Tech industry veteran Paul Graham always offers challenging thoughts about the Silicon Valley business environment on his Y Combinator blog.
Last month’s post looks at investment trends and how the venture capital industry itself is being disrupted as startups become cheaper to fund. He also touches on a profound change in the modern business environment.
Graham’s point is Venture Capital firms are finding their equity stakes eroding as it becomes easier and cheaper for founders to fund their business, as a result VC terms are steadily becoming less demanding.
An interesting observation from Graham is how the attitude of graduates towards starting up businesses has changed.
When I graduated from college in 1986, there were essentially two options: get a job or go to grad school. Now there’s a third: start your own company. That’s a big change. In principle it was possible to start your own company in 1986 too, but it didn’t seem like a real possibility. It seemed possible to start a consulting company, or a niche product company, but it didn’t seem possible to start a company that would become big.
That isn’t true – people like Michael Dell, Bill Gates and Steve Jobs were creating companies that were already successes by 1986 – the difference was that startup companies in the 1980s were founded by college dropouts, not graduates of Cornell or Harvard.
In the current dot com mania, it’s now acceptable for graduates of mainstream universities to look at starting up business. For this we can probably thank Sergey Brin and Larry Page for showing how graduates can create a massive success with Google.
One wonders though how long this will last, for many of the twenty and early thirty somethings taking a punt on some start ups the option of going back to work for a consulting firm is always there. Get in your late 30s or early 40s and suddenly options start running out if you haven’t hit that big home run and found a greater fool.
There’s also the risk that the current startup mania will run out of steam, right now it’s sexy but stories like 25 million dollar investments in businesses that are barely past their concept phase do indicate the current dot com boom is approaching its peak, if it isn’t there already.
Where Graham is spot on though is that the 19th and 20th Century methods of industrial organisation are evolving into something else as technology breaks down silos and conglomerates. This is something that current executives, and those at university hoping to be the next generation of managers, should keep in mind.
Interesting commentary Paul.
Disagree about you analysis on Instagram greater fool proposition (actually thought using amazon as poster child a little amusing.. 2600:1 price to earnings? Its a billion dollar startup :P)
Instagram looks very easy to build, but that’s rear-vision mirror stuff (survivorship bias). Connected individuals help get deals done, but that did little to drive end user adoption of the product.
Youtube looks like a screaming bargain for google now (remember they failed at video), seemed nuts at the time. Instagram is not dissimilar, very hard for FB to have emulated, very risky for it to have gone to a competitor. Agree it’s not something to broadly emulate though, they’re valuable because they are rare.
A lot of talk of bubbles in the startup space, leads me to believe we aren’t there yet. I think we need the public markets to get involved more before we’re truly ‘there’. Don’t see that happening soon.. Brave/foolish soul that IPOs in current environment.
Secular trend is being pushed by 0% yield (negative real yield) + new comms channels (mobile) + wireless ubiquitous data. Sector is maturing, but still expanding… looking for canabalisation as a lead indicator… Mania one day… not just yet though.
Yahoo acquisitions have the smell of desperation, but I think that’s more a reflection of their own company than the marketplace in general.
Thanks for your article!