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Businesses The Almighty Buck

Will a Tighter Economy Rein In Startups? 109

Nerval's Lobster writes: It's been quite a ride for the stock market this week. In China, markets cratered; in the U.S., stocks dove for two days, only to rebound on Wednesday. That made many tech firms nervous, both about the Chinese economy (which some of them depend upon) and the continuing flow of money from VCs and investors. While the economic jitters don't seem to be affecting some tech firms' ability to implode themselves, more than one pundit is wondering whether the tech industry will shift into 'fear mode,' which could be bad for the so-called 'unicorns' that need funders to keep partying like it's 1999. Are we going to see money start drying up for startups?
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Will a Tighter Economy Rein In Startups?

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  • Once the firehose is turned on Wall St will be swimming in cash. Main Street not so much.

  • It won't be like 2001. Too many companies are making too much revenue, and a slower economy in China won't change that much.
    • Re:not like 2001 (Score:5, Insightful)

      by LynnwoodRooster ( 966895 ) on Wednesday August 26, 2015 @10:41PM (#50399843) Journal

      That IS like 2001 - the focus on revenue, not profit. I don't know of a single unicorn ($1 billion+ valuation, pre-IPO stage) who's making profit right now. Turn off the flow of VC funds and they close - they cannot continue operations.

      Back in the dot-bomb days it was the same thing. It was all about growing big, growing fast, and even if you lost money on every customer/user, you'd "make it up in volume". At the end of that era, most of the companies who had big revenues and negative cash flow either folded or scaled back so far they were sold for literally a penny on the dollar and faded away to obscurity. We'll see the same thing with the current crop of unicorns when the market crashes again. Those who can sustain themselves on existing revenues will survive. The rest will either go away completely, or end up being gobbled up by others for a fraction of their "value".

      • I think the big difference is that there was a big rush to get on the web during the dot-com boom, and the established players actually didn't care AT ALL about revenue (as the old joke went). They just wanted presence of some sort. The problem was, no one really knew what you could actually do with the internet. Everyone just knew that it was important to get on board fast, and a gazillion e-prospectors showed up with all sorts of pie-in-the-cloud ideas that simply weren't sustainable.

        Nowadays, the mark

        • Remember a company called Loudeye? At one time (1999 to 2002) they were the LARGEST digital media company in the world. More music, more images than anyone else. Sure, they lost money on every stream they served, but they were HUGE, and were growing at record rates (like 2500% annual growth). At IPO (early 2000 IIRC) they were valued at $1.5 billion, making them one of the biggest "Internet companies" out there. By 2006, Nokia bought the whole thing for $60 million (about three pennies on the dollar, r

  • It won't matter (Score:5, Interesting)

    by pete6677 ( 681676 ) on Wednesday August 26, 2015 @09:09PM (#50399595)

    We've reached a very perverse point in our history where what's bad for Wall Street is good for America, and what's bad for America is good for Wall Street.

    In other words, the fed needs to raise interest rates. It would help everyone but Wall Street.

    • by tlambert ( 566799 ) on Wednesday August 26, 2015 @09:46PM (#50399693)

      The actual finance guys I know want interest up.

      The day traders I know are afraid it's going to kill their ability to make money.

      The high frequency traders I know don't care, since they are still able to game the system.

      • The high frequency traders I know don't care, since they are still able to game the system.

        Up, up, down, down, left, right, left, right, B, A.

      • The day traders I know are afraid it's going to kill their ability to make money.

        Day traders don't care.....if the market is up, they go long, if the market is down, they go short. What they want is volatility, long, predictable swings where they can jump in and jump out.

        • The day traders I know are afraid it's going to kill their ability to make money.

          Day traders don't care.....if the market is up, they go long, if the market is down, they go short. What they want is volatility, long, predictable swings where they can jump in and jump out.

          Money being sucked out of the stock market into the bond market reduces stock liquidity, which in turn, reduces stock volatility. Day traders rely on more or less large swings in stock prices, and when major holdings are not in play (because there are none, if all the institutional investors have fled to bonds), then their ability to profit evaporates.

          Day trading is generally based on options with a limit order (to reduce downside risk, since they can't use the Black-Scholes or Black-Scholes-Merton hedging

        • by pnutjam ( 523990 )

          Day traders don't care

          Day traders don't know
          FTFY

    • Why would it be good for the common man? Seriously, why? Right now I can get a cheap home loan. A cheap car loan. As long as inflation remains relatively low, it's in the interest of the common man for the interest rate to stay right as close to zero as possible.

      Indirectly, low interest rates helps provide jobs, which is also good for the common man.

      • Because when you create money out of nothing and give it to banks for free they get to use the money first which steals real wealth from everyone else. House prices are based on interest rates. Right now home ownership is very low and yet home prices are rising.

      • by Dunbal ( 464142 ) *
        You can get a cheap home loan on a phenomenally overpriced house. How about a loan with higher interest on a modestly priced house? (Yes I'm talking about the same house). Either way, you're paying.
        • A decrease in home prices would put people underwater on their mortgages ...

          Unless you like long winding deflationary spirals you'd have to offset any rate raise with stimulus, and that would make the deficits skyrocket.

          • A decrease in home prices would put people underwater on their mortgages ...

            Lots of people already are. But high home prices are keeping people homeless while we have multiple vacant homes for every homeless person (not family but person) in America. This situation cannot stand.

      • by hawguy ( 1600213 )

        Why would it be good for the common man? Seriously, why? Right now I can get a cheap home loan. A cheap car loan. As long as inflation remains relatively low, it's in the interest of the common man for the interest rate to stay right as close to zero as possible.

        Indirectly, low interest rates helps provide jobs, which is also good for the common man.

        You might be able to get a cheap home loan, but that doesn't necessarily mean that you can get a cheap home. Lower interest means people can afford more house for the same payment, so home prices rise since people can bid more for houses.

      • by orlanz ( 882574 )

        Lower interest rates do not make a home cheaper. Its basically offset by a rise in the house price. The monthly payment affordability of someone doesn't change with rates or house prices. All that happens is what percent of that payment goes to interest and what to the loan. Lower interest rates, higher house price. Sure you can "afford" a more expensive home, but with all prices going up, you basically end up with the same "value". So if the rates today all of a sudden jumped to 7%, you can bet the h

        • The same point is made over and over...and no, not really. People don't spend every last dollar they own on a home.

          And if they do, and interest rates/mortgage rates go lower...great! They can re-finance their home, and save lots of money!

      • by EzInKy ( 115248 )

        But wouldn't higher interest rates encourage the common man to save for rather than borrow against his future?

        • True, higher interest rates means your checking account gives back a higher percentage, but the barrier to owning stocks and bonds is so low nowadays, who cares?

          • by EzInKy ( 115248 )

            True, higher interest rates means your checking account gives back a higher percentage, but the barrier to owning stocks and bonds is so low nowadays, who cares?

            That's my very point! Current interest rates make the payoff for savings so low that discourages people from being responsible and encourages them to become indebted.

    • The Federal Reserve was created to help the banks.
    • The Fed shouldn't exist and print and manipulate in the first place but it does. The economy needs market rates. Given the amount of debt and lack of production/productivity, the rates need to shoot up into high double digits. The Fed will not do that, since even low single digits will complete the economic collapse that was not allowed to run its course by the Fed so many times. From Greenspan, to Bernanke, to the current incarnation, they want to prop upnthe fake economy - stock and bond and housing an

  • by Joe Gillian ( 3683399 ) on Wednesday August 26, 2015 @09:21PM (#50399641)

    It's been quite a ride for the clickbait headline writing market this week. In China, headlines cratered; in the U.S., clickbait dove for two days, only to rebound on Wednesday. That made many Slashdot editors nervous, both about the front page of Slashdot (which some of them depend upon) and the continuing flow of money from VCs and investors. While the clickbait jitters don't seem to be affecting some news firms' ability to implode themselves, more than one pundit is wondering whether the clickbait industry will shift into 'fear mode,' which could be bad for the so-called 'ad firms' that need readers to keep clicking like it's 1999. Are we going to see money start drying up for clickbait headlines?

    At least Nerval's Lobster is trying harder. A story with two non-Dice sources as opposed to zero is always an improvement.

  • by Anonymous Coward on Wednesday August 26, 2015 @09:25PM (#50399651)

    As someone that worked in the tech industry during the recessions in 1973, 1980, 1990, 2001, and 2007, unemployment for people with good tech skills was almost nonexistent during most of those bad times, but it meant you couldn't afford to hire more people. That made things much harder for the people with jobs. I've noticed that during each recession, the number of hours expected has gone up each time. I worked for a loan mortgage start-up from 2006 until 2009, and the expected hours increased from about sixty to nearly a hundred. We were expected to do 16 hours Mon-Thu then 12 on Fri-Sun. At my current startup, the hours aren't that bad yet, but I see it coming. We had more open dev positions than devs! That was until a couple of weeks ago when our largest customer, who is in China, went under. After that, all of those open positions were closed. It looks like we're expected to make do with half of the number of developers indefinitely.

    • Buy low, sell high. And if your employer sucks, take less money for a more balanced job.

      Can't do it? Re-evaluate.

      I work 40 hrs max, and the general expectation is no more than 50.

      Relocate might also apply.

    • As someone that worked in the tech industry during the recessions in 1973, 1980, 1990, 2001, and 2007, unemployment for people with good tech skills was almost nonexistent during most of those bad times

      In 2001, U-Haul trucks were streaming out of Silicon Valley. Plenty of good people lost their jobs (do you know how many companies went out of business? Not all of them were full of bad programmers). Also, it depressed salaries for a while. I'm highly in favor of tech salaries rising.

    • by gweihir ( 88907 )

      And the stupid thing is that for mental work, not even a 50h work-week increases productivity compared to 40, at least after you have been doing it for 2-3 weeks. Everything above 50 _decreases_ productivity. This has also been known for a long, long time (Henry Ford and contemporaries found it), making managers that demand more than 40h weeks long-term utterly incompetent.

  • General answer: no

    Less general answer: most startups come from the U.S., not China; the economy is bad in China and Greece (and maybe two other EU countries, who are now regretting letting Germany be in charge of their economies, the way Germany wanted to be in WWI and WWII), and that's not a problem for the U.S.. This is not like the dot bomb, where everyone was afraid to invest in startups, who were going to lose money on every customer, but make it up in volume.

  • There, I said it. The valuations of some of these companies is just flat out crazy-insane-stupid, especially compared to some real companies that actually make something. But I do think Pied Piper is going to make it ...
  • Sad Birds (Score:5, Interesting)

    by Dutch Gun ( 899105 ) on Wednesday August 26, 2015 @10:32PM (#50399817)

    Interesting... so Rovio, the makers of Angry Birds, is laying another 260 employees. Let me put that in perspective for you: I've been in videogame development for the last several decades, working on games ranging from bargain-bin titles to well-known MMOs. I've worked at companies with a dozen employees, and nave *never* been at a company with more than a couple hundred total employees (excluding parent company).

    I'm just trying to figure out exactly were they doing with all those people... Does it actually require dozens of people to create an Angry Birds game? I'm having a hard time figuring out what they actually *did* with so many people. They happened to strike gold with Angry Birds, and they must have deluded themselves into believing they could strike gold with each subsequent swing of the pickaxe. Oops, the world has moved on to Candy Crush.

    If they wisely invested their incredible earnings, they could have created a much smaller company that would have nearly infinite financial backing to do whatever they wanted. Instead, they succumbed to the temptation to grow into a giant by pretending that they could release the same product an infinite number of times. Now the entire world has played and grown tired of Angry Birds, so there's nothing left to fall back on.

    • by gl4ss ( 559668 )

      they were doing nothing with all the people.
      that's why it's so easy to lay them off.

      you have to understand that they kept hiring people because they had money and there plenty of people to hire, they didn't have a plan what they were doing with them.

      also you have to understand that hiring shitloads of people gave the execs more prestige in finland.

      also just dumping money with no creative thought is why the angry birds marketing pictures are now all fancy 'pretty' 3d with no artistic merit.

      also you might wan

    • EA has 8,400 employees. Activision has 6,700. Blizzard has 5,000. Maybe the companies you worked for were small time?

      Rovio also sold Angry Birds T-Shirts, cartoons, etc. I imagine at a huge mark-up. Good for them, they managed to strike lightning with a silly mobile game, and took advantage of it thoroughly. Now these employees are no longer needed. It's not realistic to say they could have taken those profits and make a billion dollars with them. They aren't an amazing game studio, they just got lu

      • Comparing EA and Rovio is silly. Rovio has one product and a couple of other tiny ones. An accurate comparison of Rovio would be to one of EA's development studios, not to all of EA itself.

        260 people is a ton for a studio. Even if you look at the really big studios working on the really big titles for EA and Activision, it is usually only a couple hundred people at most. That's to produce things like Battlefield (and it's associated engine, which is quite advanced) not to produce a silly mobile game where y

    • by Dahamma ( 304068 )

      Yup, it's a basic matter of a tiny indie game company that inexplicably had $1B of unexpected revenue dropped in their lap all of a sudden.

      They did what many companies, game dev or not would do, and tried to expand as fast as possible. The difference is game companies (with maybe Blizzard/WoW as an exception) can rarely sustain that revenue to the next year without another massive hit. And I'm sure as you know, there are very few left (maybe Rockstar and Bethesda?) who have managed to create that string of

    • I'm just trying to figure out exactly were they doing with all those people... Does it actually require dozens of people to create an Angry Birds game? I'm having a hard time figuring out what they actually *did* with so many people.

      I imagine most of those people were in marketing, merchandising and so on.

  • So you're an investor, and are trying to make money. We were in love with Ali Baba, but it tanked along with the Chinese economy -- too risky. How about Europe? Well, most of that's tied into the EU with an ever-increasing risk of a Greek Euro exit and disastrous austerity policies, that's probably a good place to stay out of too.

    The fundamentals of the US economy are looking great in comparison. Housing prices are starting to come back, unemployment is down, and a deficit to GDP ratio that looks to be [businessinsider.com]

    • by Dunbal ( 464142 ) *
      The fundamentals [usdebtclock.org] of the US economy are looking great in comparison to what? Are you seriously content because "at least we're not in as bad shape as Greece!"? Housing prices are starting to come back - that's a good thing right? That no one can afford a house unless they sell their and their children's future into usury? Because a fundamental gauge of the economy is the PRICE OF YOUR HOUSE. No, that's only good for bankrupt americans who have no equity at all except the meagre slice they are forced by the b
      • Uh, the debt is just a number. If the debt goes too high, the dollar drops relative to other currencies, making US goods cheaper abroad. If debt is too low, the dollar strengthens our currency relative to other currencies (based on their debt:GDP ratios). However, we haven't seen a weakening of the dollar nor the incoming inflation apocalypse predicted by debt worry fetishists fear.

        The newer housing market seems to be fine as increased regulatory scrutiny have caused most banks (the ones I've talked to a

  • by rebelwarlock ( 1319465 ) on Wednesday August 26, 2015 @10:57PM (#50399891)

    This summary is just a bunch of silly bullshit with vague references to actual news.

    more than one pundit is wondering whether the tech industry will shift into 'fear mode,' which could be bad for the so-called 'unicorns' that need funders to keep partying like it's 1999

    Fuck you. Go to jail. This isn't buzzfeed.

  • Just because the share market value dropped does not mean that the overall economic conditions changed one bit. If anything the share market was over valued with price / earnings ratio being above the long term average and it has now corrected to just under that long term average.

    Unlike what happened with Lehman brothers there is no capital crunch happening. Companies balance sheets are ridiculously strong at the moment with crazy amounts of cash sitting there doing SFA. Christ Cisco decided to take out

    • by sfcat ( 872532 )

      If your startup can't gain enough traction with a couple of 100k it was never going to happen for you you anyway.

      Depends on the business you are in. If you are a mobile game startup, then 100k might be enough to see if the idea has legs. If you are an enterprise software platform startup, you need $50m to be competitive and even then you need better tech than your competitors with much deeper pockets. If you are starting a bank, even $50m might not be enough. If you are starting a restaurant, $500k or $1m might be a good amount to start with depending on your location and type of restaurant. But $100k is rarely e

      • No startup is going to get handed $50m on an idea and nothing else. And no startup is ever going to be a bank, not unless your definition of a startup is any new business. If you want to found a bank you need to pull together long term investors to come together to build a new venture.

        And 500k for a restaurant?!?!?! You need 3 months of rent for the bond (10k-50k), 20k for fitout, 10k for inital consumables costs, then give yourself another 20-30k money to run with. And that is going to get you a hell fl

  • >> Are we going to see money start drying up for startups?

    No. Just say you're writing the next big data social media IoT app using 100% HTML5 and you'll be good to go.

  • Could someone please explain what exactly this means and why they chose such a fucking stupid name for it?
  • Folks with REAL product/service ideas, not just 'me-too'ers that have solid business plans and financials should be OK. Others with more fictionalized efforts, will hopefully die early deaths.

Every nonzero finite dimensional inner product space has an orthonormal basis. It makes sense, when you don't think about it.

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