[AchieveLife]

"Maybe I'm being naïve here, but isn't it kind of crazy to raise 3.5M in funds for a business that has no plan but to be acquired by someone else?"

That's a sane question. IMO it's the current financial environment that encourages such "leap without looking" strategies.

Fear of missing out is huge right now.

I know of a startup that received a multi-million valuation and many more million in funding. They don't even have a prototype!

[RussianCow]

This is very real. A friend of mine started a company with over a million in seed funding with what basically amounts to just an idea. Years later, the company isn't doing that well in terms of sales/revenue, but they still manage to raise money because they have a couple obvious acquisition targets. It seems crazy to me to throw millions of dollars at a company with the hopes that one of maybe three or four megacorps in the industry will acquire them, but investors buy into that, and that's all that matters.

[jassmith87]

Seed and Series A is investment in the people always. They assume if the product doesn't work the team will pivot until they find something that does. It sounds to me like your friend failed to pivot when needed.

[tenpies]

Not even. I'm seeing seed and series As/Bs on unproven teams of recent graduates with no experience in the field where the "start up" operates. No business plan, no prototype, huge regulatory walls to climb.

It is worst than tulip mania.

[nikanj]

Funds make money on failed investments too. I'd be happy to throw away someone else's money, if I got to keep 20% as a management fee - and a slice of the profits in case one of my lottery tickets is a winner.

[shagbag]

Typically they'd get 2% of assets under management, not 20%.

[zhoujianfu]

2% a year for 10 years..

[x0x0]

Dude. Conflating seed (median $2.1m 18q4) rounds with B (probably 10x that) rounds is... not serious.

[jiofih]

Look closer at the news, it’s not uncommon to see 10M+ rounds for companies that haven’t put out a single ounce of product.

[x0x0]

I'm sure you've got a list of 50 or 100 examples handy?

[streetcat1]

Where? Can you give an example?

[timClicks]

FOMO has always been present.

What's changed is that debt is almost free. That allows VCs to take (very!) speculative bets for relatively low risk. They know that if each of their portfolio companies has a 10% chance to reach 30x returns, investing in 10 companies should pay off.

[bobloblaw45]

I know this might sound stupid but if you can get that much for something that wow's people, can you get like 100k for a "meh" idea?

Like if you wanted to open a dry cleaners.

[nostrademons]

Well, yes, but not in the way you mean. If you want $100K for a dry cleaners you get a bank loan, the same way people have been doing it for a century.

Equity capital is solely interested in business models that either wow people or fail outright. The reason has to do with risk: most such business ideas have various things that can go wrong, and those risks are generally manageable but not really quantifiable. Basically a VC wants to see "These are the assumptions in our model, and if we build this it will revolutionize X industry, which is currently worth $50B but could be worth a lot more with our product, and that will give you a 50% annualized return on your fund." And they're giving you money to prove out whether those assumptions are actually true, with the expectations that for a good number of startups they won't be and their whole investment will be wasted.

[vechagup]

Yes you can. It's called a small business loan. See https://www.sba.gov/funding-programs/loans and https://www.bankofamerica.com/smallbusiness/business-financi....

You'd finance your dry cleaners with debt rather than equity because (unless you are starting a chain) you are not shooting for the massive, near-zero marginal cost scaling that the venture capital model focuses on. Instead, the bank looks for a modest, predictable return through interest payments.

[StillBored]

Yah, but re:wework, throw in a dry cleaning app that schedules a dirty laundry pickup and suddenly the valuation goes from marginal to billions. Especially if you get some machine learning in there to detect spots (or something).

[alexhutcheson]

http://nymag.com/news/features/laundry-apps-2014-5/

[jiofih]

If you put the sarcasm aside (it does make a good joke), a laundry pickup app has in fact orders of magnitude more potential to scale and make money, as dumb as it sounds.

[petra]

The economics of on-demand are totally different:

First, there's a delivery part. Delivery companies often become very big and make a lot of money.

Second, centralizing many small dry cleaning places into one has Significant economic advantages.

Third, they probably use an asset-lite model like Uber.

Fourth, all those make them somewhat similar to some sucsesfull, high growth companies , so it's possible they'll grow big.

[munk-a]

Does centralizing many small dry cleaning places have significant economic advantages assuming that each location has to negotiate independently for it's space and (to parallel wework) items like cleaning supplies and staff management necessarily vary from location to location due to local regulations?

WeWork is sort of the golden example of a business being sold as something that works at scale... except the business doesn't actually work at scale.

[StillBored]

It seems in a lot of places (where I live, Austin TX) all the little mom/pop dry cleaning shops are actually shipping the dry cleaning off to a central location. The EPA/etc regulations apparently have forced that part of the cycle to converge.

That is part of why it costs more/takes longer than simple laundry which is frequently still done at the mom and pop location. Although, I think the larger chains (Jack Brown) are entirely just storefronts sending the laundry and dry cleaning off to some centralized location.

So, I doubt there is much advantage to further centralization that hasn't already happened.

Also, I'm not even sure about the hotel bits, most hotel's I've stayed in recently _DO_ their own laundry. They have a couple giant commercial machines sitting in the basement for the sheets/towels. I know this because I always take the stairs and often take a wrong turn and end up in the basement/etc.

[Analemma_]

No, because the mania for throwing money at tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs after the initial Big Spend on capex, and hence potentially gigantic returns for investors.

Now, how well the current crop of startups is delivering on that promise is an exercise left to the reader, but it's there in theory. A dry cleaner has marginal costs and no economy of scale, and so can't attract unicorn valuations.

[__jal]

> tech startups is specifically because of tech's unique promise of both worldwide scale and zero marginal costs

This theory fails to adequately explain WeWork.

I mean, I think you should be right, but in principle I do not see why WeDryClean should not work while WeWork does.

[zaphod12]

much like wework - all you gotta do is convince 1 person who controls vast sums of money that it will work. I'm very convinced by your WeDryClean idea! (Sadly no vast sums of money, though)

[icedchai]

Zero marginal cost in theory. In reality, you often find enormous cloud costs combined with huge marketing spend.

[btilly]

As long as your product is perfectly scalable and generates a profit for money spent that way, it makes perfect sense to take a loan, spend a fortune, make a fortune, then pay off the loan and take in profits. Then turn around and do it again.

It isn't the absolute size of the numbers that matters. It is the ability to rapidly scale the business once you have the right business model and product.

[x0x0]

And in particular, if you sell low churn saas (like we do), you can comfortably spend the first year's annual contract value on customer acquisition and have an extremely profitable business. Just huge initial marketing costs.

And quite possibly huge ongoing marketing costs! But if churn is low, or even negative, you can assume something like 10 year customer lifetimes, with a comfortable 5-ish percent cost increase per year, on sale for the first year's contract value. If you have cheap-ish money available, you should buy as many of those as the world is willing to sell.

[icedchai]

"As long as your product is perfectly scalable..." I agree. Usually it's not, and more difficult to get there than people think.

[nikanj]

As parodied some 5 years ago: https://medium.com/signal-v-noise/press-release-basecamp-val...

Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.

[alasdair_]

>Once you make money, it's much harder to come up with outlandish numbers. A dry cleaners has a well-established range for revenue and profit, so it's hard to justify why it would be worth $100 billion.

If you want a cleaning company worth hundreds of millions, try ZZZZ Best https://www.investopedia.com/terms/z/zzzzbest.asp

[bdcravens]

Actually 10 years ago. Here's the original: https://signalvnoise.com/posts/1941-press-release-37signals-...

The Medium version did update the terminology a bit (since RSS and 3G weren't as exciting in 2015 as they were in 2009, hah)

[melvinroest]

Well, not everyone does that. I applied to YC with my side project [1] and got rejected. I didn't expect to get in, but if I would have, then I would be full-time on it.

Now I can't, which is a shame. So in that sense, I wish someone would fund me. I have a lot of "doodling the internet" type of ideas. I use digital note taking extensively myself, so I know what's missing.

[1] doodledocs.com

[mikekchar]

I'll give you a hint. You should pivot to a collaborative design app. There are a couple around, but very few that have that "doodle feeling". You should be able to pick up a pen, sketch something quickly and then have someone else be able to modify/review it.

I'll give you another hint. Add shape recognition and move from capturing and storing pen strokes and generating bitmaps to capturing pen strokes and generating shapes. Add rudimentary grouping and ungrouping functionality, ability to move, stretch, rotate, etc. Allow pasting clip art and letting it grow/shrink/rotate when grouped with other objects, but just with a rough scaling, etc -- it doesn't have to look pretty. It's just for sketching things out.

Practically every software/design team needs an application like this and there will be money to pay for it.

P.S. I was on a team that built this as a windows application about 20 years ago, but we were ahead of our time. A SaaS webapp would be the bomb here.

[hazz99]

What differentiates you from drawing apps?

[daxorid]

Indeed. The flip-side to this is that speculative investment on unprofitable moonshots seems to be where ALL the equity-finance money is.

My company reliably earns low-7-figures on high-7-figures revenue, with respectable but not amazing growth, but the only capital "market" open to us is bank loans and merchant financing.

Nobody cares about boring profitability.

[scarface74]

Why is that a bad thing? If you are profitable, why would you want to give up equity and control?

[x0x0]

Serious question -- why would you want something besides a bank loan? Because a loan at a couple of percent is way cheaper than VC, who will typically want at least 20% of your company?