn't know what to do with those people if we had them.

To be clear, we still have plenty of money to get stuff done. We still can pay for all the tools we need, pay ourselves enough to not have to stress about cash, and can hire top talent. We just don't have more money than we know what to do with.

We have three people working full-time on product right now, and that will grow to five in the next few months. If we had raised a $3 Million seed round (if you can still call that a "seed"), we would have felt compelled to go hire a dozen people. I can think of stuff we'd like to do, but it would probably be an absolute mess if we were building it all in parallel.

There may be some companies for whom building a huge war chest makes sense, but the notion of raising money for the sake of raising money (because you can) seems odd and dangerous to me.

You're correct that neither approach is wrong, especially since it might largely depend upon what type of business you're building. However, I think if you have no fear in your ability to raise funding, a business may relax in the real market discovery search. a super sexy valuation is always nice...but I think profitability is always in vogue. When I read this recent article[0] about what it MVP really means, it reminded me that some people in our industry forget that finding a market for your innovation is the lifeblood of long term success.

[0]https://news.ycombinator.com/item?id=8356906

The advice to build a war chest is often quite pessimistic. For example, if you think the market is going to bottom out by the next time you're going to raise money, you might as well raise it now. With all else being the same, it would have been a whole lot easier to raise money in 2000 than at then end of 2001.

>The advice to build a war chest is often quite pessimistic

I think cautious / sensible might be a better description. Few people look back regretting having too much money in the bank. As long as you can avoid blowing it on dumb stuff.

>> it would be weird to turn down money when it's on the table

really ? Its not free money. You have raised rounds so you know it will dilute your equity.

The issue is some one else will take the money and build your product and give it away for free. At that point you die.

> Andreesen hasn't said "worry" since 2008

Of course, he was two years late that time. 2008 was a great time to start a company or invest in one.

Because downturns are in large part socially constructed, it is impossible to have an accurate consensus on a downturn until it has already happened.

Market predictions are guesses.

It's quite amusing that the folks who have been investing in companies at exorbitant valuations and pushing for higher and higher growth as a prerequisite for additional funding are now worried that all the large sums they've aggressively invested are being spent on growth or things that create the appearance of growth. What did they expect?

Comments like "When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co's will VAPORIZE" are particularly interesting. The top-tier VC firms always talk about value add and active participation in their portfolio companies, and almost all of them look to have board representation in one form or another. But somehow one of the Valley's most prominent and connected VCs suggests that he doesn't know "who has been swimming without trunks on." Crazy.

you make it sound like all the VCs got together and decided to make this happen. it's instead an artifact of the economic system we have. it's due to humans being involved, but not caused by individual humans.

the car analogy would be the waves of stop-and-go traffic on a congested freeway, which is caused by variances in reaction times of people.

> you make it sound like all the VCs got together and decided to make this happen. it's instead an artifact of the economic system we have. it's due to humans being involved, but not caused by individual humans.

"Your poor returns are an artifact of the economic system we have. The collapse in the value of your investments with our firm is due to humans being involved, but this was not caused by individual humans."

- Every hedge fund manager, mutual fund manager, venture capitalist

> the car analogy would be the waves of stop-and-go traffic on a congested freeway, which is caused by variances in reaction times of people.

I think the pusherman analogy is more apt: he who sells crack gets crackheads.

Why now? What about all the years startups have been burning cash? It's nothing new. Parties, entitlements like free meals for employees, fancy offices and furniture, too much travel, ads and PR spending, fancy hardware... when a startup has zero or negligible revenue, this kind of excessive spending is absurd. Not clear why Marc thinks it's time to sound a warning now.

>ads and PR spending

These are growth activities as opposed to the others you list. The truth is many products never have just organic "viral" growth. They need ads, sales, or both to drive it.

Some would argue all the things he mentioned are growth activities. Employees are a vital resource... taking care of them can be valuable and can attract new talent as well

And most importantly PR people to spin massive ad buys as organic growth.

So that when his dire warnings come true, he can tell you 'he told you so'... =)

Maybe he is seeing new investment opportunities on the near horizon, perhaps including the rise in interest rates, which is expected at the beginning of next year? Tech has been one of the few places for people to put their money for quite a while, but it doesn't mean that will hold true forever. Commodities started heating up around the same time as this round of the tech industry "boom", and has pretty much crashed now.

There is an interesting relationship right now between the Federal Reserve and asset prices. It is a place we have been before.

Investor confidence in interest rates being low for a long time makes investors comfortable with current public equity valuations (besides all of the other things low interest rates can do to asset prices.) It is even more interesting now because a big jump in interest rates would cripple the US budget with debt payments.

One of the things I think about a lot is what is the fair market value of certain technology companies? It would be helpful to be back at a place where I know Netflix, Facebook, etc, are worth more than their public valuations. Additionally it would be healthy for the long term human impact of tech to extinguish some of the arrogance that has been building up for the past decade.

I do agree valuations are artificially inflated, but before you start drawing parallels to 1999 and every financial bubble of years past remember there are companies with real revenue streams. Sure, there are the snapchat valuations which have no basis, but do uber, airbnb, dropbox, and the like not deserve billion dollar valuations?

Let's entertain the idea that we have another "catastrophic" event where every VC in the world wakes up to the realization that many of these companies are worthless. They can't liquidate their positions. The key idea here is that this is a private market. These startups can't go from $100 million -> $0 in a day. They will tighten their straps, let a few employees go, and extend that runway as long as they need to make revenue. IMHO the easy days will be over and now every founder will learn what its like to really run a startup - No more shots in the dark just because you can

The real concern isn't that belts will tighten. Its that something serious or startling will happen inducing panic. Its the worry that we're getting near a tipping point, where the balance is bad enough that a strong shock could send us over to dark days.

On the second point, many of them absolutely can go from $100 million to $0 in a short time. Probably not the Dropbox(es) and Airbnb(s) of the world. But, those are only a tiny fraction of all startups. Imagine I'm only semi-major league, with good prospects, and I run a business being pushed to grow that's heavily leveraged on my financing rounds. I effectively keep payroll alive in quarter to half year cycles as we bring on more and more folks to fuel our growth.

If the investors get spooked though, poof, it all collapses. They suddenly don't want my risk because all their charts and finance guys say the market outlook is bad. My actual income doesn't nearly cover my growth-oriented staff. I can't meet payroll, I can't pay my office rent, I can't keep the lights on. I have to let a ton of folks go which kills morale. I may struggle for a while with a skeleton staff to try and recover, I may even do so if I'm really good, but I've still had my legs taken out for a while.

You know what's funny is that I already see this happening in lot of startups in Vancouver. It's not only just startups, but video game studios too. Most often is that founders or executives burn cash for the sake of short term gains without investing in the future. The future where Google suddenly open sources the app you been charging six digits for, the future where your competitors end up with most of your clients. Not pretty but it's a cutthroat environment when you decide to be a pig in a Wall Street sense, not as a derogatory term. Pigs get slaughtered, always, in any market.

As soon as someone with an excel spreadsheet says the risk far outweigh the rewards, they close shop and blame the ruling party or the local tech labor market as being 'too expensive'.

I can imagine what the impact would seeing that happen in large numbers in SV, that would have a ripple effect.

Well, that's the really scary version of the scenario. Where a lot of the sketchy shops start vaporizing. They were the ones that were horribly managed, or had a product that only looked good when money was plentiful, but their catastrophic death signals to other investors that the market is dicey. Slightly higher end folks pull away, and the next tier of shops cave or weather it. This continues until you get to a tier that's stable enough that investors running doesn't destroy them. I'd wager the rate of pullback probably determines how far up the chain it goes. Rapid changes are more frightening and cause pretty sound relationships to collapse simply because the money is afraid the cancer will spread to them too.

Do we go to the doctor when we've lost 20 lbs over a year or over a week?

Yes you described the domino effect and the word vaporize is scary and accurate. I think what we are seeing is a business management problem from people who are not fit to run a business to be blunt. Hiding behind product, or a "disruptive" process or basically prancing around on the media about throwing money here and there while slowly, the less funded, leaner guys figure out how to take you down.

>do uber, airbnb, dropbox, and the like not deserve billion dollar valuations?

Uber and AirBnB are illegal businesses in most places in their current form, and to the extent that they loosen up those laws they invite competition from other companies for which there are no switching costs for either their customers or vendors to move between at will. The only way they can crush in that case is by undercutting on price and going into negative profits, while coming up with ways to increase lock-in.

There's nothing preventing an alternative dropbox, or 100 alternative dropboxes. The only thing they have going for them is an early brand and technical talent (which may reduce infrastructure costs.)

I don't think that any of them are worth a billion dollars.

You're overly simplifying things. Uber has my payment information set up in a sleek app. Uber has the most cars available when I need it. They have pretty seemless technology that works well. New entrants are unlikely to match that. So I'd stick with Uber. Which of course are all the reasons Uber has raised gazillions and is growing like crazy. "There can be only one!"

I think this is the 4th major blog that I've seen just repost Andreesen's tweet stream.

But, regardless of frothy times or not, the advice is solid. Keep your burn low. Run as lean as possible until you've figured out the business model.

Shouldn't this be business 101? Plan for a downturn, use your resources wisely to avoid future disasters? Even after several market crashes, it's surprising to see so many businesses acting so recklessly with their capital. You would think being in the valley they would know better.

It depends on the market conditions. VC funded startups are not a place where I think that really makes any sense. Most billion dollar startups haven't even been through an entire business cycle.

The VC market is not looking for consistent year over year 8% growth for the next 40 years. If they wanted that they would have bought index funds and told startups to fuck off.

The fact that the tv show Silicon Valley exists, as much as I love it, really shows that were in a big boom right now. It's starting to feel a lot like the dot com era again.

Also for those of you who haven't watched it, they continually make fun of the valuations, ideas, and funding available. So when I say exists I mean not just that it exists at all, but what it's really about also ;)

"Companies that spend money on fancy offices..."

Start-ups actually do this? What's the value in a nice office when you are not established? Does it help to attract talent? Is it one of those everyone else does it things?

> Start-ups actually do this? What's the value in a nice office when you are not established?

To play devil's advocate: You want to invest in big, fancy offices because...

- People will be more likely to stay longer each day

- It helps recruit talent

- It helps instill the "Company Culture"

- We have to look successful to be successful

Mostly the last one, IME. A misappropriation of the common "fake it til you make it" advice.

The REALLY sad part is how many companies build out these offices that are expensive as hell, super nice inside and out and then (ignoring 40 years of studies) they structure them in large open floor plans designed to maximize noise and distraction and minimize the ability of developers to reach a useful state of flow.

Yeah ... There's merit in having an open plan, but an open plan with no places to hide from the chaos is definitely going to be less efficient.

The trade is getting crowded - that's the feeling I get from some higher profile VC funds complaining recently. Their buy-in's are getting more expensive as more private money from non-traditional VC funds moves into the sector due to continued low interest rates, a feeling the public markets are getting close to topping and the fact that each round seems to be up, up, up.

This is forcing higher prices for the traditional VC funds which in turn makes them more conservative with how their money is spent. And because the money is so easy to acquire the start-up's are blowing it quickly. They are competing for a limited set of "top" employees which is driving labor costs up to potentially unsustainable levels.

Money won't always be so easy. Use it carefully. However, I see the top VC's getting a bit upset they have more competition to invest in tomorrows potentially massive businesses at discounted rates.

Southparks - Go Fund Yourself episode about startups is timely: http://www.hulu.com/watch/691075

The problem is that nobody will listen. The reason nobody will listen is everyone has an "I better get mine while I can mentality" or a "Well, nobody else is going to listen, so I'll be at a disadvantage if I stop spending so much" mentality.

If you look around and see the people you're competing with spending money like it's going out of style, you're going to do it too.

I disagree with that; people will still try to get theirs, but most people are smart enough to go for the PayPal model: get 100 million dollars right as the bubble pops and spend it wisely.

So the evaluation has been made that there is more to gain by protecting your reputation for the next boom-bust cycle then there is in wringing the last few million out of the current one.

https://news.ycombinator.com/item?id=8369734

The solution is simple: always treat each round of funding like it's the last money you'll ever get.

Can Confirm, I work at a start-up and see it on a regular basis.

So after such market correction in how investors value startups and software business in general, I suspect that there will be a starkly different valuation model, one that relies on net positive cash today and the prospect of net positive cash in the next quarter.

Spending cash as soon as they come in won't be good enough for the next group of investors, to further weed out the cash burning companies, they will look for a more conservative and cash positive businesses.

This would impact consumer centric startup models where valuation comes from having a large userbase more. Companies that pursue businesses wallets will have a more favorable valuation, possibly a lot larger than what was previously thought.

Looks like a good future but not so much for if you are building the next facebook. Those days of sustaining high user base with little to no paying customers are gone. Market will no longer place favorable valuation on such operations.

This is just what I'm predicting of course.

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