I saw this letter Paul Graham put together for the Y-Combinator folks yesterday and I thought it was interesting. When I was down at Tech Stars in April everyone was absolutely giddy about Facebook’s purchase of Instagram. It didn’t matter whether it was an organizer, participant, or investor they were all simply besides themselves with $$$ in their eyes over that acquisition. I remember thinking “oh geez valuations of start-ups are going to be over the top now.”
It’s still too early to see what effect the Facebook IPO will really have but the one line I agree with 100 percent is this:
“I often tell startups after raising money that they should act as if it’s the last they’re ever going to get. “
It reminds me of a conversation I had one time at NAMM with an unnamed band member from what you’d call a One Hit Wonder Band of the 80’s. He told me that when they had their first (and only) hit that they blew all the money from it as they figured they’d just write another hit. After all, they had it figured out now and it was easy. Needless to say that didn’t happen.
Unfortunately I’ve heard this same kind of bravado now from a number of young entrepreneurs. I often say “hey I could be wrong here, but…” and then try to impress on them how hard it can be to raise money. The problem is when the first round is easy it’s often hard to convince them that the second might be harder.
I really hope they are able to keep their visions going if they need more capital. Even if they can’t I guess they can always go back to working a day job just like the one hit wonder bands ended up touring Brazil for years to come.