Specific anecdote - SaaS companies selling to other SaaS companies is going to cause a mini-winter in that sector. My company (which we thankfully sold last year :praise) had several (though not exclusively) high-growth tech companies as customers.

Now, when I look at layoff announcements, I see a lot of our former customers. Additionally, with budget freezes (driven by VC RIP decks), these same companies aren't buying new software for a while, even if they would benefit from it. And many tools now are priced based on headcount. So it's sort of the perfect storm - valuation resets so you have to go a lot farther with your current funding, reduced retention revenue because your customers are paying for fewer seats and harder sales because of budget freezes. Ick.

> And many tools now are priced based on headcount.

Ah, live by the ARPU, die by the ARPU: you lack of control over the "U" means your company performance is coupled to the broad market!

Thanks for this example. It's obvious in retrospect but apparently not prospectively.

Assuming you have the pricing power to not be affected by the broad market, you would simply increase pricing to maintain ARPU.

If you cannot increase pricing, then your performance is coupled to the broad market regardless of how it is measured.

Isn't this what YC does essentially? YC backed SaaS companies buy each others products, write favorable case studies and use that to convince other enterprises to buy in, and to IPO quickly they raise lot of money to have the market share that commands the multi billion valuations with insane revenue multiples?

Seems like this model is beginning to fail, most YC backed IPOs are now trading in deep red. ex) coinbase

edit: lurkervizzle I can't respond to you since im throttled but this is what I wrote in response to add on to what you wrote in the other comment

this is far more serious than I thought I seemingly just made the connection that YC backed SaaS (or any other accelerator schemes) were essentially just writing cheques to each other and playing whack a mole: You direct your cohort members to send cheques to one SaaS, raise series B & C, push for IPO after making splashes on media outlets (also owned and controlled by stakeholders), which in turn generates more fervor from retail investors eager to get in on the "next" Facebook.

Then you would naturally use these beacons to essentially send more cheques, this time across many tiny bets that they can cycle through one after the other. Some make it to IPO, many don't so they get "acquired".

The more I look at the YC business model and silicon valley in general is that very small group of people are actually in it to build sustainable businesses, since the Uber secondary market successes of VCs that successfully dumped their shares on Masayoshi, the SaaS have become the new "social media opex", where losing $2 to make $1 is preferred over slower growing but consistent net profit generating ones.

By next year I anticipate ton of pain and anger. I took a look at some TC figures and they are roughly 30/70 mix of cash and RSUs. Many of those people are also in debt through real estate using HELOCs too.

What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com

Even more crazy is that we had the exact setup going into the new millenia: e-gold, real estate, dot com but the difference back then was that monetary supply was nowhere near as low as they have been in the past 3 years (take a look at the M2 supply/velocity chart).

https://www.pennmutualam.com/market-insights-news/blogs/char...

100% this - a good chunk of initial traction for YC companies is other YC companies - which is great in some ways to bootstrap initial growth/credibility, but the uncharitable view is that it's a Ponzi scheme in a way.

I think Ponzi is an overstatement, though I agree with the general sentiment.

There's in principle nothing wrong with clusters of companies that are inter-dependent on selling stuff to each other. Car parts manufacturers live and die by the big car companies - and to some degree vice versa - but we would hesitate to call that a Ponzi scheme.

The key is whether or not this clustered ecosystem is bringing in money from the outside. Somebody in the ecosystem has to be making money from the "outside" world. It's the sustainability of this outside connection that really matters.

For a lot of SaaS companies I think the rude wakeup is that the "outside" source of money was never an actual business but instead was just endless rounds of VC cash. Likewise (and IMO more offensively) with crypto the "outside" money source was hyped-up retail investors (and hyped-up VCs) and not any actual useful business.

I do agree though - the VC sphere has spent the last 10+ years building up an entire web of companies that inter-depend on each other but where the "outside money" was always highly dubious. This is distinctly unlike the older crop of BigTech companies where the outside money is (relatively) stable: actual advertising, actual hardware in people's hands...

100% and legitimately have nothing but respect for YC. Ponzi is definitely an overstatement which I used to make the point that in-network traction is potentially a risky signal of product-market-fit which was obfuscated when everyone was being rewarded with gobs of money for early 0->$1M traction.

One way to look at it is ponzi scheme, but a more charitable interpretation is just eating your own dogfood.

Whether or not it's a Ponzi depends on whether there's any path to get normal profitable businesses to buy the software.

> What I think we are headed for is something unprecedented because there are 3 major bubbles imploding: crypto, real estate, dot com

Crypto is an almost invisible blip on the scale of the financial system. Real estate, well, there's a shortage, so I think it will take a very long time to unwind.

Dot com -- yeh, it's a mix of unsustainable Doordash/Uber/Airbnb, SaaS-for-the-SaaS market (both of which are ponzis in the context of this thread) and "AI"/"Data Science" puffery. I still can't tell if the reckoning will be quick, or if the air will simply slowly leak out.

But your examples of bad companies are Coinbase and Uber -- these aren't B2B companies that are caught up in some kind of ouroboros of everyone mutually basing their growth on each other's business. Both are consumer businesses.

What's the example of a company that's actually failing from this hypothesized mode of depending on other startups? I mean, better, what are five examples -- I mean, if this is a group of companies that are mutually dependent, then it can't just be one failing.

Yes, at least in the startup SaaS space. As lurkervizzle put it, it's a kind of ponzi scheme, though in that case I think the "victims" are investors. And mostly the seed investors, less the LPs and GPs of the VC firms.

please explain that chart? thanks

Look up the different measures of the money supply (M1, M2, M3) and then perhaps it will be clear