Why don't new Google appear?
Another recent article by Paul Graham, in which he asks a question from the title (and he answers it himself). If your startup does not want to invest - do not despair, perhaps it is your company - the next Google.
The level of preparation of the reader: medium - high .
It is highly recommended to read both startups and Internet investors of all stages.
April 2008
')
Umair Haque recently wrote that the reason why new Google doesn’t appear is that most startups are bought before they could change the world.
Google, despite serious interest from Microsoft and Yahoo - which must have seemed beneficial at the time - did not sell out. Google could be just a search engine for Yahoo or MSN.
Why did this not happen? Because Google had a clear and clear goal: a firm conviction to change the world for the better.
It sounds beautiful, but it is not true. The founders of Google wanted to sell their offspring in the early stages. They just wanted more than what the buyers offered.
It was the same with Facebook. They would have sold, but Yahoo put out their dreams by offering too little.
A little advice to potential buyers: if a startup does not agree to your offer, think about what to offer more, because there are good chances that the excessive price they are asking for now will seem like a good deal in the future.
My experience has shown that startups that reject purchase offers often succeed afterwards. As a rule, although not always, then more lucrative offers appear, and sometimes the company even places its shares on the exchange.
Of course, the reason that startups develop successfully after they reject a purchase offer is not necessarily because the price was too low. Rather, the reason is that founders who have the courage to reject a profitable offer are usually successful in themselves. They have exactly the kind of spirit that a startup needs.
Although I’m sure that Larry and Sergey really want to change the world, at least for now, the reason Google survived and became a big independent company is the same reason that Facebook remains independent: buyers underestimated them.
Corporations involved in the purchase of companies, are rather strange business from this point of view. They constantly miss good deals, not realizing that giving up a deal is the most reliable indicator that a startup will succeed, of all the indicators you could come up with.
Venture Capitalists
So what is the reason that there is no other Google? It's funny, the reason is the same, for which Google and Facebook remain independent: the guys with the money underestimate most of the innovative startups.
The reason we don’t see new Google is not because investors encourage new startups to sell, but because they don’t even invest in them. I learned a lot about venture capitalists over the past 3 years, working on Y Combinator, since we interacted quite closely with them. What surprised me most was how conservative they are. Investment companies often think that they support the most audacious ideas. In fact, only a few companies do this, and even they are more conservative in reality than you might imagine reading texts on their websites.
Previously, venture capitalists seemed to me something like pirates: brave and unprincipled. Upon closer acquaintance, they turned out to be more like bureaucrats. They are more honest than I thought (at least their best representatives), but less brave. Perhaps the investment industry has changed since then. Perhaps earlier investors were more courageous. But it seems to me that not they have changed, but the world of startups. Low startup startup costs mean that the average “good bet” is a risky bet, but most venture capital firms continue to work just as if they had invested in startups that produce equipment in 1985.
Howard Aiken said: “Do not worry about the people who steal your ideas. If your ideas are good, you will have to grind them into other people. ” I have this feeling when I try to convince a venture capitalist to invest in Y Combinator-based startups. Indeed, new ideas terrify them only if the founders do not compensate for this with their good sales skills.
But the bold ideas bring the greatest return. Any really good new idea will seem bad to most people; otherwise someone would have done it. Nevertheless, the majority of venture capitalists are subject to "consensus", not only within their firms, but throughout their entire community. The biggest factor that determines what a venture capitalist feels about your startup is what other venture capitalists feel about it. I doubt that they realize this, but such an algorithm ensures that they will miss all the best ideas. The more people like the new idea, the less you will disagree.
Whoever the future of Google is, most likely right now some investor tells them to come again when they have a better chance of success.
Why are ventures so conservative? Perhaps a combination of factors plays a role here. Conservative makes them a large amount of their investments. In addition, they invest other people's money, which makes investors worry that they may have problems if they take the risk and the initiative fails. In addition, most of them are financiers, not technical specialists, i.e. they do not understand what they are really investing in.
What's next
A remarkable feature of a market economy is that short-sightedness means opportunities. In this case, it is. There are huge, undiscovered opportunities in investing startups. Y Combinator finances startups at the very beginning of their activities. Venture capitalists would finance them only after they began to bring tangible results. But between these two events there is a fairly long period of time.
There are companies that can give 20 thousand dollars to a startup that has not done anything yet, and there are companies that can give 2 million dollars to a startup that has already achieved success, but there is a shortage of investors who can give 200 thousand dollars to a promising looking company. but with which all is not yet clear. In this area, there are mostly “angels”, private investors - people like Andy Bechtolsheim, who gave Google $ 100,000 at a time when he already looked promising, but he was still far from a profitable company. I like “angels”, but there are not so many of them, and investing for them, as a rule, is only a part of their activities.
Since starting up startups is getting cheaper, this undeveloped territory is becoming more and more valuable. Nowadays, a large number of startups do not want to conclude multi-million investment transactions at the first stage, in Round A. They do not need so much money and they do not want to get involved in solving the problems associated with such transactions. The average startup coming out of Y Combinator wants to receive 250-500 thousand dollars. But when they go to venture capitalists, they have to ask for more, because venture capitalists are not interested in dealing with such small amounts.
Venture capitalists manage money. They look for ways to make large sums work. But the startup world is evolving beyond their current model.
Startups are cheaper. This means that they require less money, but it also means that their number is growing. Because you can still get a big return on large cash investments, you just have to distribute to a larger number of invested companies.
I tried to explain this to investment companies. Instead of one transaction for 2 million, conclude five transactions for 400 thousand. Does this mean that you need to be present on too many boards of directors? Do not be present on their boards of directors. Is there too much due diligence required? Spend less. If you invest a tenth of the cost, you need to be confident of success by only a tenth.
It looks obvious. But when I offered several venture capital companies to allocate some money and identify one partner who would make a lot of smaller investments, they reacted as if I had suggested they put rings in the nose. It's amazing how they are tied to their investment standards.
This area is very promising, and one way or another it will be filled. Or existing venture capital firms will change and fill it, or, more likely, new investors will emerge. It will be great when this happens, because these new investors, by the very structure of their investments, will have to be bolder than the existing venture capitalists. And as a result, many new Google will appear. At least as long as buyers remain as close as they are now.
Notes
[1] Another tip: If you really want to get a return, do not destroy the startup after the acquisition. Provide the founders with enough independence so that they can grow the acquisition into what it should be.
Thank you for reading the drafts of this note to Sam Altman, Paul Buchheit, David Hornik, Jessica Livingston, Robert Morris, and Fred Wilson.
This translation to Translated.by: translated.by/you/why-there-aren-t-more-googles
This translation is on the JumpIDEA blog: spring.jumpidea.com/2008/08/paul-graham-googles.html
This translation in a lively voice on Webdiktor: webdiktor.ru/translated/3258.mp3
The translation was made at the initiative of the company JumpIDEA .
Thank you so much for the work on the translation to all participants! And personal thanks:
The level of preparation of the reader: medium - high .
It is highly recommended to read both startups and Internet investors of all stages.
April 2008
')
Umair Haque recently wrote that the reason why new Google doesn’t appear is that most startups are bought before they could change the world.
Google, despite serious interest from Microsoft and Yahoo - which must have seemed beneficial at the time - did not sell out. Google could be just a search engine for Yahoo or MSN.
Why did this not happen? Because Google had a clear and clear goal: a firm conviction to change the world for the better.
It sounds beautiful, but it is not true. The founders of Google wanted to sell their offspring in the early stages. They just wanted more than what the buyers offered.
It was the same with Facebook. They would have sold, but Yahoo put out their dreams by offering too little.
A little advice to potential buyers: if a startup does not agree to your offer, think about what to offer more, because there are good chances that the excessive price they are asking for now will seem like a good deal in the future.
My experience has shown that startups that reject purchase offers often succeed afterwards. As a rule, although not always, then more lucrative offers appear, and sometimes the company even places its shares on the exchange.
Of course, the reason that startups develop successfully after they reject a purchase offer is not necessarily because the price was too low. Rather, the reason is that founders who have the courage to reject a profitable offer are usually successful in themselves. They have exactly the kind of spirit that a startup needs.
Although I’m sure that Larry and Sergey really want to change the world, at least for now, the reason Google survived and became a big independent company is the same reason that Facebook remains independent: buyers underestimated them.
Corporations involved in the purchase of companies, are rather strange business from this point of view. They constantly miss good deals, not realizing that giving up a deal is the most reliable indicator that a startup will succeed, of all the indicators you could come up with.
Venture Capitalists
So what is the reason that there is no other Google? It's funny, the reason is the same, for which Google and Facebook remain independent: the guys with the money underestimate most of the innovative startups.
The reason we don’t see new Google is not because investors encourage new startups to sell, but because they don’t even invest in them. I learned a lot about venture capitalists over the past 3 years, working on Y Combinator, since we interacted quite closely with them. What surprised me most was how conservative they are. Investment companies often think that they support the most audacious ideas. In fact, only a few companies do this, and even they are more conservative in reality than you might imagine reading texts on their websites.
Previously, venture capitalists seemed to me something like pirates: brave and unprincipled. Upon closer acquaintance, they turned out to be more like bureaucrats. They are more honest than I thought (at least their best representatives), but less brave. Perhaps the investment industry has changed since then. Perhaps earlier investors were more courageous. But it seems to me that not they have changed, but the world of startups. Low startup startup costs mean that the average “good bet” is a risky bet, but most venture capital firms continue to work just as if they had invested in startups that produce equipment in 1985.
Howard Aiken said: “Do not worry about the people who steal your ideas. If your ideas are good, you will have to grind them into other people. ” I have this feeling when I try to convince a venture capitalist to invest in Y Combinator-based startups. Indeed, new ideas terrify them only if the founders do not compensate for this with their good sales skills.
But the bold ideas bring the greatest return. Any really good new idea will seem bad to most people; otherwise someone would have done it. Nevertheless, the majority of venture capitalists are subject to "consensus", not only within their firms, but throughout their entire community. The biggest factor that determines what a venture capitalist feels about your startup is what other venture capitalists feel about it. I doubt that they realize this, but such an algorithm ensures that they will miss all the best ideas. The more people like the new idea, the less you will disagree.
Whoever the future of Google is, most likely right now some investor tells them to come again when they have a better chance of success.
Why are ventures so conservative? Perhaps a combination of factors plays a role here. Conservative makes them a large amount of their investments. In addition, they invest other people's money, which makes investors worry that they may have problems if they take the risk and the initiative fails. In addition, most of them are financiers, not technical specialists, i.e. they do not understand what they are really investing in.
What's next
A remarkable feature of a market economy is that short-sightedness means opportunities. In this case, it is. There are huge, undiscovered opportunities in investing startups. Y Combinator finances startups at the very beginning of their activities. Venture capitalists would finance them only after they began to bring tangible results. But between these two events there is a fairly long period of time.
There are companies that can give 20 thousand dollars to a startup that has not done anything yet, and there are companies that can give 2 million dollars to a startup that has already achieved success, but there is a shortage of investors who can give 200 thousand dollars to a promising looking company. but with which all is not yet clear. In this area, there are mostly “angels”, private investors - people like Andy Bechtolsheim, who gave Google $ 100,000 at a time when he already looked promising, but he was still far from a profitable company. I like “angels”, but there are not so many of them, and investing for them, as a rule, is only a part of their activities.
Since starting up startups is getting cheaper, this undeveloped territory is becoming more and more valuable. Nowadays, a large number of startups do not want to conclude multi-million investment transactions at the first stage, in Round A. They do not need so much money and they do not want to get involved in solving the problems associated with such transactions. The average startup coming out of Y Combinator wants to receive 250-500 thousand dollars. But when they go to venture capitalists, they have to ask for more, because venture capitalists are not interested in dealing with such small amounts.
Venture capitalists manage money. They look for ways to make large sums work. But the startup world is evolving beyond their current model.
Startups are cheaper. This means that they require less money, but it also means that their number is growing. Because you can still get a big return on large cash investments, you just have to distribute to a larger number of invested companies.
I tried to explain this to investment companies. Instead of one transaction for 2 million, conclude five transactions for 400 thousand. Does this mean that you need to be present on too many boards of directors? Do not be present on their boards of directors. Is there too much due diligence required? Spend less. If you invest a tenth of the cost, you need to be confident of success by only a tenth.
It looks obvious. But when I offered several venture capital companies to allocate some money and identify one partner who would make a lot of smaller investments, they reacted as if I had suggested they put rings in the nose. It's amazing how they are tied to their investment standards.
This area is very promising, and one way or another it will be filled. Or existing venture capital firms will change and fill it, or, more likely, new investors will emerge. It will be great when this happens, because these new investors, by the very structure of their investments, will have to be bolder than the existing venture capitalists. And as a result, many new Google will appear. At least as long as buyers remain as close as they are now.
Notes
[1] Another tip: If you really want to get a return, do not destroy the startup after the acquisition. Provide the founders with enough independence so that they can grow the acquisition into what it should be.
Thank you for reading the drafts of this note to Sam Altman, Paul Buchheit, David Hornik, Jessica Livingston, Robert Morris, and Fred Wilson.
This translation to Translated.by: translated.by/you/why-there-aren-t-more-googles
This translation is on the JumpIDEA blog: spring.jumpidea.com/2008/08/paul-graham-googles.html
This translation in a lively voice on Webdiktor: webdiktor.ru/translated/3258.mp3
The translation was made at the initiative of the company JumpIDEA .
Thank you so much for the work on the translation to all participants! And personal thanks:
- gribunin
- Gazelle,
- Julia,
- www2,
- avekir
- RealMan.
Source: https://habr.com/ru/post/36582/
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