> Rivian raised $2.9 billion over four funding rounds in the span of one year? And it's been around for a full decade without ever releasing a product? Does this not set off alarm bells?
Not necessarily. They just signed some huge deals with Ford and Amazon, both of whom invested. What likely happened is that Rivian needed a lot of money for cap ex an inventory and wanted the customer to prepay. Those customers had a lot of power and so likely said, "Sure, but we'll take equity thank you very much."
I've bootrapped companies by having the customer underwrite the development cost but the sums have been so small (hundreds of $K, once a few million) that they weren't worth the customers (megacorps) worrying about this kind of thing. But when the sums needed are in the hundreds of millions, the CFO's office, if not the CEO, is gonna try to get something back.
> Messy is right. It's as if competently running a business people want to continue patronizing keeps slipping everybody's minds. No bootstrapped business thinks they can get away with this many gaffes in a row. Because on the very first screw-up, you lose some amount of money, and it's your own money, and it hurts, and you learn. In a startup funded like this, money is just the stuff you throw at stuff, and there's always more where that came from. Obviously the whole VC-funded hyper-growth thing doesn't guarantee success, has a low success rate in fact, but I'm starting to wonder whether those investments actively prevent success in some cases.
Is this how it is, boots on the ground wise though? I've worked for VC funded startups and we never treated budgets as something to be scoffed at and were very cost conscious.
> So: they had the money, and they had cause to spend it, but they chose not pay you for your service, and as a result they likely paid more in the long run.
That's one possibility. Another, and one that I think is more common with startups (majority are people using their own savings and family/friends, not raising millions from seed rounds) is that they really didn't have that much money up front, but paying a cheaper way allowed them to minimally get a product out the door until they had enough revenue to "do it right."
> Seems like all that's happened is they just keep fat margins for themselves.
Judging by their S-1, not so much... They're offering up $100M in shares on $200M of assets and $300M in debt. They spend about as much on marketing as they make from selling the goods, leaving shareholders to pay for all of the administration expenses. If it were a tech company it'd be easy to say this is another debt-fueled startup looking for an exit...
> so it seems unusual that they'd also acquire the company (why not acquire it back then?)
Not unusual at all. Pretty typical for CVC in fact. Couple of factors:
1. CVC (Corporate Venture Capital) typically tries to invest in similar markets of companies that either are competitive or pseduo-competitive (think of it as a hedge). For example, this would be like PayPal investing in Venmo.
2. It's cheaper in the long run for a CVC to make 10 of these bets to find that one that doesn't kill their core business model (usually a cash cow). That's why you see Ford/GM putting money into self-driving car start-ups.
3. They were probably not at the level of scale ready for Visa to take them on at the time of the Series C. This was basically a down-payment for their eventual acquisition. It basically "you're too risky for us to buy, so here's some money that we can write off if you end up failing, but if you do fail, we don't have to deal with all of the crap that goes with a failing bus unit (layoffs, compliance, etc).
> Furthermore, huge funding means investors are looking for a huge returns. A $1b sale is now failure?? My gut says this "go big or go bankrupt" pressure encourages tunnel vision among leadership rather than innovation.
If you don't take the money, they will go to your competitor, and give it to them instead.
If you're in a space where you can be killed by your competitor selling $1 for 90 cents, that will kill you just as dead.
It doesn't matter if Uber's popularity is a 'real' moat or not, as long as its a moat big enough to drown you.
Sure, a few years later, said competitor will make an announcement on their website about the conclusion of their 'magical journey', but that's not going to matter to you, is it?
> In contrast with the scenario in 2000, most of today’s tech companies are real businesses.
How many of today's startups are just servicing each other with VC money? This isn't meant to be flippant - I'm genuinely curious (and while I bet it's a lot, I am skeptical it is overwhelming).
I mean if we really look at some of the business models for these companies, they're clearly unsustainable. Uber is a prime example of a company that seems destined to fail. If your unit economics don't work then you're fucked, and even if you raise literally tens of billions of dollars you will eventually run out of money. And yet companies like these are held up as prime examples of unicorn success stories. It's not just Uber - there are serious problems with many of the most acclaimed startups.
Obviously not all startups are terrible, but as someone who isn't a VC (but once considered becoming one), I think tech investors are unable to see their bias for just how awful most tech companies today are.
> It's a classic story of a startup with a loyal userbase paying a reasonable fee for stagnating features for years, misjudges customer loyalty, doubles the price, then makes some PR mistakes, and comes out behind in the end.
Is private equity involved here?
Someone in my family was recently looking for a calorie tracker app. All the ones I was familiar with (and liked) from years ago had been acquired by private equity, which only crippled the free tier and make subscriptions ridiculously expensive.
Seems like the private equity playbook is to cut development to the bare bones, increase prices, and let the app rot while they burn the goodwill to turn it into short/medium term cashflow.
> For an adjacent example, LastPass never took a dime of VC money (afaict), but their structure as a for-profit company pushed them to lock down their product and charge rents, where they had not previously. If they had taken VC money or went public instead, it may have delayed the inevitable, but it only would have been a delay, not a solution.
I do not understand. It's a business. Why would anyone expect important services to be free? during ramp up there's a benefit of providing free or discounted services while you grow, learn what users want, estimate your own costs, etc; It was a free ride and you can enjoy it while it lasts. Why would anyone expect a free ride to also last forever?
In my opinion great products need a strong balance of capital and ideals. Capital incentives unchecked by a counter balance of leadership actually believing in the mission of the company can lead to bad outcomes. Pure idealism without adequate funding has another set of problems though.
"The company has raised more than $900 million to date from Amazon, J.P. Morgan and Lightspeed Venture Partners."
That's the biggest red flag for me. General rule of thumb is that your VCs won't approve an exit unless it's for at least 10x the funding you've taken, which means they need a minimum exit of about 10 billion.
That's a tough spot to be in, and really changes your thinking. I know of at least one company that had an exit opportunity but it was only 2x funding, so the investors wouldn't allow it. They then slogged along for 8 more years until they finally had an exit that was 0.2x and it all went to the series A investors with their preference. Founders got nothing, angels got nothing, employees got nothing, and series B and beyond (the ones who blocked the 2x exit) got nothing.
Edit to clarify: I'm not saying the VCs are doing anything wrong here or being irrational or anything like that. I'm saying as a founder you need to watch out for this because the VC has a diversified portfolio and the founder doesn't.
> The truth is that the vast majority of this cash was dry powder for acquisitions, staying liquid for new new investments, fresh VC money for advertising
Any sources for this? This seems like an opinion with nothing backing it up.
> Isn’t it these same folks who remind us all the time that most startups fail?
There is a big difference between a single startup being able to fail at any time and many of them failing all at once.
> We’re also a company that has purposefully operated right around breakeven for years.
And here is the problem. Take VC money and now you are forced to run company at breakeven point.
This company would be perfectly fine operating with half the staff and generating for the CEO half a million in profits per year - every year.
He could have met his family financial goals long ago and still keep the company.
This is what folks at 37signals figured out years ago and good on them. Do not take VC money unless you are already a millionaire and aiming for the moon.
> this latest round brings Snowflake’s total funding to $473 million
Absurd. When I see deals this large, especially in enterprise software, it raises alarm bells. It seems likely there are at least a few “quid pro quos” involved here. When your customers and investors overlap and run in the same circles, it’s hard to avoid the nepotism inherent in that world. The board members, investors, and customers are probably all executives at the same 50-100 companies. They have the power to purchase the product (demonstrating growth), invest in the product (demonstrating increasing valuation), and then acquire the product at a multiple of what they invested in it for.
I also wonder how much the founders are controlling, or if this is a case like Box where the founder owns <10% and the rest of the huge valuation is spread across dozens of different investors.
> It’s not uncommon for companies to use leverage to fuel growth.
Seems true.
> High yield venture debt is often tied to growth metrics.
Seems true.
> It’s not a mistake to operate a company using venture debt.
Is this true, or might it be more accurate that particular people, depending on their situation, would like to have us believe it is true?
If a company is operating using venture debt, or operating in any arbitrary fashion for that matter, and then a disruptive incident occurs and the company's finances are insufficient to sustain itself and must shut down (in turn losing at least a significant portion of the initial investment), is it accurate to say that "no mistakes have been made"?
If the business in question then goes hat in hand to the public (whose constituents are often lectured to "save money for a rainy day", and who also have serious financial issues of their own), asking for a bailout with this story as a justification of sorts, does this not seem a little bit absurd?
Am I looking at this the wrong way, because it kind of seems counter-intuitive to me?
> In a highly competitive market, if you don’t lever up, your competitors will eat your market.
> Their delusion is in some sense laudable, as any startup should believe it's own bullshit. But when you know better than they do about their chances, it's still hard to watch folks put themselves through this.
It doesn't look like they're a startup as far as I can tell, they're a laptop manufacturer with 2 products on the market for a few years, doesn't look like there's any VC money in the mix either.
> if the company was not profitable, stocks/options don't really seem that valuable. if the company folds, there's 0 value to them. so it's not like they "lost" anything.
Plenty of unprofitable startups have worthwhile acquihire-style exits. But it requires the leadership actually doing their jobs in marketing the company to potential buyers and getting some competing offers. Just because you're unprofitable doesn't mean there's nothing of value. Are there patents? Is the team proven to work well together and ship state of the art product? Are there any customers?
The conversation in this thread makes it sound like argo.ai was basically functioning like a Ford business unit already. If I were an argo.ai team member with stock/options that became worthless when the company's funding dried up, then Ford conveniently shows up to hire everyone after their stakes are worthless, I'd not be a happy camper and would be seriously questioning if argo.ai leadership acted in good faith on behalf of the employees/shareholders.
But I know nothing of what went on here. Just what I'm seeing here on HN...
Not necessarily. They just signed some huge deals with Ford and Amazon, both of whom invested. What likely happened is that Rivian needed a lot of money for cap ex an inventory and wanted the customer to prepay. Those customers had a lot of power and so likely said, "Sure, but we'll take equity thank you very much."
I've bootrapped companies by having the customer underwrite the development cost but the sums have been so small (hundreds of $K, once a few million) that they weren't worth the customers (megacorps) worrying about this kind of thing. But when the sums needed are in the hundreds of millions, the CFO's office, if not the CEO, is gonna try to get something back.
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