Is there any sign yet of a funding pullback? I am not raising funds, but for those of you who are, are you seeing caution or hesitation from investors?
Angels who want to hand you half million seem to be everywhere. $100+ million seems to be all over the place because there are so few companies to invest in.
God help you if you want $2-$10 million because the VC community sure won't.
And then they wonder why there are so few $100+ million companies to fund.
This has been ongoing for a while now (see http://fortune.com/2015/03/11/seed-surge-series-a-crunch/) and is due to the commoditization of computing infrastructure and the size of the internet audience, which allow very small teams to generate significant levels of revenue/traction. VCs now expect more at a Series A because so much more is now possible.
> VCs now expect more at a Series A because so much more is now possible.
Only in pure software where your fixed hosting costs and salary are your only expense. And, really, only in "social" things that you are going to flip to Yahooglezonsoft and can be made by flogging a half-dozen early 20-somethings for 6-9 months.
If you have actual hardware, your costs haven't come down much. They're mostly dominated by non-recurring expenses until you start shipping.
IoT (Internet of Things) has been a case study in this. Everybody wants to be the software backend that they can run for peanuts and extract rent indefinitely. There are a zillion companies all trying to do this and all failing because "Waaaaaah! Nobody wants to build that icky hardware stuff for us for free."
Yeah, well, hardware requires that you have a customer, that wants something, that will make him money. And hardware requires that you build a board and debug it.
So, yeah, go figure. Hardware requires some people who actually A) have some experience and know what they're doing and B) actually expect to get paid for that knowledge.
Gee what a surprise.
"Nevermind. We like flogging young 20-somethings better."
Is that why Shenzhen seems to have so many hardware startups? Maybe there are just more investors there willing to do it, coupled with talent and being close to the factories?
Ayup, that's exactly why we see all those Gongkai phones in the US and the hardware Kickstarters are so successful ...
Wait, what? You've never actually seen anything directly from Shenzhen sold in the US and the hardware Kickstarters all seem to fail dramatically?
Next time try to convince someone who didn't have to give out about $20K to various Chinese suppliers at CES 2015 for samples, retainers, prototypes, etc. They might actually believe you.
Series A used to be seed, seed used to be a joke, rich white dudes used to only raise series A's from their ivy league brethren, and you'd use a chunk to market and launch at Demo (TiVo, Handspring, etc.). For the last 10 years seeds have replaced the series A. Series A is now like series b where you have to have a real business.
Reading headlines these days, I can't help but feel this is yet another article trying to foretell the end of the good times.
The market had a correction! This is the end!
People realized China's numbers were not totally accurate! This is the end!
Housing prices in the Bay Area have reached ridiculous levels (again)! This is the end!
Everyone seems to want us to hit another downturn to be proven right. My fear is that once the media engine revs up, it can in fact create a self-fulfilling prophecy.
I completely agree with what you said. Media is putting the fear on you. It'll turn into.. 'Whether you think you can or you can't, you're already right.'. People will fail simply because they think they will.
Just to note:
Facebook just had 1 billion unique users in 1 day (2015). The year 2000 only had 350+ million INTERNET USERS.
It doesn't help that we are reminded by our predecessor's to watch out for the impending doom (something that might not have been expected). In the scheme of things, the context of where technology/internet was at the time was completely different to now.
I think there's a difference between a moderate downturn and a cataclysmic crash, and since 2000 was especially bad for tech and 2009 especially bad for everyone we're not used to mild to moderate downturns around here. A downtown doesn't mean people stop using technology, just that the market conditions change.
Pundits have always made somewhat of a sport predicting a tech bubble bursting. Some of Manjoo's ideas of what could bring about a "bubble" bursting are ludicrous (read: a "Donald Trump inauguration??") If anything VCs and angels may fund fewer or safer startups, but there are numerous reasons why this business environment isn't a bubble like in the early 00's
The point is not whether or not there will be a downturn. In any sector, there will be a downturn ... eventually. That's just capitalism. (And it could be triggered in the short term by something like the small reasons you mock - it is merely not wise to bet your shirt on one or the other being the exact proximate cause.)
The point according to OP is that the start-up scene has become soft and flabby, and lean times, whenever they arrive and for whatever reason, will toughen it up - and for those who can survive the initial chill winds, lower costs of labour, real estate etc will provide a boost.
This article actually seems to be suggesting that a downturn would be a good thing for Silicon Valley because it would help sort the wheat from the chaff, and allow the wheat to get resources more cheaply.
