When the going gets tough, the tough get going

It sure feels like the long awaited headwinds have arrived and the tailwinds are behind us for now. A friend sent me this chart today.

You could create a similar chart out of many tech sectors right now but SaaS is as good of an indicator of what’s happening out there as any.

I welcome this new environment. You might think “of course you do, you can buy things less expensively” but I would remind you that USV has a portfolio of investments that are unrealized at this point and subject to a chart like that.

I think any benefits we might get from a better buying environment are negated by the impact on our current positions.

The real reason I welcome the tougher environment is that it will make all of us better. We will have to make better decisions.  The market won’t bail us out. We will have to earn our returns instead of being handed them.

And I’m not just talking about investors. I’m talking about everyone working in tech startups. The going is getting tougher. Time for the tough to get going.

#entrepreneurship#management#VC & Technology

Comments (Archived):

  1. JimHirshfield

    “The market won’t bail us out. We will have to earn our returns instead of being handed them.”This sounds like, “Don’t seek out VC, go out and sell stuff to make money”, which is good advice, right?

    1. Anne Libby

      Or, don’t just hire more people. Double down on supporting the people you have to get stuff done.

      1. Joe Cardillo

        I saw something the other day about pragmatism & startups – it was along the lines of “if you aren’t already being pragmatic and constantly iterating your company then a downturn in funding + economy will kill you.” I guess it depends a little on how big of a bet you’re making, but it seems to make sense. Dropbox seems to be a good example of weathering the storm, but they are far down the road already … http://www.nytimes.com/2016

        1. Vasudev Ram

          Not just:”if you aren’t already being pragmatic and constantly iterating your company then a downturn in funding + economy will kill you.”but also actually making money.

          1. Joe Cardillo

            Totally. I think it’s true even for the snapchat scenario. The sooner you start at least testing rev inbound, the better and more realistic you’ll be.

    2. LE

      Try to compete on a “sell stuff to make money” level with someone who has a large bank account. It’s quite difficult and in some cases near impossible no matter how hard you try.Money can not only help you make better decisions (you can buy and employ more and generally better advice) but it can also allow you to iterate opportunities as well as make and survive mistakes. It can allow you to spread over several or hundreds of ‘bets’ so you can figure out which one actually has potential (in parallel not in serial).

      1. JimHirshfield

        I’m not saying more money doesn’t help.You point assumes Company A has $0 in the bank and Company B has lots of money in the bank….or something like that…yes, I simplified your point. But what your point doesn’t account for is product fit and sales effectiveness. It doesn’t matter which company has VC. It matters who has a product that the market wants and a sales team that can sell it. Additionally, the well-funded company’s ability to sell stuff in no way diminishes the small company from succeeding. Not a zero sum game.

        1. LE

          Everything I ever say is pointed toward “details matter”. Nuance is super important that is obvious.Look, as a general rule a girl or man who is attractive has an advantage over a girl that is not attractive. [1] And sure there are fat ugly actors and Danny Devito is famous and he is short and bald. But as a general rule subject to inherent “talent” it helps to have certain advantages in life and in business. Good looks and money is definitely one of those advantages.It matters who has a product that the market wants and a sales team that can sell it. That is actually what the irony is. Many of these investments are products that are looking for a market and aren’t what people want and not even in the same sense of what Henry Ford said about a faster horse.[1] Except is cases when she is so attractive that she attracts to much and more importantly the wrong attention. Or if she is a woman comedian or.. (other edge cases in other words)

    3. Richard

      “The market won’t bail us out”. Was markets bailing us out really true VC in the first place. I don’t think the investors in Intel, Cisco, et al. were looking for the markets to bail them out.

      1. JimHirshfield

        I suppose it’s correct to take your viewpoint in retrospect looking at the winners. But at the time, when they were nascent companies, the outcome was unknown. So, yeah, investing in a startup is a form of bailing out, as in helping out, as in sustaining a company that would otherwise be unable to carry on.

        1. Richard

          My take on what Fred seemed to be implying is that the public markets will no longer bail out series A-C investments. And my point was that true venture-capital doesn’t look to public markets to bail them out as much as to validate their investment hypothethis at scale.

        2. Vasudev Ram

          > investing in a startup is a form of bailing out, as in helping out,But the whole point of investors investing in a startup is because they really think (rightly or wrongly, as will turn out later) that it has a chance of making money (by whatever means, including exit, IPO or plain old rest-of-the-world-style profits – see DHH video I posted in another comment here. So it’s not really helping the startup out. They are doing it in their own interest (though of course it helps the startup).

      2. Vasudev Ram

        >Was markets bailing us out really true VC in the first place.Of course it wasn’t. But it looks like that is how it was seen (and maybe pitched) by a lot of people.

  2. jason wright

    triage time?

  3. LIAD

    if valuation multiples affect your desire to build something important for the world and meaningful to you – the tech sector will cope just fine without you.

    1. Kirsten Lambertsen

      That’s a keeper.

  4. Aaron Klein

    For those of us not caught up in the Silicon Valley bubble mentality, it’s like “welcome to our world, where revenue growth and cash flow matter.”Every business eventually gets valued as a multiple of its earnings. If you build your company with that in mind, this transition tends to be a little easier. 🙂

    1. pointsnfigures

      “You mean, I have to actually show a net profit”

    2. Richard

      But let’s not forget FBs revenue explosion over the last 5 years. You have to build users before you can lure advertisers.

      1. Joe Cardillo

        Worth saying, it really depends on your model. Attention economy networks like FB are in their own category, no?

        1. Richard

          Not sure but, “close to” zero marginal costs are a category.

          1. Joe Cardillo

            That’s a really good point, agreed.

      2. Twain Twain

        If you own an ad exchange, you have an advantage…

        1. Matt Zagaja

          Last I checked I thought Microsoft Exchange was an e-mail server product.

    3. Jim Peterson

      Yes it does eventually get valued based on real metrics . What’s nice about today is there are cash flow machines like Priceline that have taken a bath too with the across the board selling (though not to the degree of some companies, for sure))- lots of good opportunities !

    4. Vasudev Ram

      >”welcome to our world, where revenue growth and cash flow matter.”Reminds me of this video by David Heinemeier Hansson (Ruby on Rails creator), at Startup School 08:Link: https://youtu.be/0CDXJ6bMkMY

      1. Vasudev Ram

        His video should actually have been titled “The Secret of How to Make Money Online” – like he says, near the start 🙂

      2. jason wright

        his Jason Calacanis interview deserved a Crunchy nomination, but he’s Danish, and minorities go unrecognised

        1. Vasudev Ram

          Interesting. Will check it, thanks.

  5. Gregg Freishtat

    I love building Companies in tough/down markets. I don’t wake up every morning worried about seeing some new half baked Company in our space being funded and spending like a drunken sailor…. Also, if you can get customers to buy a new products in a tough market, you can feel good a bout knowing you have built something of value that survives the ups and downs that are the real world…..

    1. PhilipSugar

      I agree completely. I think you mean half baked. I don’t want to see companies like Workday’s multiple go down, they are a real business. They will have a tough transition. But I agree completely it is so tough competing with a company that is spewing vapor, but doing a really good job of it because they are spending like a drunken sailor. And just like a drunken sailor on shore leave with a fist full of hundreds there are tons of people that are going to come up to you and tell you how smart you are.

      1. Gregg Freishtat

        half baked indeed – thanks for the typo catch

        1. PhilipSugar

          I would not have been typo police unless I liked the comment. I would add it’s not one half baked company that gets backed, its the fact that five get funded.It also hurts you even after the fall especially in enterprise because buyers that get burned get in real trouble, and are very shy for a long time.Our thoughts are the same.

  6. Dee

    EBITDA, anyone? Is anyone even talking about earnings metrics anymore or all we look at is revenue?

  7. laurie kalmanson

    history keeps repeating itself

  8. harvestgrand

    Fred, you sounded like a republican there for a minute.

    1. fredwilson

      There is some of that in meIf you combined Rand Paul, Bernie Sanders and Mike Bloomberg – you’d get me

      1. pointsnfigures

        The Republican party is changing faster than people think. Despite the un-likability of Ted Cruz, he wants to blow up the establishment. See his statements on ethanol in Iowa. Rand Paul is extremely similar. That’s the future of the party where individual liberty and entrepreneurship is prized over corporate crony capitalism. If they don’t embrace that, they die.

        1. LE

          un-likability of Ted CruzSophia Loren without a nose is not Sophia Loren. Likability is key in politics and any kind of persuasion, sales or negotiation[1] unless you are carrying some kind of big stick advantage. Without that your ability to succeed is near zero. Cruz kind of proves this point out.[1] And cheating on a wife (ala slick willie) what I call “the smiler or grinner advantage”.

          1. JLM

            .This is a myth created by the media and Cruz’s opponents. He is perfectly likeable and persuasive. He was the Tx solicitor gen’l and did a bang up job arguing before the Sup Ct.JLMwww.themusingsofthebigredca…

          2. LE

            Are you claiming he is can get along with other legislators? Of course he can suck up on a case by case basis or in front of the Scotus. We have both dealt with many of those types of salesman in the past.To be clear I personally have no issue with the likability of Cruz I actually like the way “he comes across” (which is not the same as saying that I would vote for him btw.) In that sense he “doesn’t rub me the wrong way” or anything like that.Who “rubs me the wrong way” that is that I don’t “like” (once again just personal feeling not voting feeling although in some cases the same!):- Kasich (skin crawl; ‘me and my state’)- Rubio (son in law; ‘can’t manage own affairs’)- Bush (skin crawl; phone it in, going through motions, needed mom’s approval to even run)- Christie (damn the torpedos; NJ sucks he hasn’t done anything here)- Hillary (bad at being sleazy you have to be good to win my love)- Bloomberg (grouchy old man, dismissive)Who rubs me the right way?Obama (yes Obama he’d be cool to hang with he can take a joke)Trump (he is entertaining like my dead crazy uncle)Bernie (like every fucking older Rabbi or party Uncle I ever met)Cruz (The nose is distracting of course..)

          3. JLM

            .Cruz doesn’t get along with other legislators because he actually wants to advance GOOD legislation, not just keep kicking the can down the road. So, no, he will not get the Mr. Congeniality vote from his peers.There are no real legislators or elected officials willing to actually undertake and discharge their Constitutional duties.If I were Paul Ryan, upon being elected Speaker, I would have called up President Obama and said:”The duties of your office require you to submit a budget the second Tuesday of February every year. I’ll be here waiting on it.”Every spending bill originates in the House of which I am the Speaker. Do your best because I am not going to put your budget up for a vote unless it cuts the deficit, reduces spending, and is drifting toward a balanced budget. No increase in the debt ceiling either unless or until we have an approved budget.”This is your baby, so make it work. Gov’t shuts down? Bring it, asshole. It’s YOUR budget not mine.”I admire Cruz calling McConnell a liar which, of course, takes him off Mitch’s Christmas card list. McConnell did lie to him and Cruz called him out on the floor of the Senate. It was sort of macho on his part.Knowing my desire to reinstate dueling, no wonder I like that behavior.Cruz is whip smart and it comes out whenever you see his brain gearing up. I suspect he cannot fail to debate…………EVERYTHING. I watched him talk on several very complex subjects and he knows his shit. And the history of that shit.I do not think he’d be a great leader. I think Trump would be a great leader and operate almost entirely on instinct and emotion though he would absolutely surround himself with great minds — he would be the plantation owner and they would be his servants.Trump knows what good horseflesh looks like.I’d rather have a beer with my yard guy than any of these assholes. While we have to have a President, I don’t have to drink beer with them.I’d love to mock Bernie and Obama and see how they take it. They are both bat shit crazy but one has an Ivy League degree.JLMwww.themusingsofthebigredca…

          4. LE

            I think Trump would be a great leader and operate almost entirely on instinct and emotion though he would absolutely surround himself with great minds — he would be the plantation owner and they would be his servants.Last night, in part of an interview that I caught with I think Lester Holt, Trump essentially said what I have said all along. It’s an act to stand out and get attention. When he is President he won’t do the same shit. He knows how to dress up for Church.I think most people have a really hard time with this concept.For example you just said this:he would be the plantation owner and they would be his servants.But you wouldn’t say that everywhere. You say it because you can say it here and have calculated the risk and reward of being politically incorrect. Along with quasi anonymity of being just “JLM”.I’d rather have a beer with my yard guyNot me when I am sitting down. I do that as research “talk to people beneath me” but always when standing up so I can exit quickly when I get bored. I do a good job at it as well the painter asked me if I wanted to go out and have lunch or dinner.

          5. JLM

            .I know exactly what you are saying. I agree with you.OTOH, if we were speaking in person and I could see your face, I would have absolutely no limitations as to what I might say as it would be words and they would disappear in a second.I am, actually, quite constrained in what I allow to be seen in print and that is a frightening thought.As to the yard guy — I double down. Of all the viewpoints I don’t acquire any more, it is the working man and I think that is more interesting.JLMwww.themusingsofthebigredca…

          6. LE

            Exactly. One thing though it’s important not to kid oneself to what our importance is in the pecking order of life.When I was younger an older successful guy used to constantly call me and want to take me out to dinner to discuss things. He said he enjoyed what I had to say and really liked the back in forth. He would always start by asking me what was going on. After I was done talking he would then launch into his agenda and the reason for the meeting which was essentially to gather knowledge that I had or what I knew that he wanted. Or entertain him. This went on for quite a long time. I didn’t need the free food but I was smitten by the fact that someone like him liked me.Anyway one night I was out and I was near where he lived in his “big rich guy house”. So I stopped by because I had something that he wanted or had asked for. He answered the door and I remember the way he acted was like “what are you doing here right now”. I think he even said “did you say you were coming by?”. Now maybe I am sensitive however it left the impression on me that I was only welcome under his terms when it was good for him. That didn’t bother me as much as it would if I didn’t already know the way that the world operated. (After all I had an agenda as well in taking him up on the dinner meetings).The point is that I am sure the yard guy isn’t “as welcome” at your house as a peer of yours would be.

          7. sigmaalgebra

            > When he is President he won’t do the same shit.He will have to at times when he is on the stump to build support for something he wants to get done.His rally speeches are like the menu at a very popular fast food restaurant — he wants to reproduce that same menu all across the country with relatively little change due to time or place. And for some candidate changes, he tries them out, judges the reactions, and modifies the menu depending on the responses.But, sure, like Patton, he has a face that at times he puts on, etc.But, yes, he was much different before the Jewish group he spoke to. Sadly some of his jokes on Jewish stereotypes were regarded by some in Israel as not funny.I’m sure that in business he can have his personality be fully respectable, when it suits his purpose.

          8. LE

            But, yes, he was much different before the Jewish group he spoke to. Sadly some of his jokes on Jewish stereotypes were regarded by some in Israel as not funny.I took that as a positive statement especially coming from Trump actually. I don’t know why people have such a hard time with this in particular.There are obviously blacks that are good negotiators and Italians that are good negotiators and even Protestants that are good negotiators. But nobody would think of saying that because there isn’t as much of a shred of anecdotal truth in a statement like that.Are blacks better athletes than jews are? Well there are certainly more black athletes of note than jewish ones is my strong belief.

          9. sigmaalgebra

            Maybe if I needed a lawyer, I’d like to have Cruz. But in politics, my take is that the guy is legality over reality, that is, is plenty willing to be legally correct but morally a dirt bag. I’m reminded of the famous “The law, the law, the letter of the law” to excuse despicable behavior.And I sense that in national policy he wants to stay with principles, e.g., likely be “a slave” to “defunct economists”, e.g., like the people in the 1930s who for 12 years refused to use national monetary and fiscal policy to get us out of the Great Depression, which was killing people in the US and around the world and triggered WWII where 50 million or so, give or take some millions, were killed. Once people started shooting at us, we pulled out in 90 days. We could have done that in 1929.When I read the facial expressions and tone of voice of Cruz, I sense an angry, nasty, and determined lawyer. The best thing Cruz has going for him is his wife — she looks happy and nice. When I saw Cruz in Iowa being an evangelical, on his face I saw either a wacko or a liar. Besides, I’ve known some evangelicals, up close, and don’t want an evangelical as POTUS.It took me a long time to give weight to what I read in faces and tone of voice instead of just literal words, but by now I’m convinced that facial expressions can mean a lot, especially from men.

          10. sigmaalgebra

            > – Kasich (skin crawl; ‘me and my state’)You will have to explain to me why Kasich does so poorly in the polls, although maybe you just did. I have thought that his background looked good except apparently he wants to be sure he never hints that he would deport any illegal immigrants (which I believe we have to do or run our country back to another deliberate case of slavery).

          11. sigmaalgebra

            I never looked at her nose!Bill didn’t cheat on his wife. To cheat on a wife, have to be married to a woman, and Bill never has been, neither really married nor to a woman. All they ever had was a political power partnership.

        2. JLM

          .In 2014, the people who work with their muscles gave the Republicans the Senate, a bigger majority in the House, record numbers of statehouses and governor’s mansions.Nobody seems to remember this.This time around, there will be more of the same.It is not the Republican party. It is the folks who used to be counted on as Republicans now doing their own thing individually and collectively.The GOPe has not only lost control, they have become irrelevant. Jeb Bush is Exhibit #1 in this petri dish.Mitch McConnell and the other do-nothing GOPe relics are as bad as whomever the new Republican party sees as their opponents.If you got rid of every second term or longer Republican Senator, the world would be a better place.Texas is still a traditional Republican state — small gov’t, low regulation, no income taxes — and that is who Ted Cruz is. It is wrong to suggest he is some kind of bomb thrower. He is coming from the roots of the Republican party which has never changed in Texas.Right now, the only thing between the Republicans and the White House is the GOPe.JLMwww.themusingsofthebigredca…

          1. sigmaalgebra


          2. sigmaalgebra

            But, but, but, clearly, only to be fair, it’s Jeb’s turn! Besides, he can bring back the kind of government we had with W, Cheney, Rummy, Wolfie, and Bremer that really showed those rag heads, taught them a lesson they’d never forget, never mess with the US again, right! Well, well, but, well, but he tried! And he gave them democracy, right! And they love democracy, right! Secular, constitutional, parliamentary democracy, of course they do, and “The Iraqi people are perfectly capable of governing themselves.”Somehow I suspect it’s simpler than that: Much of the GOPe knows quite well just what kind of government they want, and there they want the best government money can buy. Sadly, they want to blow bubbles, crash the economy badly enough to risk a second Great Depression, where we run huge deficits trying monetary/fiscal policies to work out of it, end up with a lost decade, etc.So, there is lots of disagreement. Sadly, there are also lots of ways to be wrong. W found some. O found some more. Bernie has more in mind, and so does Rand Paul.

      2. iggyfanlo

        That’s the new trend. Libertarian socialism. Individual rights and freedoms combined with real economic/social responsibility

        1. Cam MacRae

          new trendI have a new buggy whip for sale.

      3. LE

        The tipping point in my relationship with my ex wife came when she tried to compare the best qualities of 6 or 7 or her friends husbands into one “I want you to be like ‘that'”.

        1. Devon Gunter

          Yeah, well, right !! That’s when the going gets a screeching halt

        2. jason wright

          due diligence in all things

          1. LE

            People change over time. Keep that in mind in life and in business.

          2. sigmaalgebra

            Yup, but the pre-nup papers don’t!

          3. sigmaalgebra

            And/or one heck of a pre-nup!

      4. sigmaalgebra

        If tried to combine those three, then either it wouldn’t mix or might explode!Rand Paul and Bernie Sanders are both examples of the Keynes remark about “defunct economists”!But, I have to ask, is there any other kind?

  9. Tom Labus

    The new era of earnings is here. Growth is secondary for a while. We’ve seen it before.

    1. pointsnfigures

      What’s an earning? : ) Is that like buying back stock to cover my options-said the corporate vp.

      1. sigmaalgebra

        Ah! A hidden floor on the stock price and a reason to use options to go long! So much for the Brownian motion assumption!

  10. William Mougayar

    Yup, corrections like this bring back a dose of reality, pragmatism, and cool headedness. It flushes and exposes what is over-valued, over-extended, over-hyped.Back to reality. It’s a good place to be.

  11. Dennis

    Good way of looking at it, guess the only worry is it might get tougher for startups to get funding but yes it will be good that those that get funded will have actually worked on a well thought out product. Let the tough get going.

  12. awaldstein

    I’m a grown up so I agree.More level headed. More patience. More focus on the fundamentals.I’m in.But–and this is a question to the VCs here–are you saying that it is not just harder to raise capital in general from seed on up.As at a seed level especially, all this stuff about cash flow and the rest, pragmatic modeling and the rest is not a reality.I’ll sit down and wait for the answer on this.

    1. Richard

      at the seed level it’s all about supply and demand, i’m not quite convinced that there are VCs walking away from the table and I don’t see demand abating in the near future. So what changes?

      1. pointsnfigures

        Some are going too fast thinking the stock market correction is over.

        1. Richard

          What do you mean too fast?

      2. awaldstein

        not what i’m seeing. everyone including seed investors are holding back a bit. and my point is that with most seed investments there is little if any business fundamentals.

        1. Richard

          2015 NYC

  13. JLM

    .THOU SHALT NOT WORSHIP FALSE [financial] GODSWho said that?I think it’s in the Bible somewhere but I’m a bit sketchy on my biblical scholarship but I am sure it was said by these chaps (figuratively speaking):Benjamin Graham and David Dodd who wrote the definitive book on securities valuation in 1934 while professoring over at Columbia. It’s now been reprinted a jillion times and, most recently, Warren Buffett re-wrote a foreward for it.The other day, I mentioned the book to a young CEO and he said, “Isn’t that the law about the banks — too big to fail or something like that?”To which I said, “No, I think you are referring to the Dodd-Frank Act authored by Sen Chris Dodd and Rep Barney Frank.”To which he said, “Oh.”While I get from whence the notion of the ratio of enterprise value (which 90% of readers would struggle to define) and next twelve months revenue might seem an important marker, it is a false god and has been for a long time.Any parameter trended for a long enough period of time can be a useful insight and this parameter — false god and all — makes a case for whatever it makes a case for.In the valuation business, it is not always a trend. Sometimes, it is just a rude awakening. Hillary Clinton, this morning, will whisper to you about rude awakenings. [She will still be the nominee though the FBI may argue the matter with her.]The bullshit factor of all valuations is now on the chopping block and headed to the grinder.If a business or an industry cannot speak to profit and margin — then it is screwed.Graham Dodd taught us that back in 1934.Of course, none of us were alive then and sex and the Internet hadn’t been invented yet. I may have that a little backwards. You get it though, right?JLMwww.themusingsofthebigredca…

    1. Richard

      Unlike 2000, the public markets (save biotech) seemed to have (mostly) distanced itself from this private market irrational exuberance.

      1. JLM

        .In the process, that’s for sure. The lines are a little blurry but the dipping prices of some tech darlings are instructive.JLMwww.themusingsofthebigredca…

    2. Tom Labus

      Can Uber do a down private round? Can they go public with their valuation?Morgan Stanley did a Uber fund that didn’t show the investors any financials and it sold out!!!

      1. JLM

        .And, it is not really direct equity, is it?I wonder why Uber needs money? That is a mystery. At that rarified valuation if they actually “need” $$$, they are very fragile and could really slide in value.At some point, they need to be creating + CF.JLMwww.themusingsofthebigredca…

  14. pointsnfigures

    Yup. Let’s see who has MTXE, and who doesn’t. Companies will actually have to build a sustainable business. MBA concepts like MR=MC, and lifetime value of customer versus customer acquisition cost are going to be big. As an investor, I welcome the days of seeing realistic valuation at seed. I also don’t think we have seen the bottom for tech companies. I think the stock market has a lot of room to go lower.I also will be interested to see investor behavior. It’s a lot different when you have your OWN capital on the line. There are a lot of folks that entered the angel investing arena in the last 5 years. They made a bunch of money working for companies that did really well. That meant their sweat equity was on the line, they built a company, and cashed out. They didn’t put their own capital at risk.The emotions around personal invested capital are entirely different. I have seen some pretty nasty behavior from investors when they wake up in the morning and realize that the company they thought had valuation X and now is worth .3X. Or, they thought it would grow at 5X, and now it’s only growing at 2X.Fred blogged about VC funds the other day. I bet you would be extremely surprised at how many VCs don’t put a significant amount of their own money in their own fund.

  15. george

    The hard medicine message has finally arrived but I am a bit shocked to see how much has changed in a relatively short period of time (crazy January). My view, market forces are essentially redistributing value sets – correcting the hubris and subjective nature of applying higher multiples against unrealized future earnings and/or sales. These checks and balances are what make our capital markets, best in world. The premium should eventually reward those that execute and deliver on the vision…true quality is rooted in profits.

  16. LE

    The real reason I welcome the tougher environment is that it will make all of us better. We will have to make better decisions. The market won’t bail us out. We will have to earn our returns instead of being handed them.You are talking about stock prices as a measure of company value and profitability and “worth”. The only people that think that is the case are finance types, stock gamblers and the publications that write about those companies. Most of what they think and act on is based on the greater fool mentality. That is front running how they think others will think about what the future will be. And trying to get ahead of that thinking.

  17. Sebastien Latapie

    Constraints help us all make better decisions – they force us to evaluate our choices with more scrutiny and truly assess multiple options instead of defaulting to the easiest path.You can see this reflected in (some) startups who receive too much funding: they forget how to make choices. Instead of focusing on a few ideas with tremendous conviction, they expand their offerings to do it all. This can lead to unfocused management, ambiguous strategy, and increase burn rate – all detrimental to building a lasting company.

  18. FlavioGomes

    Forget about the multiples….spend 99 percent of your time building great products that great customers will spend money on…and you’ll take care of everything.

    1. LE

      Whenever you see a large group of people acting in a particular way there is probably a proven reason why they are behaving that way.Here the “something” is what I refer to in my other comment below (iterate, hire, take chances and so on). In particular having a high valuation creates an important halo that can have an impact on your employment practices in some way. You can’t get beyond that (easily) especially if your competition (you can only be as ‘honest’ as they are) is thinking that way. Lastly money (and valuation by way of PR) can often help people find and sustain your better mousetrap. This doesn’t always matter but it matters enough as a result of group think.Most importantly, it is human nature and won’t be reversed by a blog post or even multiple news stories. (We have made little progress with ‘house husband’ becoming an acceptable alternative to a man bringing home the bacon in other words.)

      1. FlavioGomes

        You make some really good points. The challenge is when that halo fluctuates. Focusing on the core mission of the business, which should include customers as a central theme ,then you improve the resilience in what is often irrational behaviour by large groups of people.

  19. Stuart Kime

    As long as we keep letting EVs decouple from their underlying unit economics we’ll always have an inevitable chart like that. It’s like blowing the froth of the top of a pint. Who wants to drink the foam?

  20. Kirsten Lambertsen

    Speaking of gloom and doom and Monday’s post, Ana M. retweeted this today and I think it captures everything perfectly. A paid Tweet to promote a post about the death of Twitter (not to mention thinking about the roi of that purchase). Fear sells.https://twitter.com/TimFern

    1. LE

      Not really. Dying is not the same as dead. Being in trouble (with a ? at sentence end) is not the same as dead. It’s ironic but makes total sense as a linkbait way to gain readers.Lastly is that even real? I can’t find that story and the link does not appear anymore.

        1. Salt Shaker

          Author is founder of The Verge and Vox Media. Hardly an objective source. TWTR has been horrible managing brand perception. It’s allowing the market to define who/what it is to its own detriment. It’s taking on a lot of water in part cause it doesn’t have a bilge pump. Zero external marketing, while the company doesn’t do enough to harness the power of its core user base, the ultimate brand advocates.

          1. awaldstein

            Thank you a measured comment.Source of the article is questionable.But I agree, Twitter has done a horrid job managing their brand.It’s not too late certainly but its overdue time.

          2. sigmaalgebra

            What’s wrong with the management of the Twitter brand? I have never used Twitter, but my impression is that it is getting to be darned important and that maybe I should ‘follow’ some Twitter users. I don’t see a problem. What’s the problem?

          3. Kirsten Lambertsen

            Right about the author and the article. (Hopefully no one thinks I’m endorsing it!)There’s horrible and there’s _horrible_ — they ain’t Reddit yet 😉

      1. Kirsten Lambertsen

        So. You see no irony, whatsoever?Clickbait, as you say, though. And that’s pretty much my point 🙂

        1. LE

          I read up to this point and then stopped:Ultimately, Twitter’s service is so confused and undifferentiated in the market that it’s increasingly difficult to make a clear case for its existence. There are a small handful of features Facebook might add, or a separate app that it could easily create (as it did with Messenger and the photo-sharing stand-alone feature Moments) that would provide a similar but more consistent experience, with vastly more reach than anything the company can provide today (or tomorrow, for that matter).The author (yes I will attack the author now) is a tech journalist. He’s not a business guy. He could be right about many things but the idea that Facebook could easily do (sure they could but so what?) what Twitter is doing, better, flies in the face of obvious business reality (big box or specialty small stores vs. department stores as only one example).When people think or use twitter they use it because of what it is that solves a specific problem that they have. This is quite different from a larger product that does everything and also does what twitter does. This is a kind of basic concept in business, correct?He is just talking shit ‘fo pageviews.

          1. Kirsten Lambertsen

            Exactly. I hope no one is taking my comment as an endorsement of the article. Quite the opposite.

          2. sigmaalgebra

            Twitter has however many hundreds of millions of users who are locked in, with huge switching costs, due to the Twitter follower network.

          3. LE

            Similar to commenting on AVC in a way. Psychological lock in.

    2. jason wright

      Tim knows what he’s doing,…but “Twitter used to be essential” is pushing it.

  21. BillMcNeely

    This downward trend in the markets and specifically in the oil sector are effecting investment in real estate startups here Dallas. A successful accelerator went on hiatus https://medium.com/@thejohn

  22. Dennis Mykytyn

    See my favorite book “How to Lie with Statistics”. As they pointed out over 50 years ago, making charts where the y axis is not scaled to zero is one of the easiest ways to show dramatic movement way beyond reality. Try redoing that chart with a zero based Y axis, and while bad, not nearly as scary looking. And I bet if you did that AND lengthened the x scale to 5 years, you would have a totally different looking (and probably more informative) chart.

    1. sigmaalgebra

      But, but, but, you left out the drama! You killed the drama! It’s all about the drama! Excitement! Once in a lifetime (well maybe some of this afternoon) exceptional excitement! Or, fear, anxiety, danger, threat, the sky is about to fall — drama. “More drama Ma, please?”.Your point is a special case of the more general — ignore the axes! Deprecate the axes! Be obscure about the axes! Instead, just emphasize the curve, as an artistic expression — communicate and emotional experience! Overlay some big, red arrows! Units, values — such bummers, so yesterday; no zing, no drama!See my post today on how to draw a graph.

  23. Steve Lincoln

    I read this article today in Wired and wondered if Fred had any thoughts about addressing this issue (paucity of VC funding for companies founded by black women entrepreneurs) in a future post: http://www.wired.com/2016/0

  24. PJ Kershaw

    We never had the bubble in SE Asia so its business as per usual here. From an investing in the US standpoint, its great that there should be less rubbish and better opportunities at better prices. For those committed to the asset class, this is a welcome relief.

  25. sigmaalgebra

    Here’s a way for the tough to get going:(A) To understand what is going on, get some data and graph it.(B) When graph the data, do so to make it clear what is going on:(i) Realize that for most simple graphs of one variable as a function of another one, there is plenty of room on the graph, window, screen, image, or whatever want to regard as the space for the graph.(ii) With that room, label the graph, each of the two axes, and each of the lines.(iii) In the labels, avoid obscure acronyms; instead, write out with words found in a standard dictionary in the relevant language, e.g., English.(iv) On the graph axes, have tick marks at the major points of the axis, and at each tick mark indicate the value of the point.(v) In the axis label, indicate the units of the axis, say, dollars, inches, miles per gallon, miles per hour, millions of dollars, thousands of miles per hour, nanometers, Joules, Watts, kilowatts, Hertz, megahertz, millions of bits per second (Mbps), millions for bytes per second (MBps), etc.(vi) For all the labels, text, and numeric values, use a font and font size that is easy to read; in simple terms, use a sans-serif, bold font in the largest size that can fit in the space of the graph and otherwise is not absurdly large — tough guys want valuable information from the graph and, thus, want to be able to read the graph.(vII) When it can help reading the graph, include grid lines.For the graph in Fred’s post today, there is an obscure acronym; I can’t read the numbers or letters without pulling the graph into a program that will magnify the image (which tough guys can do but don’t have time to do); and, without grid lines, for the points on the line in the top or right parts of the graph, I can’t easily estimate the corresponding axis values (which means that the graph is not good for tough guys).So, the graph needs much, much larger, darker numbers and letters and both horizontal and vertical grid lines.Why not? Apparently commonly a graph is to be regarded as just the curve for some dramatic effect. But when the tough get going, what’s just crucial for the tough guys is reality, not drama. Drama is for the wusses, maybe the customers, but certainly not a tough guy entrepreneur for his own understanding of reality.Graphs for tough guys who need to understand reality should be more like those in a good freshman physics lab report and not some emotional squiggle from the art department. We’re talking tough guys, here, not “fuzzy, bunny play time”, right?

  26. Brian Heller

    I agree. I worked for AOL in the good times (when it was considered a good thing to work there), and in the bad times (when people would ask me “why are you still there”). I learned so much more in the bad times. Had to work harder to get deals done. Had to be more of a salesman (even as a lawyer), even for strategic deals. Had to come up with creative solutions to stalemates, and had to learn to be more flexible and creative.As the economy shifts, it is important to get more efficient. I do a lot of SaaS agreements – I welcome the challenge – bring it on! http://www.linkedin.com/in/briheller

  27. Sean Hull

    I think Warren Buffett had a good saying… “only when the tide goes out do you discover who’s been swimming naked”

  28. marcoliver

    I like the quote: “The market won’t bail us out.” Next time I file my tax and 55% goes to “public sector” – I’ll try to remember that; it’s the ‘market’, Marc-Oliver. Not the ‘people’.

  29. awake_canuck

    SaaS is a commodity now, low barrier to entry=2 programmers, 6 months, 50 pizzas and AWS, no innovation=no value

  30. Robin S

    I cannot even believe you could entertain such a thought in your head like that: “We will have to earn our returns instead of being handed them.” That statement alone shows a big part of the problem. Someone has been a VC way too long.Signed, I work fucking hard for every penny, investor, client everyday without a break till I get this thing in cash flow and I can get out and retire.

  31. sigmaalgebra

    So, that’s who did that. It’s famous and darned clever.I was talking about using data and, once decide to do that, how the heck to graph it. Data is not everything tough guys work with!

  32. jason wright

    is that a tail or the finger?