Notes from Today’s Paul Graham Essay

I’ve mentioned previously that I pay careful attention whenever a handful of thinkers and bloggers post. Today, two of those posted: Paul Graham on the topic of investing and Matt Might on the topic of practicing privacy with encryption.

I’m using tonight’s post to share my notes on the Paul Graham essay:

“There are two big forces driving change in startup funding: it’s becoming cheaper to start a startup, and startups are becoming a more normal thing to do.”
- That’s great news and easily noticeable in how fast the Atlanta startup ecosystem has developed in the last 5 years.
Graham suggests the increasing numbers of startups are a significant social shift, providing a 3rd viable option to young people: {get a job, go to school} -> {get a job, go to school, start a company}.
Founders need less money from VCs and increasingly have more leverage against VCs (“investors make more money as founders’ [lackeys] than their bosses”)
There are two big things VCs can do to get ahead of the market trends:
- Reduce the time-to-invest to make life easier for founders
- Only invest as much as the founder’s want, rather than forcing the founder’s to raise an arbitrary amount of money to hit some pre-determined and deal-independent VC-goal of a certain percentage ownership. “We all know the amounts being raised in series A rounds are not determined by asking what would be best for the companies. They’re determined by VCs starting from the amount of the company they want to own, and the market setting the valuation and thus the amount invested.” Series A ownership values for VC firms has dramatically dropped over the last decade, from 40% before to 20% now. Graham argues this line will disappear.
Idea clashes might become a problem as the number of startups continue to rise

Paul Graham applies a thorough polish on his essays (through a nice editing process), and I love when new ones come out.

What are your thoughts on investor trends in the startup market?

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