I have yet to read a post that had "built to flip" in the title that wasn't sanctimonious bullshit. It's invariably a signal that the author is going to brag about how he's in it to build companies of lasting value. But ask yourself this: how would this guy feel if he funded a company that became very successful, but never got bought or went public? Not very good, you can bet, when his current fund closed and all he had to give his limited partners was some highly illiquid stock. So all he's really saying is that he hopes the companies he invests in go public. But all investors want that!
A highly successful company is making a lot of money. Going public let's you cash out and diversify but if your equity is pulling in a few hundred thousand a quarter it's not an issue.
It's possible to find or create large company's that don’t make money, but if you can't make a profit with a million users what's the point of growth or an IPO? (Other than a profitable scam.)
Because liquidity is valuable and cash cows don't live forever. VCs and aggressive investors are looking for big returns, not cash thrown off. If does make me wonder if a VC or angel fund could solicit patient capital, like from a pension fund or life insurance, that would be content with owning dividend-rich stock. That's an area as unexploited as YC's niche was three years ago.
> are looking for bug returns, not cash thrown off
You can get huge returns from a profitable private company out of owners equity withdrawals over a short period. If the business is not capital intensive there's no real reason to go public, growth market or not.
I see nothing wrong with focusing on the "flip" if the business fundamentally needs a lot of capital or a big parent company. But nobody ever even mentions dividends or buybacks at private valuations. It indicates to me that people are most focussed on taking advantage of a possibly irrational market rather than building real businesses.
The best submission today by far, IMO. I suspect it won't get crazy popular around here, unfortunately.
Creating a sustainable business has been my lifetime dream, and hearing day after day after day about quick "exit strategies" on news.yc has been very depressing: if you're so eager to "exit", why are you in it to begin with? Pure greed would be an honest answer, I suppose.
This is why admire Jobs so much: while he certainly cares about the "money problem" he has remained so obsessed with Apple, with his baby, throughout his entire life. There is no "next big thing" for him.
while i don't disagree, i would like to point this out:
a lot of hackers are on the bottom floor. they enjoy what they do, but they have to do SOMEthing for money to pay the bills.
i, personally, would enjoy flipping a company if i had the opportunity, because this would allow me a huge latitude with what i would be able to pursue in the future. it would give me the ability to build a sustainable company with future ventures without having to make concessions/sacrifices in the name of being able to buy food next month.
i don't think most hackers are on the verge of running out of ideas, either.
On the bottom floor? You must be kidding me. Average salaries of CS graduate after 3-4 years out of school are in six-figure range in most parts of the country. That's in top 5% of US population and you can hardly call that a "bottom floor": ask your mechanical or civil engineering friends how do they feel about such "bottom floor".
My younger brother was kind of pissed with his $80K offer from Microsoft immediately after graduation claiming that some of his friends did better. That's ridiculous.
Stop kidding yourself, huge percentage "Web 2.0 entrepreneurs" just aren't interested in building real value-providing businesses. Startups like Twitter aren't built to be companies, they're built to flip - it's included in their "business model". I can't speak for more well-known startups, but those I am personally familiar with are all built on the premise of M&A nearly immediately after starting to break even.
THAT is the primary reason why there aren't too many "next Googles". Not many people are ambitious enough to aim than high.
It is kind of sad that Paul rarely participates in discussions like this one, but understandable given his limited time, but I'd love to hear his opinion on this.
i think you're the one kidding yourself. by "most of the country" do you mean seattle, NYC, and california? i work in a middle-america capital city and i make half what you're quoting as a software engineer with 3-4 years experience and i'm in a leadership position. in addition, i'm working at the best paying employer in the city in which i work.
also, working full time on a startup means that you're going to not be making top dollar for your local market. if my time is devoted to being a full time hacker, i'm not going to have the stability of a regular paycheck or benefits. money will be an issue.
sure, there are tons of startups that are gearing themselves to flip. but you're seeing a lot of them because the ones trying to be flipped are all in-your-face. they have to be extremely well-known in order to be flippable. there are tons of sustainable stealth startups that are just not that well-known because their business model is different.
No, if you're an entrepreneur in Seattle/NYC/CA you're not going to be making top dollar for your market (at first). You're lucky to live somewhere cheap, take advantage. It's a lot easier to make $40k in your first year than it is to make $120k.
You need to see different parts of the country. Where I live, programming jobs are $30-40k or a 2+ hour commute. People with 6+ years of experience are taking these jobs and the entry-level guys are relocating or selling fast food.
Must be a location thing. I'm in NJ and I hear a lot of the graduating seniors getting offers in the 50-60 range aound here. 80 is a great offer. And most of these guys consider a bittorrent client in java to be big and scary, so someone who actually knows what theyre doing could probably do a lot better..if you're willing to write back-end shit for goldman or merrill or whatever.
By "most of the country" I mostly meant two coasts: Seattle, Oregon (Portland), California, Boston/NY/DC. Plus some other technology hubs: central Texas (Austin) and Chicago. That is not a small list of cities, certainly deserves to be called "most of the US", weighted by population.
You're an evil person for throwing out a challenge like that to a map/demography nerd :). A little trip to http://en.wikipedia.org/wiki/List_of_United_States_metropoli... and a little spreadsheet gives 75 million if you only count LA/SF/San Diego in CA, or 85 million if you count all of CA. That's 25-30% of the US population, hardly most.
Now if you were to count GDP of those metro's, I'm guessing you'd be around 50% or more of the country.
"Exit strategies" are strategies for investors. Venture investors need to get their capital back at some point, and the phrase "exit strategy" means the strategy for getting it. It doesn't imply anything one way or the other about what the founders do.
Though you may not be old enough to remember it, Apple had one of the most spectacular exits in history. Their IPO in 1980 was the biggest since Ford's.
>> hearing day after day after day about quick "exit strategies" on news.yc has been very depressing
I'm not a huge fan of hyperbole. Care to back this up? I don't think news.yc is obsessed with ripping people off... what part of 'make something people want' contradicts creating value?
Except these things can be empirically shown to be harmful. The "value" of playing EverCrack or WoW all day every day can destroy many other valuable things in your life. This is why addiction is considered a problem, not a value -- except to pushers.
i think "exit strategy" when coming out of the mouth of a founder usually means exit from illiquidity rather than exit from the business completely. exit from illiquidity just makes sense (as paul graham and legions of corporate finance professors have pointed out) because it means liquidity which gives the opportunity of diversification, which is important to everyone.
One of the things that I like about pg's modus operandi is this: I love to build stuff, but I'm not so much of a business guy. I think I could build something that lots of people want, but less sure that I'd be the right guy to keep running it. Maybe I would, in the right field, but having the possibility to 'flip' the company to someone more adept at running it sounds pretty good to me, as well as allowing me to go back to do what I do best.
The author is like a blind man thinking that an elephant's leg is a tree.
How could he comment on that which he never sees?
Like small companies that grow with the best infusion of cash there is: from customers. Here's a novel concept: if you can solve your customers' problems, protect your market share, manage your cash, and keep a finger on the pulse of your business while growing it from within, why would you ever need a quick exit?
You need an exit strategy during sex too or there's going to be a merger and then an acquisition of your paycheck.
You don't wanna be left holding the (diaper) bag.
That's some life advice, boys, since some of y'all are going to be millionaires and that makes you a target for all sorts of golddiggers.
Naturally, PG had this one sussed like everything else. "Wait a minute, friend," you might be saying to me, "didn't RTM get an equal share? That's like 50% in a divorce!" Naw, you see, before they got together, they wasn't worth two bits between 'em. PG rode that horsey into the sunset and 59 million pesos!
