At Startup School, the Sequoia guy showed a bunch of slides which had two main points highlighted:
- Companies like Microsoft, Google, Yahoo, LinkedIn raised very modest amounts of funding and has multi-billion dollar IPOs
- Cost of creating a company (and associated technology) is down over 90% from what it was back when a lot of these companies were started.
Given these two, it's amazing to see VCs pouring in millions into startups that have nowhere near the valuation they invest at. Color is the most famous example, but there are tons of other startups raising $2-5M at pretty ridiculous valuations. If you consider that in light what Sean Parker says, regardless of his vested interest in engineering talent going to companies he's backed, it feel like what he's saying makes sense. Companies are ridiculously over funded, and VCs are doing a disservice to their investors as well as to their portfolio companies by giving more money than they need.
Valuations are set by the current value of the company and the projected outcome. Lower costs to launch and iterate actually increase the likelihood of success, as well as mean that net margins can be higher than if you had to invest in significant infrastructure. The fact that you don't need very much money and will be able to try all kinds of things on a shoestring budget is exactly why valuations are so high. Since VCs still want the traditional 20-40% of companies, they give them more money than they need out of their own desire to take a big stake - not because the valuation is out of whack.
Said another way, the less a company needs your money, the more you have to pay to get in.
>Companies are ridiculously over funded, and VCs are doing a disservice to their investors as well as to their portfolio companies by giving more money than they need.
No they're not. They're following the market. If they were doing a disservice to their investors, do you think the investors would just sit back and lose millions?
The proof is in the pudding. If they're making more ROI, on average, in investments made in the last 2-3 years then clearly things are fine. If they're not making as much, on average, as they did 10 years ago, then there is inflation/bubble/etc. Sadly, it'll takes a few more years to do such analysis.
You have a pretty low opinion of people who've managed to make large sums of money. If they're as stupid as you think, maybe that money would be better utilized by people who aren't?
>Cost of creating a company (and associated technology) is down over 90% from what it was back when a lot of these companies were started.
The costs in terms of equipment and developer talent may be smaller than they were in the mid-late 90s, but the market is much more crowded now. I don't know that those savings aren't offset by the required marketing and PR efforts necessary to differentiate your company from all of its other "social web 2.0 tweet-a-riffic" competitors.
- Companies like Microsoft, Google, Yahoo, LinkedIn raised very modest amounts of funding and has multi-billion dollar IPOs
- Cost of creating a company (and associated technology) is down over 90% from what it was back when a lot of these companies were started.
Given these two, it's amazing to see VCs pouring in millions into startups that have nowhere near the valuation they invest at. Color is the most famous example, but there are tons of other startups raising $2-5M at pretty ridiculous valuations. If you consider that in light what Sean Parker says, regardless of his vested interest in engineering talent going to companies he's backed, it feel like what he's saying makes sense. Companies are ridiculously over funded, and VCs are doing a disservice to their investors as well as to their portfolio companies by giving more money than they need.