How Tilt Went From Hot $375 Million Startup To Fire Sale (fastcompany.com) 167
tedlistens writes: Not long ago, social payments company Tilt seemed to have it all -- a hot idea; cool, young founders with Y Combinator pedigrees; and $67 million in funding -- not to mention a $375 million valuation. But Tilt was more successful at cultivating its user growth and fun, frat-tastic office culture than at nailing down a viable business model. When Tilt finally ran out of cash, the party ended with the company's sale at fire-sale prices to fellow Y Combinator alums Airbnb in an aqui-hire deal. Where did it all go wrong? Here's an excerpt from the report: "Tilt was based on the premise that 'something like PayPal and Facebook would collide,' Tilt founder and CEO James Beshara says. The company aspired to be a social network for money -- instead of sharing photos and videos, users exchanged digital cash for birthday ragers and beer runs. During Tilt's early years, the pitch was simple, and carefully calibrated for Silicon Valley boardrooms: 'Let's prove that we can dominate the globe.' [...] By early 2013, millions in venture dollars were pouring into Tilt's coffers. Investors were lured by the same strong social metrics (viral coefficient, for example, a measure of user growth) that had marked Facebook as a winner. But the hopes embedded in Tilt's $375 million valuation came crashing down to earth last year. Beshara hadn't built a business; instead, he had manufactured a classic Silicon Valley mirage. While investors were throwing millions of dollars at the promise of a glittering business involving 'social' and 'money,' their Mark Zuckerberg-in-the-making was basking in the sunny glow of Bay Area praise and enjoying the ride with his bros. Revenue was not a top priority -- a remarkable oversight for any company, and a particularly galling one for a payments company. Eventually, with cash running low, Tilt went looking for a buyer..."
Re:Party like it's 1999 (Score:4, Funny)
At least this time I won't have to find someone to buy my leftover Flooz.
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I read a recent article that claimed the bubble will burst any moment with the massive layoffs of... 3K people... in Silicon Valley. LinkedIn advertised that there were 133K job openings the week before. That number dropped to 130K job openings the following week.
For historical comparison, 1M people moved out of Silicon Valley after the dot com bust.
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Not sure you know what that means.
Massive was the word that the article used and should have put into quotes.
You govt contractors aren't too bright are ya?
That's relevant to this discussion how?
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The next bubble.
Re: Party like it's 1999 (Score:3)
> "Tilt was based on the premise that 'something like PayPal and Facebook would collide,'
And this has happened years ago. It is called Weixin, and the west has completely missed it
>Ycombinator
Don't invest in Ycombinator startups. Ycombinator is a pyramid scheme - saying this with all seriousness.
They claim gynormous valuations for unsubstantial businesses due to big initial financing rounds.
All funds that push Ycombinator early rounds use hot money from sale of shares of earlier Ycombinator companies
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And this has happened years ago. It is called Weixin, and the west has completely missed it
Most of these technologies are there to work around limitations in the banking system. Paypal arose when it was hard to do person-to-person transfers. Now it's trivial for me to send money to anyone I know from my phone or tablet using my bank's web site or app, with no fees. Why would I use an intermediary to do it, and if I did then how would the intermediary make any money competing with a free service? These things have been popular in places where most people don't have bank accounts or where banki
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Now it's trivial for me to send money to anyone I know from my phone or tablet using my bank's web site or app, with no fees.
Nice try Nigerian Prince,
If I sell you something, or if I'm doing a small transaction, I'll use Square or Venmo.
You're not getting my banking information. Only trusted family members get that. And for utilities and bills, I'll use my bank's Bill Pay feature.
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If your bank is so insecure that giving me a cheque or bank transfer with your details on lets me empty your account, the problem is with your bank. (This is ignoring any additional social engineering done to g
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Sadly at least in the UK forcing banks to replace the fundamentally insecure direct debit system with something that is actually secure is not something we customers can do.
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The Direct Debit system doesn't need to be secure, because the liability is entirely with the bank. If there is a dispute, they are required to immediately reverse the withdrawal from your account.
Even if the fraud is quickly reversed (apparently whatever the legal requirements say some banks are quite reluctant to reverse direct debits) it's still a big hassle to deal with and that is assuming it gets noticed it in the first place.
So as long as the details needed to set up a direct debit are pretty much the same as the details needed to make a deposit I'm going to be selective about who gets to see said details. That creates a market for services like paypal where all someone needs to know to send m
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Well, then if some movies are to be believed, there is also the Yakuza, the Mafia, or the CIA. Those guys will accidentally transfer a very large amount to your bank account for blackmailing purposes or to launder money from stolen accounts, and then they'll be coming knocking on your door to kindly babysit your kids or your mom while you withdraw their money from your bank account.
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These things have been popular in places where [...] banking infrastructure makes person-to-person payments hard.
Like in America?
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Why would I use an intermediary to do it, and if I did then how would the intermediary make any money competing with a free service?
PayPal has strong buyer protections, even if they're completely boning the sellers.
If buyers insist on PayPal, there will be sellers who have to go along.
LK
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PayPal has strong buyer protections
Hahahahaha! Oh, you're serious? That's hilarious. At least in the EU, if you buy something using PayPal with your credit card, then you have far more protection from the credit card than from PayPal.
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How much your bank is charging for $20 transfer to bank account in Europe?
I'm in the UK and my bank supports SWIFT and IBAN transfers with no fees (though the receiving bank will typically impose currency conversion fees).
This just proves (Score:5, Insightful)
that there is a shortage of skilled intelligent STEM workers!
1) Expand universities to recruit even more naive wide-eyed dreamers into STEM. Generate debt to transfer public money into private coffers via tuition.
2) Lobby for more H1B visas.
3) Make fun of over 40 engineers and claim that they're too old to understand what you're doing.
4) Don't forget to shove a broom up your ass so you can wipe the floor on the way out when the bailiffs come to execute the eviction notice on your startup...
Re:This just proves (Score:5, Interesting)
5) Don't worry about a business plan. You can think about questions like "How do we make money?" later. Right now, just focus on more important priorities like establishing a cool company culture and getting a huge pool table for the breakroom.
6) Open floor plans. Cause that's supposed to help, somehow.
7) "Millennial Brand Recognition," or some shit.
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And how many European companies have produced any real revolutions, or even significant contributions, in software over the past 50 years?
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The number 6 I do not understand.
Perhaps it works for some people, but it certainly doesn't for many. After my experience with it, I refuse to work for any company that employs it. It is a nightmare for me.
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Because it's hip counter-productive bullshit that many startups swallow?
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People doing different things have different needs. What's good for general office work may not be good for software development. Your example of a metal company doesn't necessarily apply to software.
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It comes down to open plans being cheaper than building walls and offices.
FTFY.
Re: This just proves (Score:1)
Fuck you! Fuck you! Fuck you!
Now that's interesting!
Fuck you!
Faaaarrrrrkkkkk!
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And someone gave them $67M? Ha ha.
Some other idiot decided they were worth $375 million too. Apparently.
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Some other idiot decided they were worth $375 million too. Apparently.
Same idiots, not different ones. That latest tranche of investment (some large fraction of the $67 million) will have been for a certain percentage of the shares. That implies a certain price per share. Multiply that price per share for the total number of shares issued and you have the valuation.
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Uber is more like Groupon. It's a service company with a dubious business model, a deteriorating reputation, an overhyped market valuation and a strong likelihood that it could come crashing down at any moment. The only reason people still fund it is they hope to cash out at a profit to some other
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Tesla looks to me like a likely success. It could easily be more valuable in every way than GM in the future. However, the question is whether it's worth buying the stock at current prices, and I'm not seeing it. It seems to me that it would be too much waiting for Tesla to become that big for too little profit when that happens.
My experience? (Score:2, Informative)
Venture capitalists are greedy parasites. They are arrogant, yet stupid as a bag of rocks. However they got their money, I am pleased to hear whenever they lose their "investment" in a craptastic venture. Yes, I have had an encounter with one of those morons.
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If you are so smart, fund your next startup without those "greedy" venture capitalists who actually want some return on their $$$
Re:My experience? (Score:5, Insightful)
"Y Combinator" "frat-tastic office culture" "aqui-hire" "Where did it all go wrong?"
From the very start. The medium is much more than the message. Really, all that bubble-talk business-speak is meaningless bullshit intended to suck in the naive. Even though Steve Jobs is dead, the San Jose valley continues to live in a reality distortion field. For every Microsoft/Apple/Google/Facebook, there's a zillion dead pets.com sock puppets. Is 17 years really so long that people have forgotten what a tech bubble looks like? Hint: this is it.
Who really thinks Snapchat, who has never made a dime, whose business it making pictures puke rainbows and is readily replicated, is worth $24,000,000,000 in market cap? Or that Tesla is currently worth more than GM or Ford?
That show "Silicon Valley" sometimes seems more documentary than comedic farce.
Re: My experience? (Score:2, Interesting)
Agree on Snapchat, Tesla is a different story in my opinion. Sustainable transport is the future according to wall street, ea Tesla, GM is done, the new Nokia. Besides Tesla is delivering products, its model 3 is coming out and its preorders are off the chart. And most important, you mainly invest in the founder and with Musk running 3(!) dollar companies, compared to Spiegel, HA. Naa Snapchat will be the next Twitter, I'm more positive on Tesla. My 2 cts
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I'm not a Tesla fan,[1] but it's true that they do at least make something, and they sell it, and they have assets. That's more than you can say for most Valley startups.
Whether they'll survive remains to be seen, of course. However sluggish and burdened their competitors are, they are also powerful and they have deep pockets.
[1] EVs don't meet my automotive needs, and I hate all the gadgets. And as a dedicated curmudgeon I hate anything popular, of course.
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Or that Tesla is currently worth more than GM or Ford?
Do you not remember about ten years ago when the market crashed? All the execs flew, not drove, to congress to ask for a bailout. They had no plans for what to do with the money when congress asked. Elon Musk was having what he called his worst year ever at the same time, but he was also launching shit into space. He was not asking for billions of taxpayer money with no idea what to do with it.
Years after Tesla started selling the model S, Ford and GM started selling their own comparable electric cars w
Re:My experience? (Score:4, Insightful)
Ford did not ask for, nor did it receive, a government bailout. Ford realized it was in trouble long before the market crash and recruited the CEO of Boeing, who had turned Boeing around in a manner similar to what Ford needed. Ford is doing well, if not as great as it might have once been.
Making $10 billion / year!? Oh no! (Score:5, Insightful)
> Why the heck would anyone value Ford or GM more than Tesla. Ford and GM's unrealistically optimistic dream would be "be in the exact same place we are now 20 years from now."
Ford and GM are making $10 billion profit each year, and have been for a long, long time. They've been making money for over a hundred years. The question for Ford and GM is whether they'll make $9.5 billion next year or $10.5 billion. So yeah it would be just terrible for them to "be in the exact same place we are now 20 years from now." I sure hate to be making $10 billion every year.
Tesla, on the other hand, has lost money every year. Tesla MIGHT start making money at some point. Eighty years from now, Tesla might be making $10 billion / year. Also Tesla might go the way of Myspace. We'll find out in a few decades.
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Ford and GM are making $10 billion profit each year, and have been for a long, long time. They've been making money for over a hundred years.
Without bailout money, Ford would still be here, and GM would not. Don't conflate the two.
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You missed the part about "unrealistic." Producing the same gas guzzling SUVs for the next 20 years is not going to work. They have no realistic plan for the future even if they're fine now.
Every major automaker but FCA has realistic plans for the future. Chevy already has PHEVs and EVs and will soon have HEVs due to a partnership with Toyota. Toyota has all three, as does Honda. All automakers are lightweighting their vehicles, with Aluminum is beginning to creep into SUVs [foxbusiness.com], now that it's fairly well-entrenched in cars, albeit higher-end ones.
So given that every automaker but FCA (which is barely hanging on, based solely on the strength of the Jeep brand and their Hellcat models) is moving for
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The difference between Tesla and Tilt (and all the other internet startups) is that Tesla is at least manufacturing and delivering goods.
The problem is that Tesla's valuation is based on future profits accumulating from being the world's largest and most profitable car company, which would be fine if they were currently the world's largest and most profitable car company.
But it's jam tomorrow.
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In Europe, probably. Their governmetn's seem to subsidize startups.
Re:My experience? (Score:5, Insightful)
Go ahead, create a startup without any financial backers (or venture capitalists, as you call them)
Er...? I'm pretty sure "venture capitalist" is a pretty common, non derogatory term for them.
Anyway you have a point. The VCs are not super smart. A lot of them qualify as "rich but dim", and consider due diligence to be "does the company have a good pitch" and/or "Have my cronies invested I don't want to lose out".
There are a huge number of obviously, and phenomenally stupid investments made. Even in foresight, not hindsight. And they seem keener on people who can pitch a dream rather than create something and follow through. It's their money to waste as they wish, but given they're trying not to waste it, it seems an odd choice to me.
But whatever. The reason SV succeeds and "silicon toilet" or whatever the latest place to be optimistically given the "silicon" prefix (e,g, the laughably names silicon roundabout" in London is that despite everything that silly VC money is one of the key ingredients. By haphazard chance eventually some of the money goes to sane companies which are a success. So at least you stand a chance there.
The VC model by contrast elsewhere is insanely risk averse (it's VC FFS, that's pretty much the *definition* of risky). The sort of propositions you get are "well, develop your product, get certification and manufacturing sorted out and customers and sales and then we'll consider investing an amount that would end up as a less than minimum wage net payment for your time for a controlling interest after the point where you don't need the money".
Yeahhh, no. VCs in SV might be stupid, but they aren't (interestingly) quite that stupid. And that's why SV has so many success stories. Sure there are many failures, but many successes and insanely many failures is a much better way to success than none of either.
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also, "is the founder from Stanford or an Ivy? Must be good!"
But mostly Stanford.
Christ. I forgot that one. Someone I know who did the whole SV thing actually got asked "Why didn't you go to Stanford". FFFFFFFFFFFFUUUUUUUUUUUUUUUUUUU.................
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That show "Silicon Valley" sometimes seems more documentary than comedic farce.
Mike judge is a seer. Idiocracy anyone?
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Greedy parasites? Who are they sucking who doesn't agree with it and like it? Go ahead, create a startup without any financial backers (or venture capitalists, as you call them).
Not all financial backers are venture capitalists. VCs tend to be corrosive, in my experience -- and my experience includes a couple of successful startups. Despite your insinuation, it is very, very possible to have a successful startup without taking a dime of VC money.
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They can be greedy parasites and still be people you need to deal with. It's the best position for a greedy parasite to be in.
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Re: My experience? (Score:3)
> "Tilt was based on the premise that 'something like PayPal and Facebook would collide,'
And this has happened years ago. It is called Weixin, and the west has completely missed it
>Ycombinator
Don't invest in Ycombinator startups. Ycombinator is a pyramid scheme - saying this with all seriousness.
They claim gynormous valuations for unsubstantial businesses due to big initial financing rounds.
All funds that push Ycombinator early rounds use hot money from sale of shares of earlier Ycombinator companies
Huh? (Score:5, Insightful)
Tilt? Never heard of it, literally.
Oh, I'm sure it was huge, but it made less of an impact than a BB hitting a battleship. I'm not exactly a stranger to the internet, but I never heard of it before this obituary.
Re: Huh? (Score:3)
Indeed. I'm 28 years old, supposedly in the "Milennial" generation and never have I heard about this.
There are a dozen other ways to send money, some of them free. Many times even easier to just use cash.
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Same here.
Maybe they should have spent some of that $67 million on marketing.
"Revenue was not a top priority" (Score:5, Insightful)
"Revenue was not a top priority"
Well there's your problem.
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"Revenue was not a top priority"
Well there's your problem.
It was never a problem for Twitter.
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Yeah, it is. It's a big problem. It's why their stock price is cratering.
Re:"Revenue was not a top priority" (Score:4, Interesting)
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"Revenue was not a top priority"
Well there's your problem.
Half way there, there's an old saying I heard from a successful boss of mine years ago.
"Revenue is vanity, profit is sanity".
You don't need to just make money, anyone can get money through the door. You need to make more money than you're spending.
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That's something that can wait a long time. The place I work for believes in reinvestment to expand capabilities, not profit per se. Amazon spent a long time eschewing profit in order to grow.
Of course, if I don't see future profit potential, I'm not investing.
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There's something to be said for making customers a top priority, on the principle that you can usually find some way to get money when you have customers. Expanding the customer base might be worth taking hits to revenue. Not that you can keep this up indefinitely.
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There's something to be said for making customers a top priority,
If you have seed money to burn, sure. But otherwise the business of business is to make enough money to stay in business.
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Sure. If you don't have a path to increased revenue and profit, only the stupid investors will invest. There are situations (like Amazon's when they started out) where just having a lot of customers is the right thing to do. The difference between Amazon and Uber was that everyone could see how Amazon was supposed to profit when it went into that phase, and I don't see how Uber's supposed to become profitable with its current business model.
Copied... from China? (Score:1)
Social payments sounds a lot like WeChat Wallet / Alipay. Except those also combine the useful features of Apple Pay. Actually, Alipay makes Apple Pay look old.
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Yes sounds like WeChat stuff, But the giving of money is more socially accepted there, then in America. Also WeChat does some stuff that might be considered gaming here. I guess these guys didn't quite understand their business, I think it could work, but you have to be innovative not, just talkative.
Uber is next (Score:4, Interesting)
Re: Uber is next (Score:4, Insightful)
Yes they will be next.
Uber has never made a profit. It is run simply by people throwing money at it because "it's going to be big".
All they have to do is run an app and handle payments. And yet they do that at a massive loss. Maybe when the investor income dries up they can sack just about everyone who isn't directly involved in basic platform maintenance and payment system and turn a profit. But if they do, it will be tiny and they won't have the "market valuation" they have now.
Twitter is another one. Twitter is clearly saturated. Yet isn't making a profit.
Facebook at least made nice profits all through its growth and some actual real ways to make money,, and is now doing quite nicely.
Re: Uber is next (Score:1)
What Uber does that gives them value is mine data. In the grand scheme the data about travel patterns that Uber is gathering will make it a valuable entity over time.
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Also, I personally find Uber rides to be significantly better than cabs. Certainly a viable service.
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I didn't in my small town, but with Uber and Lyft I do quite a bit.
Cab: Call company "we'll be there in 15", now wait an a hour, call again, "we'll be there in 15". Pretty much won't do short rides either. In New York, cab pulls up, "where are you going", cab slams on gas and flees if answer is not Manhatten or Williamsberg.
Uber and Lyft are worth far more for the end user (show up, don't complain, are nice). The problem is they are going too hard on the price competition, and the prices are unsubstainably
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I once had a cab drop me 40 miles from my intended destination because the driver spoke poor English and apparently couldn't read the address I gave him. This would never happen with Uber, because their app ensures that both rider and driver clearly understand the destination before beginning the journey.
Cab companies may close the technology gap, but somebody is going to make money in the ride-for-hire business.
Read more about Y Combinator (Score:3)
I'm reading "Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley" [amzn.to] by Antonio Garcia Martinez. The author and his two engineers leave the startup they worked at to create a startup at Y Combinator to create a better version of the Digg toolbar (remember toolbars?) for Google advertisers in 2010. I'm at the part where the author sends his engineers to Twitter while he goes to Facebook in a three-way deal. Fun times.
I doubt this book will replace Startup: A Silicon Valley Adventure [amzn.to] by Jerry Kaplan as my favorite Silicon Valley startup book.
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He's an East Coast banker who wanted to make Silicon Valley look like a it's all hookers and blow like back East.
It's a very interesting interpretation on the Silicon Valley mythos.
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Did you read any of his shitty book?
I'm halfway through the book.
There's a part where he tries to make some speed dating event for aging childless work-a-holic silicon valley women sound like some kind of kinky milf orgy, when really it's just kinda sad.
That part is quite authentic.
"So, I was talking to my cofounders, while we were out at this super hip bar getting wasting and being super hip", give me a fucking break.
The funny thing is that I may have crossed paths with this guy when I had assignments at Facebook in 2011. I did so with Mark Zucker. I didn't think he was that short at 5'-7" (I'm 5'-10")
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Creimer you need to write a book. I might comb your slashdot post history for gems and compile me a book based on your dealings with Silicon Valley, game testing, and being a govt contractor. Would you like to be a VC for it? I know 50k a year isn't a lot in SV but every little bit helps.
Don't bother. I got working Python script to pull my 8,000+ comment history from Slashdot. I should have the script up on GitHub sometime next month. Meanwhile, you can check out my author website [cdreimer.com] or personal blog [kickingthebitbucket.com].
That brogrammer vision thing (Score:3)
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Yes it's called Vemo and has already been done.
https://venmo.com/ [venmo.com]
failure written all over it (Score:4, Insightful)
That's pretty much all you need to know; it has failure written all over it.
Sigh. (Score:2)
"Revenue was not a top priority -- a remarkable oversight for any company, and a particularly galling one for a payments company. Eventually, with cash running low, Tilt went looking for a buyer..."
Well - this is what happens when you just throw $65m at someone but don't provide them with a set of targets, metrics, viability tests, check-ups, performance reviews, performance-linked investment etc.
Of course revenue's not a priority if some idiot finances you to the tune of decades of operating income without
So they went Full Tilt? (Score:3)
*TADUM* *CRASH* *THUD*
Thank you, thank you, I'm here all week.
Tip your waiter and try the fish.
"social payments"? "Tilt"? (Score:1)
Never heard of either of these.
Startups worry about revenue? (Score:3)
oblig. Kids in the Hall (Score:1)
Office, Submarine [youtube.com]
Tilt? (Score:2)
Who's that?
Hindsight mocking and never learning (Score:2)
It's fun and easy to mock these cases in hindsight. What a bubble! Fake company! No revenue! Etc. And, I'm with you in the mocking. But what gets lost is that before the crash, really smart people bet on this company. I'm not talking about investors. A friend left his home city and great director-level job to take a higher level position in a new city at this company. He is a smart guy. He was excited. He truly believed he was making the clearly right decision.
My point is that if all we do is laugh, we don'
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Why all the angst against people trying to make money? Without VCs, many of the big successful companies who produce things you actually use would not exist. These people are not dumb. They take risks. They know more of their investments will fail than will succeed. They're betting that they'll bet on a few that really make it big and that will offset all those that fail. And even some of those failures still get bought out for the engineering teams or technologies they created.
Success requires risk.
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Really such as which companies specifically?
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That's why it's so idiotic that some people want to punish success and even wish failure on people just because they make money.
That would be idiotic if anyone actually thought that way. However, outside of a few on the radical fringe, nobody does.
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Your idea is your product, and you need a product that customers are willing to pay for. Sales are incredibly important, but they aren't going to happen without a product that someone will pay for.
While I agree, I somewhat understand what he's saying.
It's sort of like the guy who writes a neat app for storing recipes and ends up developing a fantastic database engine. So while storing recipes isn't necessarily going to set the world on fire, a fantastic database engine might be worth something.
The article had an interesting example of one of Tilt's competitors, WePay, that basically started going down the same road as Tilt. But discovered that the money just wasn't there and "pivoted" into becoming
Re:Ideas, products, and sales do matter! (Score:5, Insightful)
I watched one of Y Combinator's Startup School videos. The presenter was talking about how ideas aren't that important and how so many startups pivot.
VCs don't bet on ideas, they bet on people.
All the 'out-of-the-park' VC successes were based on existing ideas with a new implementation. This is why so many of them have to pivot - the best people realise when the idea is no good. A founder who is fully committed to the idea is a bad idea (pun intended), because if the idea later proves to be infeasible you want someone to ruthlessly kill that effort and focus energy and resources into something that will succeed.
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Oh god, I was watching this semester's version of that Y-Combinator "how to run a startup" class at Stanford, which is really just a big advertisement for Y-Combinator and their shitty companies...and some 20-something kid who founded some crap and then pulled an acquihire exit was up there giving a talk about growth or something, telling us how having declining user engagement is Really Bad. I'm like wow thank you boy-genius, never would have thought that was a problem! These Stanford people are getting an