[antonb2011]

Good read. This coincides with my own impression after reading HN for a while. I suppose the problem of "Feature, Not a Company" sets in for any maturing market. But aside from "plumbing" start-ups discussed on HN (like Heroku, Phpfog or Parse), I rarely see anything that would be viable as a long term stand-alone business, as many of our business-side colleagues would also assert via "Porter's Five Forces"-type analysis. So I guess now it's all about making a quick lottery ticket type start-up and trying to get acquired. That's why you need VCs, 'cause they can negotiate a much higher price for your little company that you can.

[patio11]

VCs hate acqu-hiring. It murders their returns: they'd far rather you take a 50% risk of failure to get 5x the offer and can and do screw entrepreneurs by forcing them to turn down life changing money to do just that. Their business model means if you can't 10x investments they do not want you and acqu-hiring will not 10x any investment past seed stage.

Acqu-hires are really, really not the main game being played at startup incubators or in the Valley. To the extent that HN believes this, HN's zeitgeist believes something which is at odds with measurable features of the material world. (e.g. To use YC as an example, if every company other than Dropbox sells for 1 million an engineer, Dropbox is still the majority of the portfolio!).

[tptacek]

This is true, but the founders of startups absolutely do tend to be shooting for acquisitions, and capable founders of those kinds of companies clearly do make it through the YC filter. So it's not surprising that people perceive that this is the overall goal of the valley.

The difference in incentives between YC and "real" VC funds seems like it would be interesting to study.

[drewcrawford]

I'm a little mystified by this idea, can you help me out?

When you filter "all startups" by "the sort of startups I am likely to start", that search query doesn't terminate at a factory in China, or negotiating to buy a hundred racks at Rackspace. It terminates with three software developers in the spare bedroom for a quarter, at which point ideally a continuous revenue stream has been generated that can fund the next project.

By analogy, the fact that most furniture purchased in America is mass-produced is not really relevant to a master woodworker, if demand for his work far exceeds supply. You can make the argument that he is "at odds with measurable features of the material world", but I believe a fairer characterization would be that his value system is just different than IKEA's, that they exist in different markets.

[patio11]

I wish you, the author, and everyone else happiness. I am really not trying to convince you of the moral righteousness of the VC value system, which I don't participate in directly. I'm just trying to explain accurately how it actually functions: anyone who says that VCs are aiming for acqu-hire exits is mistaken. Don't believe it, don't repeat it, don't make consequential decisions based on it: it will not end well!

[jacquesm]

VCs tend to like acquisitions like that a lot more than they do outright failures, especially if they get some or all of their investment back. Same player shoots again.

Think of them as the emergency landing instead of as an alternative exit and it may start to make more sense.

[tptacek]

I'm not sure what the kinds of startups you're likely to start has to do with the structure of funds at venture capital firms. VC's don't just have a history of screwing founders into turning down lifechanging money; they also adopt industrywide standard deal terms designed exactly to prevent things like acqui-hires, such as 1+Nx liquidation preferences.

[joshu]

i like steve blank's definition of startups: it's an organization in search of a business model.

thus if you get a revenue stream after a quarter, you are a "small business" and not a "startup"