Fred Wilson has a great post up about macro trends and their impact on VC and startups. The paragraph that jumped out at me was the following:
And I don’t think the startup economy and venture capital is immune to this new reality.
So what should we do about it? Well first, we need to be careful with valuations. If financial assets are going to be subject to downward pressure then inflated valuations will not be sustainable. We need to be careful with the amount of money we invest and burn. Companies that are capital efficient and cash flow positive will fare better in this environment. And we need to be prepared to wait a long time for liquidity.
In my mind, the critical challenge facing anyone starting a company is how to get it to be self-sustaining as quickly as possible while using as little capital as possible along the way. Balancing growth with capital conservation is a great example of the line that needs to be walked between goals that can seem to be in opposition to each other. I’ll write more about this particular issue in another post because it comes up again and again. In the meanwhile, good luck with your respective businesses.
Went for a short stroll today in Carkeek Park which is tucked away at Greenwood & 110th Street in Seattle. It’s a neat little park and apparently you can see tons of Salmon during the fall & winter when they return to spawn. It’s not very dog friendly though which did limit the amount of time I spent there.
We were fortunate to have gorgeous weather while we were there which was a bit of a shock given that Seattle saw snow and hail earlier in the day. Listening to the news apparently Seattle set records for rain, snow & temperatures today. Nutty.
It’s been a standard spring in Seattle - cold, grey, rainy. We were treated to a few hours of gorgeous blue sky today and it’s amazing how it lifts everyone’s spirits. Here’s hoping we have an early start to the summer.
Burke Gilman Trail by the Fremont Bridge
White Flowers
(Photos were taken on my Blackberry)
Spotted in SF last weekend.
Be prepared - that’s what I always say.
My girlfriend sent me this opportunity “as a new and creative way to augment my income since I now have a non-traditional work schedule.” She also added that since I had experienced malaria as a child, my prior experience would be an edge.
Seattle researchers to pay volunteers to get malaria
The Seattle Biomedical Research Institute will pay volunteers as much as $4,000 to be bitten by mosquitoes infected with malaria.
Scientists say no lives are in danger because the volunteers can be cured. The institute is testing which vaccines work fastest. The head of the program, Dr. Patrick Duffy, says volunteers will spend several nights under medical supervision in a hotel. All of the human trials will be reviewed for safety by the Food and Drug Administration.
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On the Net:
http://www.sbri.org
I think I should be worried.
I’ve been in and around startups for a while now but even though I’ve been at the ‘idea on paper’ stage for one of them, and have been a key part of the team at others, I’ve never been the final resting place for the proverbial buck. It’s different this time.
The level of pressure, and as a result the required level of commitment shoots through the roof. The only way to cope is to be prepared every day and work your ass off. The good news is that this is easy to do. When you’re invested in the idea and vested in the outcome, you don’t think twice about putting in the time needed to achieve your goals.
Q: Hey Rahul - thanks for joining Askablogr! I saw your post about your recent India trip and was curious: do you have any specific strategy tips for U.S. managers wanting to tap the Indian market?
Posted by Chris DeVore
A: Great question Chris. Also, I’m looking forward to trying out the Askablogr service. A few things jump out when thinking about tapping into a different markets.
- Get a local contact you can trust:While it’s valuable to have an outsider’s perspective, I think it’s very important to also have good, trusted local contacts. Each country has a different tempo and there’s the official way things get done and the real way. It really helps to have someone you trust helping you manage relationships on the ground.
- Understand Local Nuances:Porting business models is tempting, but it’s important to also understand where things are different from what you’re used to. India’s consumer web use is still largely metered and dialup based. Also, more and more people are using their phones as their primary point of connectivity. This has major implications for how you might choose to do business. Another point that came up on my trip - copyright law. India’s copyright on things like movies is 30 years shorter than that of the USA. If you’re in the content business, you’ve got to understand this.
- Be Patient:With any new endeavor, there will be obstacles. I think all the complexity is amplified when you’re going international. India will be a pretty big challenge from anyone moving from the USA. Having said that, the growth out there is insane and as you’d expect, infrastructure is straining to keep up. I think it’s a market that you can’t afford to ignore. Going global is similar to a local site in the US going national. Go market by market - establish a beach-head, build critical mass, repeat.
I came back from my trip pretty inspired by what I saw and also very aware that the pace of change out there can only mean increased competition here. It’s definitely a fun time to be doing business.
There’s a great post on Redeye VC about targeting ads at employees of big Internet companies. While Josh Kopelman was focused on finding ex-employees interested in starting a company, his approach (which is very clever and like most good ideas ‘duh-inducing’) strikes me as a great way for recently funded startups to find disgruntled developer talent.
I decided to test Facebook’s targeting mechanism by running targeted ads to employees of large Internet companies — including Yahoo and Microsoft.
In Seattle, if you’re looking for .NET talent, poaching from Microsoft is a way of life and buying employer-targeted ads on Facebook and LinkedIn might be a great way to go.
Thanks for a great post, Josh.
I just got back from a week-long trip to India and I was blown away by how much growth the country is experiencing. The economy is booming and there’s opportunity everywhere. Infrastructure is straining to keep up - there’s traffic everywhere, airports are clogged, streets are crowded, there’s advertising everywhere you look - in short, the country is going nuts.
Going from the US, where the talk around the economy is so negative, to India where most people are making hay, made the contrast even more jarring. There’s a sense of optimism overseas which is pretty inspiring. If you’re not thinking about how you can leverage assets overseas or how global consumers are relevant to what you’re trying to do, you’re missing out on tremendous potential.
On an unrelated note, a ton of people I spoke to out there view the current situation in the US (declining stock markets, real estate prices, subprime meltdown) as a buying opportunity. I don’t know if this is a bottom yet (actually, I’m pretty sure it’s not) but if you can be a buyer when everyone else is selling, in general, that’s probably a good thing.
Just about everywhere you look, you see how the US mortgage meltdown is negatively affecting everything connected to it. Even in this market though, people are killing it. The Wall Street Journal has a fascinating article about Magnetar and the handsome profits it made betting against the mortgage market. WSJ Online (Reg Required): A Fund Behind Astronomical Losses by Serena Ng and Carrick Mollenkamp
In this case, Magnetar swooped in on securities that it believed could become troubled but were paying big returns. CDOs are sliced based on risk, with the riskiest pieces having the highest yield but the greatest chance of losing value. Less-risky pieces have lower yields and some pieces were once considered so safe that they paid only a bit more than a U.S. Treasury bond.
Magnetar helped to spawn CDOs by buying the riskiest slices of the instruments, which paid returns of around 20% during good times, according to people familiar with its strategy. Back in 2006, when Magnetar began investing, these were the slices Wall Street found hardest to sell because they would be the first to lose money if subprime defaults rose. For the Wall Street firms underwriting the deals, selling the riskiest pieces was “critical to getting the deals done because they were designed to act as a cushion for other investors,” says Eileen Murphy, principal at Excelsior CDO Advisors LLC, a structured-finance consultancy.
Magnetar then hedged its holdings by betting against the less-risky slices of some of these same securities as well as other CDOs, according to people familiar with its strategy. While it lost money on many of the risky slices it bought, it made far more when its hedges paid off as the market collapsed in the second half of last year.
Wall Street, on the other hand, is reeling. Investment banks made big fees by underwriting Magnetar-linked CDOs, but several banks made the costly mistake of holding some of the higher-rated and supposedly less risky pieces of these investments.
As the article points out, Magnetar’s strategy would have worked whichever way the mortgage market went. They had downside protection and then some in the case of a downturn, but if the market held up, they owned the slices of the market with the best returns. Very impressive.It also highlights the information advantage that insiders have. There’s no way individual investors could have this sort of insight and then act on it. One lesson here, if you’re not intimately familiar with a market, be wary of easy money.