The Cure for Facebook Fallout
I read this article about the fallout for startups due to Facebook’s post-IPO stock performance:
Paul Graham, cofounder of Silicon Valley’s most important startup incubator, Y Combinator, has sent an email to portfolio companies warning them “bad times” may be ahead.
He warns: “The bad performance of the Facebook IPO will hurt the funding market for earlier stage startups.”
“No one knows yet how much. Possibly only a little. Possibly a lot, if it becomes a vicious circle.”
He says that startups which have not yet raised money should lower their expectations for how much they will be able to raise. Startups that have raised money already may have to raise “down rounds,” or at lower valuations than they previously had.
My reaction is pretty simple – build businesses that make money. Positive cashflow will make the ups and downs of capital markets largely immaterial. It seems obvious but every time it gets easy to raise money, people seem to lose sight of it, and every time it gets harder (even just a little bit harder) there are outcries of doom for startups.