Future of Startups

Paul Graham once wrote a book called Hackers and Painters. He runs YCombinator, a hothouse for startups, and is an angel investor and coder with some high class successes in his past. But the best thing he does is have an attitude. It’s very zenofstartup. Graham keynoted (that means he was a key speaker) at the recent Future of Web Applications (FOWA) and posted his talk, which is well worth reading in full. His main contention is that startups (he’s talking about web startups, but let’s ask what isn’t a web startup these days) have become so cheap to do that they have become a commodity. Anyone can do them – and they compete on price. If this is true it obviously has a lot of implications for all sorts of areas of life. Read on …

The Future of Web Startups

The Future of Web Startups

October 2007

(This essay is derived from a keynote at FOWA in October 2007.)

• Now as well as being produced by startups, this pattern is happening to startups. It’s so cheap to start web startups that orders of magnitudes more will be started. And if the pattern holds true, that should cause dramatic changes.

• So my first prediction about the future of web startups is pretty straightforward: there will be a lot of them. When starting a startup was expensive, you had to get the permission of investors to do it. Now the only threshold you have to get over is whether you have the courage to.

• One of the most important things we’ve been working on standardizing are investment terms. Back in the old days when there were only a few startups, investment terms were all individually negotiated. This was a problem for founders, because it meant raising money took longer and cost more in legal fees. So as well as using the same paperwork for every deal we do, we’ve commissioned generic angel paperwork that all the startups we fund can use for future rounds.

• Another thing I see starting to get standardized is acquisitions. As the volume of startups increases, big companies will start to develop standardized procedures for acquisitions, so they’re little more work than hiring someone.

• When founders can do lots of startups, they can start to look at the world in the same portfolio-optimizing way as investors. And that means the overall amount of wealth created can be greater, because strategies can be riskier.

• Fortunately, if startups get cheaper to start, there is another way to convince investors. Instead of going to venture capitalists with a business plan and trying to convince them to fund it, you can get a product launched on a few tens of thousands of dollars of seed money from us or your uncle, and approach them with a working company instead of a plan for one. Then instead of having to seem smooth and confident, you can just point them to Alexa.

• This is kind of true and kind of false. It’s true that you can now start a startup anywhere. But you have to do more with a startup than just start it. You have to make it succeed. And that is more likely to happen in a startup hub.

• If the best hackers all start their own companies after college instead of getting jobs, that will change what happens in college. Most of these changes will be for the better. I think the experience of college is warped in a bad way by the expectation that afterward you’ll be judged by potential employers.

• If it gets easier to start a startup, then it’s not just easier for you, but for competitors too. That doesn’t erase the advantage of increased cheapness, however. You’re not all playing a zero-sum game. There’s not some fixed number of startups that can succeed, regardless of how many are started.