An Entrepreneurial Counter Culture is Looming – The Startup Market is Not OK

Capital available in $200,000 chunks would be an interesting world:<p>1) You'd presumably want to make the offering mass-customizable, like a typical residential mortgage. There are a few levers to play with, sure, by 98% of the contract got vetted by the company lawyers <i>once</i> as being Good Enough and folks can take it or they can leave it. This allows you to close deals quickly, avoid spending much time teaching buyers about your process, and have the deals offered by junior staff. Most home buyers want a house, they don't want a mortgage. Most startup founders have a business to have a business, not to raise capital.<p>(Note that this would make "comparison shopping" easy.)<p>2) Automate and outsource more of the process. Banks can profitably do loans for $200,000 houses because there is an infrastructure of people who can say "Yep, this is a $200k house" and FICO scores, which let you push a button and get a quick estimate of my propensity to default in a second. I know we all think we're beautiful snowflakes, but I'm willing to bet there is a function which can be evaluated cheaply that is unfair, misses all sorts of edge cases, has numerous theoretical problems, and nonetheless is Good Enough when only $200k is at stake.<p>3) As you reduce the amount of marginal effort in each deal, it becomes possible to scale it to the moon, in a manner similar to e.g. mortgages and mutual funds. (The fund has a lot of money, the individual investors have comparitively little money and reduced exposure to any single investment, etc.)

I found the article was rather long and a bit confusing. I wanted to summarize and clarify it:<p>There are more companies these days, but VCs are funding the same number of companies as before with the same huge expectations. Why not instead fund more companies with a lower amount of cash so as to not miss some opportunities.<p>My answer: putting all your eggs in one basket in a competitive environment will likely lead to better results than spreading the money out among a bunch of different baskets. Most startups are going to fail anyways, even with $200K of funding because the markets they are hitting are not that huge, not to mention all the other hurdles. What funding a bunch of different companies does is make a clear market winner harder to come by, which screws everybody. It's better if there was one clear winner sooner rather than later. My bet is handing out smaller investments like $200K would actually make the IPO market worse since most companies would get too tired to ever make it big enough to IPO.<p>The quick answer to why IPOs have not been good recently (other than the economy sucking): Sarbannes-Oxley made it very expensive to IPO with big requirements which means that the next best exit is selling. To sell, you have to get big fast to become attractive to suitors. Profitability/revenue is not a requirement/important for selling to a larger company (they use startups to cheaply get new talent and good ideas rather than quickly adding new revenue streams). So why don't more companies focus on revenue as a backup plan? It's very distracting and doing so means you might only scrape by. With such a do or die environment, the goal is not to create good businesses which will survive, just ones that will become great.<p>The good thing is that as it has become cheaper to run a startup, people have more options and can create self-funded sustainable businesses aimed at smaller markets. You won't become a billionaire doing that, but you'll get by. That's fine with VCs though, they are after big returns. If you are comfortable with creating such a business, by all means do so, but don't be pissed when a VC is not interested, even if it does make a little money. There is clearly room for both. If you do hit on a massive market opportunity, they can always catch up with you later.<p>So what is something like Y Combinator? It is a cheap way to vet companies for VCs and angels who see too many startups without enough information on them to make a good value judgement on whether they'll succeed. You don't need $200K to do that, you just need a small amount of money.

"Technology, however, isn’t the driver any more for startups. The scarce talent is business model engineering and product marketing"<p>How true is this? Sounds like wishful thinking from a non programmer to me.<p>(Please note : I am not saying that marketing/product engineering is not important. They (obviously) are. I just think "Technology, however, isn’t the driver any more for startups" is too broad a brush)

"The scarce talent is business model engineering and product marketing – building for scale isn’t the problem anymore. I can build a hack protytype that works well into the "validation" stage to establish a funding event or customer revenue stream then use the new capital to rebuild, hire and grow."<p>This interestingly follows my own career growth. I was the tech lead responsible for scalability/reliability at IMVU for a long time, but eventually our bottleneck clearly shifted from reliability back to marketing/product development. Around that time I switched teams, and have since been the tech lead for our marketing team. It might sound less sexy to other engineers, but getting to be on the bleeding edge of marketing for virtual economies is constantly challenging and fun; especially with IMVU's data driven culture.

I really am enjoying the thread here on my post. Interesting to see some of the comments thinking that I'm anti-development with my quote about product mktg and validation is the scarce resource. Of course great architects and developer are the scare resource but I've seen many code a great solution right now a cul de sac of no market.<p>to me the biggest issue driving this counterculture that I'm seeing is "trust" of the capital markets. Especially since most of the productive actors in this marketplace have lived in a successful open source movement culture for 25 years. The capital markets (VCs) are at odds with this culture.<p>There are many other points in the post that I would be happy to discuss if there is interest.

With cloud computing rising to prominence as the underpinning of many modern web applications the amount of technology already 'assumed' in any new application design.<p>This trend seems to align with John's key point.

I read through the article but could not get the roots of "shrinking venture market" problem. Can someone please summarize/provide better explaination ?

do you really think handling a (non-technical) investor will be less work/less distraction than contracting part time? Sure, contracting takes time away from what you want to do, but it's pretty easy, and clients don't push you to do things that may not be in the interest of your customers.

This is the final draft based on the original Hacker News thread and conversation about a month ago.