Dot com bubble the sequel?

When venture capitalists and investors such as Marc Andreessen warn that Silicon Valley and other tech firms are at implosion risk – again – then everyone in the startup crwod had better listen. A rant from Andreessen on Twitter caps VAPORIZE three times and warns the easy money raising of today “WILL NOT LAST.”

The last of the 18 Tweets posted Thursday to his 178,000 (!!!) followers sums up his concerns in a word:

“Worry”

The talk of another dot com boom-bust (remember 2001-2002?) exploded in the media over the past several days, and WRAL TechWire’s Joe Procopio wrote about Triangle uneasiness last week during the CED’s Tech Venture event -  the highlight of the year for the regional investor community.

Andreessen of Valley VC firm Andreessen Horowitz unloaded his fears via 18 tweets  that are packed with insight, wisdom on hiring, warnings about cash-burn, and when the market turns watch for the many startups that will ‘VAPORIZE.”

Here are the tweets, from 17 down to 1.

Read – and consider yourself warned:

  • 17/Finally, there are exceptions to all this. But if you’re reading this, you’re almost certainly not one. They are few and far between.
  • 16/Eighth: When market turns, M&A mostly stops. Nobody will want to buy your cash-incinerating startup. There will be no Plan B. VAPORIZE.
  • 15/That nice hedge fund investor willing to hit your valuation bar? Imagine him owning 80% of co after down round. How nice will he be then?
  • 14/Seventh: Even if you CAN raise an up round, you are increasingly likely to incur terrible structural terms like ratchets to chin the bar.
  • 13/Further, to get into this position, you probably had to raise too much $ at too high valuation before; escalates down round risk further.
  • 12/Therefore you take on escalating risk of a catastrophic down round. High-cash-burn startups almost never survive down rounds. VAPORIZE.
  • 11/Sixth: Raising new money becomes harder & harder. You have bigger bulldog to feed, need more and more $ at higher and higher valuations.
  • 10/Fifth: More people multiplies communication overhead exponentially, slows everything down. Company bogs down, becomes bad place to work.
  • 9/Fourth: Lots of people, big shiny office, high expense base = Fake “we’ve made it!” feeling. Removes pressure to deliver real results.
  • 8/Third: Your managers get trained and incented ONLY to hire, as answer to every question. Company bloats & becomes badly run at same time.
  • 7/Second: Hiring people is easy; layoffs are devastating. Hiring for startups is effectively one way street. Again, can’t change once stuck.
  • 6/First: High burn rate kills your ability to adapt as you learn & as market changes. Co becomes unwieldy, too big to easily change course.
  • 5/High cash burn rates are dangerous in several ways beyond the obvious increased risk of running out of cash. Important to understand why:
  • 4/When the market turns, and it will turn, we will find out who has been swimming without trunks on: many high burn rate co’s will VAPORIZE.
  • 3/New founders in last 10 years have ONLY been in environment where money is always easy to raise at higher valuations. THAT WILL NOT LAST.
  • 2/I said at the time that I agree with much of what Bill says (https://twitter.com/pmarca/status/511617992757506048 …), and I want to expand on the topic further:
  • 1/Cash burn rates at startups: Recently @bgurley and @fredwilson have sounded a vivid alarm — http://online.wsj.com/articles/venture-capitalist-sounds-alarm-on-silicon-valley-risk-1410740054 … http://avc.com/2014/09/burn-baby-burn/ …