Comments on: The Unsustainability of Hyper Growth VC Startups

By: The Series A Crunch: One More Reason to Bootstrap and Skip Venture Capital « SmoothSpan Blog

Thu, 29 Nov 2012 02:04:37 +0000

[...] to the “Unsustainability of Hyper Growth VC Startups” as I called it in an earlier [...]

By: Tim Henrich (@tdinternet)

Tim Henrich (@tdinternet) — Thu, 25 Oct 2012 00:48:29 +0000

@Nmehta0 – I agree with your reference to greed being the driving factor — much like the start of the late night infomercials selling low-grade products to consumers buying into their marketing efforts.

Let’s hope for more of these longer term business start-ups that also create new opportunities for jobs!

By: nmehta0

nmehta0 — Wed, 24 Oct 2012 23:35:37 +0000

@Tim – I personally think the get-acquired, cash-out and let the company die cycle exists mostly due to greed. VC’s and entrepreneurs who are eager to make their buck and get out. I know this is a bit cynical (as there are many great investors and entrepreneurs out there who don’t subscribe to this) but I absolutely see increasing numbers of entrepreneurs who do.

Now, getting rich / richer is a wonderful thing and I want to do so as well. But I would hope that in sum, one’s work results is those riches PLUS an enduring firm that yields demonstrable value to customers on an ongoing basis.

One way to accomplish this is exactly what you propose: provide a valuable product without an acquisition-oriented strategy. It’s like when you build a home: build it so you could live in it forever. Then if you get a good offer, consider it. If not, no worries.

Nimish Mehta

By: Tim Henrich (@tdinternet)

Tim Henrich (@tdinternet) — Wed, 24 Oct 2012 22:38:28 +0000

Bob, It will certainly be interesting to see what impact, if any, the post IPO valuations of Facebook, Zynga, and the like will have on similar deals in the future — I don’t think we’ll see any change.

As for the Radian6 acquisition, I wonder if their existing customers lost out like the DimDim acquisition.

Thanks for the interesting read!

By: Bob Warfield

Bob Warfield — Wed, 24 Oct 2012 21:09:02 +0000

Tim, I don’t know if we can blame the patents for this one, but they don’t help.

Ultimately, bubble economics are detrimental to those who practice them because the buyers become disillusioned. That doesn’t seem to stop them, so maybe there really is a new one born every minute.

I note that Salesforce is doing layoffs from Radian 6 today. Seems somehow related.

By: Tim Henrich (@tdinternet)

Tim Henrich (@tdinternet) — Wed, 24 Oct 2012 21:04:43 +0000

I think one of the reasons we see the cash-out, get acquired, and die cycle is because of the current state of software patents. Rather than risk legal fees, lengthy law suits, and PR problems, the company is acquired for their patents and intellectual property. If the acquiring company doesn’t utilize those newly gained patents and IP (which tends to happen), the consumer is the one who suffers from the loss of that product or service.

There is definitely an increasing trend of the exit-strategy-centric company whose sole purpose is to cash-out. Everybody wants to be the next start-up to be acquired, but I’m becoming ever more opposed to that when you witness a valuable product being gobbled up and sent to a black hole.

I think it’s time to refocus on providing a valuable product to consumers or businesses and creating a longer-term strategy without acquisition in the forefront. As the founder of a start-up, this is the stance I’ve taken and I hope to continue this as we grow.

By: Bob Warfield

Bob Warfield — Wed, 24 Oct 2012 18:22:10 +0000

Nimish, great to hear from you!

Thanks for the kind words.

By: nmehta0

nmehta0 — Wed, 24 Oct 2012 18:15:16 +0000

Bob – fabulous! Loved every word.

Nimish Mehta