Did everybody see what just happened? The pendulum has swung.

This seems a little crazy. I think it should be <i>hard</i> for a company to raise money. Bad things always seem to happen when the money chases the startup. Frequently when money is hard to come by, the bad startups die early and everyone is better for it.<p>Maybe that's just because I've tried several times and failed (3-6 years ago), and I'm being a grumpy old dude who thinks it should be this hard for everybody. But I'm not even that old (28) or that grumpy. I just have the wisdom of hindsight to know that my ideas and execution weren't that good, and it would've, ultimately, been a bad thing if they had gotten funding.

How much of this is "dumb" money? A lot has been written on how well folks are doing fundraising, but not so much on what types of investors are willing to throw money on the basis of a 2 1/2 minute pitch just because it has Y Combinator attached.<p>Investments are much more than just money (duh), you're also gaining an ally and potential business mentor. If I were to be offered 500k from an extremely smart person who has shown personal interest in my product versus 2mil from someone trying to play "startup darts", I'd take the 500k and work my ass off.<p>It scares me how much money is being thrown at name dropping these days.

Wise words and ones that anybody that ever wants to be funded or has attracted funding would do well to heed.<p>YC has become a very strong brand, and one that attracts investors from all over the globe because they have proven that their method for picking winners works better than what those investors could ever achieve by themselves.<p>Keep in mind that the factors that differentiates YC from all these other cats are very hard to replicate and so it is easier for them to ride on YCs coat tails than it is for them to copy the process. Hence the glut of money.<p>This is good for everybody that gets 'in' to YC, they're more or less guaranteed to find funding and find it on their terms. For once the recipients of funding have a slightly stronger hand.<p>Still, that won't change the long term outcome for the majority, the majority of such investments will still fail (and the investors are well aware of it), and a smaller portion will break even or make it big. Picking the winners out of the ones that got 'in' is just as hard (if not harder) than picking the ones that got 'in' in the first place.<p>I like the tone of this article, it sends exactly the right message. Feet on the ground and get to work, being funded is not the end, it is the begin. And it definitely isn't a guarantee for success, that's up to you &#38; your team, the market and timing. And you only control one of the three.

The pendulum will continue to swing back and forth. Is this going to be exactly like the "dot com bubble" of yore? Of course not. We had quite the cautious period after that burst. Surely we have learned from our mistakes. But learning from our mistakes only means we're less likely to make those same mistakes again. It's no guarantee that we won't make new mistakes. It will happen in some form. But I do have fond memories of some of the IPO parties and "just because we have buckets of cash" parties back in the day. They were great. But maybe they should have saved some of that money for the cold, long winter. Hindsight is 20/20. Let's see how this one plays out.

Yeah...I see what just happened...we are back in 1999. Enjoy it while it lasts.

"Hot market" seems like an understatement.<p>I'm still waiting for salaries to catch up tho.

Here's a question for the thread: I'm a Canadian citizen, and still in university (two years to go.) Which means that, as far as I'm aware in how US immigration works, I can't just bound on down to SV and start a company right this moment, no matter how hot the market is. So--should I be planning my next five years around chasing this thing, or will it pop before I get there? ;)

While true, I'm not sure the bubblicious times of the late 90s apply here. Isn't some of this the effect of the rise of incubators like Y-Combinator?<p>With YC, investors also have the benefit of knowing/believing that Paul Graham, et. al, have already vetted the team &#38; idea substantively that the risk factor is lower (at least, perceived lower.) So, while there may be more dollars chasing fewer deals, some of that is the captive audience effect.<p>The advice offered is still good, no matter the environment.

The author mentions the strategy of the VCs: to find the next billion-dollar company. One success of this magnitude will mask many, many failures. We should not look on a large seed round as saying "X is worth Y" (although by the definition of "worth", it is), but rather that "X has a not-insignificant chance of being worth 100Y in 5 years".

Out of curiosity, how many founders know who put up the money that the VC is dispensing?<p>After a friends and family or Angel round, is their any connection between the investment and the people who stand to lose money?

I strictly believe in bootstrapping a startup (most of them anyway). Hunger creates hunters. Hunters catch game.

Great thoughts, Jason. Your point about the change in valuations is more than an observations, though. Implicitly, it suggests that valuations are less a function of the companies themselves and more a consequence of exogenous macroeconomic and industry specific factors.<p>This is sort of a scary realization to me, because it means that "crushing it" isn't a strategy to preserving valuation. Perhaps the Dropboxes of the world will always be able to name their price, but for the rest of us valuations will come tumbling down if the outlook turns negative on the startup asset class or economic activity broadly.<p>Startups taking a more conservative approach to valuation and amount of capital to raise may be much better positioned to raise subsequent rounds of financing when the market, as all markets do, regresses to the mean.

It seems to me that this situation only exists for those well connected in the Bay Area. Perhaps smart money will be looking for new areas that are still underfunded.

Meanwhile in Australia... Zzzz...

This is one of the reasons I'm kinda ambivalent about taking money. I've been working for startups since the 1990s (and starting companies too). I've seen the down years in 1995, 2001-2003, 2008-2009, and I've seen the manias of 1997-2000, 2004-2007, 2010-2012, and it just leaves me really concerned that taking VC money is a whole lot about timing. I want to build a business, not get rich with a stock market (e.g.: selling stock to VCs with perfect timing.) This plus the generally hostile and irrational terms VCs require (liquidation preferences, etc) have had me focusing on making our business profitable from day one. (or at least from day one after the product launches.)<p>On the other hand-- man, it would really be great to have $500k in the bank to hire some people so we could grow really fast. But we're not there yet-- that would be a bad investment because we're still doing customer development, we're still trying to discover our business, so to speak.<p>I feel like, if I go down the path of trying to raise money now, I'll be spending a lot of time doing something that doesn't help us discover that business. But if I don't, who knows what things will be like in a while, if it turns out that we really <i>could</i> use that money.<p>In the end, though, I side on the idea that money can be a nice accelerant, if it is gotten on good terms (terms are more important than valuation) from good people (and how in the hell do you figure out who those people are? I have seen a lot of damage done by investors in my career.)<p>But at the end of the day, if the company is profitable, you can plow %100 of those profits into growth. If the company isn't profitable, the <i>only</i> way to survive is outside investment.<p>I don't want my companies future in the hands of other people, so I'm pursuing a highly profitable business that is super capital efficient and doesn't require outside funding to launch.<p>I strongly recommend others consider this approach as well. Yeah, you might get into YC and then not need this, but if you don't, find a business model that makes you ramen profitable right away.

Grammatically, the first two paragraphs should be combined into one.