11 ms·

No Venture Capital Needed, or Wanted

125 points by tosseraccount 10y ago

russell_h 10y ago
> In their haste to get financing, start-up founders often fail to read the fine print and later discover that they have signed away huge shares of the profits. Does this actually happen?
- MOARDONGZPLZ 10y ago
  Isn't Facebook the typical example of this? Many people aren't very good with legalese and really should consult an attorney for review of contracts, but when you're new to this and excited to get funding, you're dealing with a much more experienced party and are excited to get funding. I would think this not only happens, but is common.
  - grahamburger 10y ago
    I thought Facebook was kind of an example of the opposite of this? Isn't Facebook somewhat unique in that Zuck still has so much control?
    - MOARDONGZPLZ 10y ago
      Oh sorry for the confusion, I was talking about that other guy who had a lot of his equity diluted.
      - kirubakaran 10y ago
        Eduardo Saverin
  - nickpsecurity 10y ago
    I believe you're talking about Saverin: http://mashable.com/2011/04/13/facebooks-complicated-ownership-history-explained/ http://mashable.com/2011/04/13/facebooks-complicated-ownersh...
- TeMPOraL 10y ago
  Yes, and AFAIK it's a known business advice - if you want to build a sustainable company and get rich off it, the most valuable thing for you is ownership. Taking VC money is signing off some degree of ownership - you get some cash now, but seriously limit your potential value later. But most startups are not built with sustainability in mind. They're a get-rich-quick scheme.
  - notadoc 10y ago
    > But most startups are not built with sustainability in mind. They're a get-rich-quick scheme. That is the truth.
  - cortesoft 10y ago
    Yeah... the ones that aren't a get-rich-quick schemes are called 'small businesses'
    - ascendantlogic 10y ago
      Or if you're not taking a moonshot you will hear the derisive term "lifestyle business" from people who turn up their nose at things like "profitability" and "life/work balance" and other things that don't make VC's 3 to 5 to 10x returns because that's all that matters in life, right?
- ccvannorman 10y ago
  I've heard many horror stories, VC seems to be a two-faced industry. And their #1 stated legal goal is to maximize shareholder value, whether or not that is in line with the founder's initial vision / whether or not that means firing the founder to maximize profits. Of course there are success stories as well, YMMV.
  - jacquesm 10y ago
    VCs will use their experience and the fact that they have done 10's of deals whereas your average founder will do 1 deal in their whole career as a natural advantage. The only way to counter that is to get yourself some competent legal advice in the run-up to getting funding and to make sure that your walk-away option (to go without funding) is a solid one. If funding is all that stands between you and being able to continue to run your business then you are playing for very high stakes in a game where others can dictate the rules. Better make sure you really understand the rules. So, every year a fair number of companies 'exit', that is, their founders and their investors tend to make a substantial multiple of the value that they put in. The latest investors usually have the best terms, earlier investors have lesser terms and the founders will have the worst terms. The multiples for the latest investors will be the lowest, for the earlier investors higher and for the founders the multiples will be the highest. But that does not say much about the absolute 'take home' amounts. It is rare - but not unheard of - for liquidation preferences to eat up all of the result, but it is not at all rare to see founders make substantially less than they thought they would make. And those are the good cases, in a bad case (for instance, a bankruptcy) all of the proceeds could go to an investor + all of the IP if you are not very careful. So make sure you understand the terms and internalize 100% that a large valuation during a funding round can work for you as well as against you quite easily depending on the final price your company will fetch at an exit and the exact parameters of the deal. VC money is not free. This is not simple stuff and plenty of founders are hopelessly naive when it comes to understanding their position.
  - spacelizard 10y ago
    A lot of people forget that VCs are salesmen trying to sell a financing product. These come with the usual risks.
- notadoc 10y ago
  Of course it does, there are always vultures out there.
- mbesto 10y ago
  Yes. The amount of founders who neither have any sophistication in finance or get poor (usually free) advice is probably more abundant than one would think. Funny enough, many people rely on advice from VCs (the same people who are trying to maximize their returns).
nickpsecurity 10y ago
I'd like to see more of this in tech startups. Especially with all the free info from groups like Y Combinator that's online to help them. Just people in college, on summer break, or even retirement just cranking out code for a platform and doing sales trying to make it work. Should be more success stories out of it. I think most of these people just try to do too much themselves without external support both as a sounding board on their ideas and for how to run a startup. They probably read business books more tailored to lifestyle businesses and such whereas a startup has different rules.
- vintageseltzer 10y ago
  That was the feeling I got from the startup community about ten years ago — lots more bootstrapped, single-person, not-so-sexy startups. These days, since startups are much more fashionable, it feels like it's the majority of startups are all about getting VC funding and ran by much more "idea" people.
  - tacos 10y ago
    Bootstrapped, sold to a publicly-traded corporation, set for life, and nobody knows who the heck you are. Perfect! Lots of people did it. Getting real shit done post crash was a glorious time.
- cardine 10y ago
  This is exactly what I've been doing. It started with me coding the MVP myself with a little help from a summer intern and then me aggressively handling all sales myself until I reached a 5+ figure MRR where I could finally start to delegate some of that work to others. Now we are growing like any other startup would, just instead of being fueled by VC funding, we are being fueled by all of the profits from all of the selling I was able to do and all of the word of mouth that happened afterwards. You've probably never heard of me and no media outlet cares about me because I started as a not so sexy B2B, but the company and its products are growing much more ambitious in scope as we are getting the capital to do so, and now we are in the same position as many other VC funded companies, except I have 100% equity and don't have to worry about searching for a way to become profitable or running out of money since the second I decide to stop reinvesting everything into growth the company will instantly be extremely profitable.
hkmurakami 10y ago
I was reminded of 37 signals' "Bootstrapped, Profitable, and Proud" series. http://37signals.com/bootstrapped http://37signals.com/bootstrapped
- nickpsecurity 10y ago
  That's awesome. Thanks for the link. I particularly like two things here. One was how the founder bootstrapped the business by straight-up asking old clients in his network to pay him enough to get started. You don't here about that much in HN writing on startups but it's extremely common in consulting with untapped potential outside of it. The other was this quote: "It's difficult for inexperienced merchants to recognize value. We'd spend countless hours trying to explain 'pain' and our cure but some just didn't care because they handn't felt it yet. With our limited resources, we had to figure out a way to only work with those who valued the medicine we were offering." That's brilliant. It's brilliant because it might be the trick to getting more uptake in my niche, high-assurance systems. They cost more with some sacrifices to use. Most won't buy them since they don't see the benefit. Yet, such methods are utilized in railways, airplanes, some industrial controls, and some defense organizations. They've felt the pain of failure on their bottom line. So, there's always a niche that prefers paying a bit more to eliminate lots of risk and uncertainty out of their operations. Plus headaches. Money you spent upfront isn't pleasing to look at but you can almost forget about it vs stress of occasional fire-fighting in random places.
danieltillett 10y ago
This is the money quote. “I don’t remember seeing a company going public on the Nasdaq in the last 20 years who arrived at the I.P.O. with only management owning the company,” he said. “It’s almost a rite of passage.” Why would you sell a business that you owned 100% of that was able to be bootstrapped to $100 million in revenue. What possible business that you could invest the proceeds in that would be better than this?
- busterarm 10y ago
  Bootstrapped businesses can be susceptible to price competition from companies using other peoples' money though... when the investor climate supports it. With mattresses it's maybe a little hard, but bookstores were effectively priced out of business by Amazon. I'm sure Casper gives Saatva very healthy competition -- in fact, it's the only of these companies that I've even heard of until now.
  - vanattab 10y ago
    But did Amazon out-compete due to VC funding or due to a recognition that the fundamental nature of what a book store is was about to change.
    - busterarm 10y ago
      Could an early-stage bootstrapped business even take advantage of the latter?
      - mdorazio 10y ago
        In Amazon's case? I doubt it. The costs associated with starting and scaling a business like Amazon are just too high to bootstrap effectively. But a SaaS company or software product company (i.e. change "bookstore" to something else)? Absolutely.
        tim333 10y ago
gkanai 10y ago
In Japan, Start Today Co. Ltd. (better known as Zozotown, a popular online apparel retailer) went public this year without having raised any venture capital. $5B mkt cap at this time. Founder also owns way more than 50% of shares and recently bought over $100M USD of modern at at auction. https://www.google.com/search?q=TYO:3092 https://www.google.com/search?q=TYO:3092
vanattab 10y ago
I noticed all these entrepreneurs had access to at least 100,000 dollars of capital and most several times more then that which I think makes such self funding easier said then done, at least for a large class of Americans. How much capital does a founder usually bring to the table for the first round of VC funding? side note: I also happen to be in the market for a new mattress and was wondering if anyone has tried these Saatva's?
- smt88 10y ago
  > at least for a large class of Americans The vast majority of Americans can't (and shouldn't) start companies. The risk far outweighs the reward. Even those who can afford to start companies overwhelmingly fail. Starting a company is a luxury of those with lots of cash or lots of connections (or both). You read articles about teenagers getting VC, but that's a very small minority of the people who get funded.
- jkarneges 10y ago
  It all comes down to your expenses. A good rule of thumb is to budget at least 6 months of costs before setting out. Maybe that's some tens of thousands of $. This is often enough time get some early traction before looking at angel investment or an accelerator. Hopefully at that point you're no longer burning your own money. VCs come much later. Of course every situation is different. $100K+ commitment is not unreasonable if fundraising is difficult. Then again, some people raise a million bucks after a few weeks of prototyping. In any case, people with money have more flexibility than people without it. One of the hard truths of startups.
TerryADavis 10y ago
I have a space alien. Enough said.
agentgt 10y ago
I have noticed there are a lot more companies on the east coast (including my own company) that are like this. Yeah I won't be a billionaire but I think you can make a pretty darn good living with lifestyle businesses. I have wondered if it's a cultural thing or just that there is more money/investors/people willing to take/give money in California.
- deleted 10y ago
  [deleted]
- DTrejo 10y ago
  Smart move on bootstrapping! I think people take funding for a few reasons 1) glitter or brainwashing 2) they don't know how to sell before they build (you're guaranteed a business if you have paying customers/clients) Also, it's a business, no lifestyle about it. Almost all businesses are bootstrapped (just like most businesses are not in the valley).
hoodoof 10y ago
Venture Capital is needed to establish a ponzi-scheme like escalation in value. Multiple parties agree over a period of time that the company has increased in value, the most recent party making it true by handing over some money at the largest valuation. No less than Steve Blank puts forth this idea: http://www.inc.com/zoe-henry/steve-blank-tech-bubble-burst-ponzi-scheme.html http://www.inc.com/zoe-henry/steve-blank-tech-bubble-burst-p...
hobarrera 10y ago
> [...] took $350,000 of his own money to write a business plan. That is by far more money than I've seen in my entire life. Of course you don't need money for your startup if you're already rich.
- icedchai 10y ago
  "Rich" is relative to ones own cost of living. Where do you live, approximately?
  - jdavis703 10y ago
    Even in the most expensive cities like NYC, San Francisco or London that is still a lot of money to have sitting around, enough money that I think qualifies one as rich (if that was all your savings it puts you near the 80th percentile of wealth holders in the U.S., but he likely owns a house, and other assets). And as it turns out they're company is near the dead-center of Pennsylvania, in between Philadelphia and Pittsburgh, where cost of living is pretty low.
    - zanny 10y ago
      Its only about two years living expenses in most major cities. People have mostly forgotten, but traditionally having the ability to survive at your standard of living for a year or so (ie, having some wealth, just not enough to live off exclusively) was defining of the middle class. Its tangential, but it is very interesting that even in developer circles devs think they are middle class when they make $130-150k a year even if their cost of living is ~100k which means their total savings even after a decade (and something eating into their rainy day fund, including vehicle / home purchases and such) they still don't have two years living expenses saved up, you are still definitively working class. Very few people today are actual middle class anymore, by reasonable standards of what to define it as, since cost of living has gotten so absurdly high relative to income compared to what it was decades ago.
      - shams93 10y ago
jerryhuang100 10y ago
i'm surprised chobani is not listed here as it's one of the most successful story of entrepreneurship with personal funding (+ small business loan) lately.
akhilcacharya 10y ago
>When he created Spokeo with three college buddies from Stanford University in 2006, he tried to get equity financing, but was turned down by more than six angel and venture capital investors. Maybe my perception is warped but is this even _possible_ today, or during the peak a year or two ago?
- ben_jones 10y ago
  Unless you're shaking and stuttering during the pitch it would probably be impossible not to get a pre-seed investment with that much Stanford glitter all over you.
deleted 10y ago
[deleted]
kfox2010 10y ago
garbage
dreyfan 10y ago
I'll share our story and current situation: We bootstrapped with time (evenings & weekends) until we had enough revenue to keep the lights on, at which point we quit our full-time jobs and pursued it 100%. We're in our fifth year now and we closed 2015 with $2M in revenue. Excluding compensation, our operating costs (servers, professional services, supplies, t&e, taxes, etc) are about $125k. While things are great, growth has also slowed due to sheer bandwidth available from only 3 people. We've definitely struggled with hiring. When a new employee's salary directly comes out of your own compensation, you tend to become very particular about people pulling their weight, so we've churned through 10 people so far. I've had a very difficult time competing for top talent. At this point I think the networking and advice would be the most valuable thing a VC could bring to the table, as we have an abundance of cash and technically a very easy business to scale. Just need capable people who like to be well-compensated.
- cloudjacker 10y ago
  > very particular about people pulling their weight, so we've churned through 10 people so far. I've had a very difficult time competing for top talent. "we're going to invite you for a fifth round of interviews to make sure you're someone in line with our vision and understands our mission"
  - dreyfan 10y ago
    not at all, if anything it's been the opposite (lack of vetting): we find someone that looks good on paper and interviews well, so we roll the dice and hire them. Then end up having to let them go in a few months when they can't hack it.
    - cloudjacker 10y ago
      what do you think about example projects, if they finish it then you've done some of the screening already the criticism of this being that some people call this free work
      - 10y ago
kriro 10y ago
It is the great irony of our times that a domain that requires so little working capital to start and grow reasonably well (software) is so hungry for money infusions. I hear that you need the money to grow quickly and growing quickly and capturing networking effects is the path to getting a horn on your horse. I'm not buying it. Being profitable as quickly as possible allows you to reinvest that money which then multiplies into even more investment capital. Getting the know how and connections I can understand but VC for the money to fuel hyper growth...it sounds like a questionable proposition. Why would I put off testing the most fundamental hypothesis of my business (can it be profitable)? Are there any known companies that explicitly didn't take any money after YC? It feels like once you take the first bit you're sliding down the slope since investors are pushing to take further rounds which usually pop up valuation. YC->bootstrap mode seems like a reasonable approach but the YC program seems to be built around pitching to the next round of investment (demo day). Has YC considered an alternate program where the explicit goal is being profitable after the program (black number day instead of demo day)?
lowglow 10y ago
I'd like to see more companies bootstrapping with help from their communities they build that see real value in their products. Building a transparent and open product with community feedback around things that work is the core of what we're trying to facilitate with Baqqer (https://baqqer.com/ https://baqqer.com/). I believe this builds strong, robust products that aren't built in a silo and launched without an audience.
Lordarminius 10y ago
One thing I haven't seen mentioned yet in all the comments (or maybe I just missed it)is that a capital infusion can allow you buy talent and expertise which in turn permits you to grow faster. In the article Rudzin worked for 20 years within the industry and he surely within that time had accumulated a lot of niche knowledge which helped him succeed. Say X is a high school teacher with an insight that a better mattress is needed in the marketplace. She follows up on this and goes on to start a company that initially shows traction. X after a while will discover that her lack of knowledge in finance, distribution, negotiation, HR, legal etc (in a general sense, and on an industry-specific level) is a barrier to her companys development. Capital will help solve this problem by allowing her 'buy' and domesticate expertise within the company and and use same for expansion and growth.

125 points by tosseraccount 10y ago

> In their haste to get financing, start-up founders often fail to read the fine print and later discover that they have signed away huge shares of the profits. Does this actually happen?

MOARDONGZPLZ 10y ago
Isn't Facebook the typical example of this? Many people aren't very good with legalese and really should consult an attorney for review of contracts, but when you're new to this and excited to get funding, you're dealing with a much more experienced party and are excited to get funding. I would think this not only happens, but is common.
- grahamburger 10y ago
  I thought Facebook was kind of an example of the opposite of this? Isn't Facebook somewhat unique in that Zuck still has so much control?
  - MOARDONGZPLZ 10y ago
    Oh sorry for the confusion, I was talking about that other guy who had a lot of his equity diluted.
    - kirubakaran 10y ago
      Eduardo Saverin
- nickpsecurity 10y ago
  I believe you're talking about Saverin: http://mashable.com/2011/04/13/facebooks-complicated-ownership-history-explained/ http://mashable.com/2011/04/13/facebooks-complicated-ownersh...
TeMPOraL 10y ago
Yes, and AFAIK it's a known business advice - if you want to build a sustainable company and get rich off it, the most valuable thing for you is ownership. Taking VC money is signing off some degree of ownership - you get some cash now, but seriously limit your potential value later. But most startups are not built with sustainability in mind. They're a get-rich-quick scheme.
- notadoc 10y ago
  > But most startups are not built with sustainability in mind. They're a get-rich-quick scheme. That is the truth.
- cortesoft 10y ago
  Yeah... the ones that aren't a get-rich-quick schemes are called 'small businesses'
  - ascendantlogic 10y ago
    Or if you're not taking a moonshot you will hear the derisive term "lifestyle business" from people who turn up their nose at things like "profitability" and "life/work balance" and other things that don't make VC's 3 to 5 to 10x returns because that's all that matters in life, right?
ccvannorman 10y ago
I've heard many horror stories, VC seems to be a two-faced industry. And their #1 stated legal goal is to maximize shareholder value, whether or not that is in line with the founder's initial vision / whether or not that means firing the founder to maximize profits. Of course there are success stories as well, YMMV.
- jacquesm 10y ago
  VCs will use their experience and the fact that they have done 10's of deals whereas your average founder will do 1 deal in their whole career as a natural advantage. The only way to counter that is to get yourself some competent legal advice in the run-up to getting funding and to make sure that your walk-away option (to go without funding) is a solid one. If funding is all that stands between you and being able to continue to run your business then you are playing for very high stakes in a game where others can dictate the rules. Better make sure you really understand the rules. So, every year a fair number of companies 'exit', that is, their founders and their investors tend to make a substantial multiple of the value that they put in. The latest investors usually have the best terms, earlier investors have lesser terms and the founders will have the worst terms. The multiples for the latest investors will be the lowest, for the earlier investors higher and for the founders the multiples will be the highest. But that does not say much about the absolute 'take home' amounts. It is rare - but not unheard of - for liquidation preferences to eat up all of the result, but it is not at all rare to see founders make substantially less than they thought they would make. And those are the good cases, in a bad case (for instance, a bankruptcy) all of the proceeds could go to an investor + all of the IP if you are not very careful. So make sure you understand the terms and internalize 100% that a large valuation during a funding round can work for you as well as against you quite easily depending on the final price your company will fetch at an exit and the exact parameters of the deal. VC money is not free. This is not simple stuff and plenty of founders are hopelessly naive when it comes to understanding their position.
- spacelizard 10y ago
  A lot of people forget that VCs are salesmen trying to sell a financing product. These come with the usual risks.
notadoc 10y ago
Of course it does, there are always vultures out there.
mbesto 10y ago
Yes. The amount of founders who neither have any sophistication in finance or get poor (usually free) advice is probably more abundant than one would think. Funny enough, many people rely on advice from VCs (the same people who are trying to maximize their returns).

nickpsecurity 10y ago

I'd like to see more of this in tech startups. Especially with all the free info from groups like Y Combinator that's online to help them. Just people in college, on summer break, or even retirement just cranking out code for a platform and doing sales trying to make it work. Should be more success stories out of it. I think most of these people just try to do too much themselves without external support both as a sounding board on their ideas and for how to run a startup. They probably read business books more tailored to lifestyle businesses and such whereas a startup has different rules.

vintageseltzer 10y ago
That was the feeling I got from the startup community about ten years ago — lots more bootstrapped, single-person, not-so-sexy startups. These days, since startups are much more fashionable, it feels like it's the majority of startups are all about getting VC funding and ran by much more "idea" people.
- tacos 10y ago
  Bootstrapped, sold to a publicly-traded corporation, set for life, and nobody knows who the heck you are. Perfect! Lots of people did it. Getting real shit done post crash was a glorious time.
cardine 10y ago
This is exactly what I've been doing. It started with me coding the MVP myself with a little help from a summer intern and then me aggressively handling all sales myself until I reached a 5+ figure MRR where I could finally start to delegate some of that work to others. Now we are growing like any other startup would, just instead of being fueled by VC funding, we are being fueled by all of the profits from all of the selling I was able to do and all of the word of mouth that happened afterwards. You've probably never heard of me and no media outlet cares about me because I started as a not so sexy B2B, but the company and its products are growing much more ambitious in scope as we are getting the capital to do so, and now we are in the same position as many other VC funded companies, except I have 100% equity and don't have to worry about searching for a way to become profitable or running out of money since the second I decide to stop reinvesting everything into growth the company will instantly be extremely profitable.

hkmurakami 10y ago

I was reminded of 37 signals' "Bootstrapped, Profitable, and Proud" series. http://37signals.com/bootstrapped http://37signals.com/bootstrapped

nickpsecurity 10y ago
That's awesome. Thanks for the link. I particularly like two things here. One was how the founder bootstrapped the business by straight-up asking old clients in his network to pay him enough to get started. You don't here about that much in HN writing on startups but it's extremely common in consulting with untapped potential outside of it. The other was this quote: "It's difficult for inexperienced merchants to recognize value. We'd spend countless hours trying to explain 'pain' and our cure but some just didn't care because they handn't felt it yet. With our limited resources, we had to figure out a way to only work with those who valued the medicine we were offering." That's brilliant. It's brilliant because it might be the trick to getting more uptake in my niche, high-assurance systems. They cost more with some sacrifices to use. Most won't buy them since they don't see the benefit. Yet, such methods are utilized in railways, airplanes, some industrial controls, and some defense organizations. They've felt the pain of failure on their bottom line. So, there's always a niche that prefers paying a bit more to eliminate lots of risk and uncertainty out of their operations. Plus headaches. Money you spent upfront isn't pleasing to look at but you can almost forget about it vs stress of occasional fire-fighting in random places.

danieltillett 10y ago

This is the money quote. “I don’t remember seeing a company going public on the Nasdaq in the last 20 years who arrived at the I.P.O. with only management owning the company,” he said. “It’s almost a rite of passage.” Why would you sell a business that you owned 100% of that was able to be bootstrapped to $100 million in revenue. What possible business that you could invest the proceeds in that would be better than this?

busterarm 10y ago
Bootstrapped businesses can be susceptible to price competition from companies using other peoples' money though... when the investor climate supports it. With mattresses it's maybe a little hard, but bookstores were effectively priced out of business by Amazon. I'm sure Casper gives Saatva very healthy competition -- in fact, it's the only of these companies that I've even heard of until now.
- vanattab 10y ago
  But did Amazon out-compete due to VC funding or due to a recognition that the fundamental nature of what a book store is was about to change.
  - busterarm 10y ago
    Could an early-stage bootstrapped business even take advantage of the latter?
    - mdorazio 10y ago
      In Amazon's case? I doubt it. The costs associated with starting and scaling a business like Amazon are just too high to bootstrap effectively. But a SaaS company or software product company (i.e. change "bookstore" to something else)? Absolutely.
      - tim333 10y ago

gkanai 10y ago

In Japan, Start Today Co. Ltd. (better known as Zozotown, a popular online apparel retailer) went public this year without having raised any venture capital. $5B mkt cap at this time. Founder also owns way more than 50% of shares and recently bought over $100M USD of modern at at auction. https://www.google.com/search?q=TYO:3092 https://www.google.com/search?q=TYO:3092

vanattab 10y ago

I noticed all these entrepreneurs had access to at least 100,000 dollars of capital and most several times more then that which I think makes such self funding easier said then done, at least for a large class of Americans. How much capital does a founder usually bring to the table for the first round of VC funding? side note: I also happen to be in the market for a new mattress and was wondering if anyone has tried these Saatva's?

smt88 10y ago
> at least for a large class of Americans The vast majority of Americans can't (and shouldn't) start companies. The risk far outweighs the reward. Even those who can afford to start companies overwhelmingly fail. Starting a company is a luxury of those with lots of cash or lots of connections (or both). You read articles about teenagers getting VC, but that's a very small minority of the people who get funded.
jkarneges 10y ago
It all comes down to your expenses. A good rule of thumb is to budget at least 6 months of costs before setting out. Maybe that's some tens of thousands of $. This is often enough time get some early traction before looking at angel investment or an accelerator. Hopefully at that point you're no longer burning your own money. VCs come much later. Of course every situation is different. $100K+ commitment is not unreasonable if fundraising is difficult. Then again, some people raise a million bucks after a few weeks of prototyping. In any case, people with money have more flexibility than people without it. One of the hard truths of startups.

TerryADavis 10y ago

I have a space alien. Enough said.

agentgt 10y ago

I have noticed there are a lot more companies on the east coast (including my own company) that are like this. Yeah I won't be a billionaire but I think you can make a pretty darn good living with lifestyle businesses. I have wondered if it's a cultural thing or just that there is more money/investors/people willing to take/give money in California.

deleted 10y ago
[deleted]
DTrejo 10y ago
Smart move on bootstrapping! I think people take funding for a few reasons 1) glitter or brainwashing 2) they don't know how to sell before they build (you're guaranteed a business if you have paying customers/clients) Also, it's a business, no lifestyle about it. Almost all businesses are bootstrapped (just like most businesses are not in the valley).

hoodoof 10y ago

Venture Capital is needed to establish a ponzi-scheme like escalation in value. Multiple parties agree over a period of time that the company has increased in value, the most recent party making it true by handing over some money at the largest valuation. No less than Steve Blank puts forth this idea: http://www.inc.com/zoe-henry/steve-blank-tech-bubble-burst-ponzi-scheme.html http://www.inc.com/zoe-henry/steve-blank-tech-bubble-burst-p...

hobarrera 10y ago

> [...] took $350,000 of his own money to write a business plan. That is by far more money than I've seen in my entire life. Of course you don't need money for your startup if you're already rich.

icedchai 10y ago
"Rich" is relative to ones own cost of living. Where do you live, approximately?
- jdavis703 10y ago
  Even in the most expensive cities like NYC, San Francisco or London that is still a lot of money to have sitting around, enough money that I think qualifies one as rich (if that was all your savings it puts you near the 80th percentile of wealth holders in the U.S., but he likely owns a house, and other assets). And as it turns out they're company is near the dead-center of Pennsylvania, in between Philadelphia and Pittsburgh, where cost of living is pretty low.
  - zanny 10y ago
    Its only about two years living expenses in most major cities. People have mostly forgotten, but traditionally having the ability to survive at your standard of living for a year or so (ie, having some wealth, just not enough to live off exclusively) was defining of the middle class. Its tangential, but it is very interesting that even in developer circles devs think they are middle class when they make $130-150k a year even if their cost of living is ~100k which means their total savings even after a decade (and something eating into their rainy day fund, including vehicle / home purchases and such) they still don't have two years living expenses saved up, you are still definitively working class. Very few people today are actual middle class anymore, by reasonable standards of what to define it as, since cost of living has gotten so absurdly high relative to income compared to what it was decades ago.
    - shams93 10y ago

jerryhuang100 10y ago

i'm surprised chobani is not listed here as it's one of the most successful story of entrepreneurship with personal funding (+ small business loan) lately.

akhilcacharya 10y ago

>When he created Spokeo with three college buddies from Stanford University in 2006, he tried to get equity financing, but was turned down by more than six angel and venture capital investors. Maybe my perception is warped but is this even _possible_ today, or during the peak a year or two ago?

ben_jones 10y ago
Unless you're shaking and stuttering during the pitch it would probably be impossible not to get a pre-seed investment with that much Stanford glitter all over you.

deleted 10y ago

[deleted]

kfox2010 10y ago

garbage

dreyfan 10y ago

I'll share our story and current situation: We bootstrapped with time (evenings & weekends) until we had enough revenue to keep the lights on, at which point we quit our full-time jobs and pursued it 100%. We're in our fifth year now and we closed 2015 with $2M in revenue. Excluding compensation, our operating costs (servers, professional services, supplies, t&e, taxes, etc) are about $125k. While things are great, growth has also slowed due to sheer bandwidth available from only 3 people. We've definitely struggled with hiring. When a new employee's salary directly comes out of your own compensation, you tend to become very particular about people pulling their weight, so we've churned through 10 people so far. I've had a very difficult time competing for top talent. At this point I think the networking and advice would be the most valuable thing a VC could bring to the table, as we have an abundance of cash and technically a very easy business to scale. Just need capable people who like to be well-compensated.

cloudjacker 10y ago
> very particular about people pulling their weight, so we've churned through 10 people so far. I've had a very difficult time competing for top talent. "we're going to invite you for a fifth round of interviews to make sure you're someone in line with our vision and understands our mission"
- dreyfan 10y ago
  not at all, if anything it's been the opposite (lack of vetting): we find someone that looks good on paper and interviews well, so we roll the dice and hire them. Then end up having to let them go in a few months when they can't hack it.
  - cloudjacker 10y ago
    what do you think about example projects, if they finish it then you've done some of the screening already the criticism of this being that some people call this free work
    - 10y ago

kriro 10y ago

It is the great irony of our times that a domain that requires so little working capital to start and grow reasonably well (software) is so hungry for money infusions. I hear that you need the money to grow quickly and growing quickly and capturing networking effects is the path to getting a horn on your horse. I'm not buying it. Being profitable as quickly as possible allows you to reinvest that money which then multiplies into even more investment capital. Getting the know how and connections I can understand but VC for the money to fuel hyper growth...it sounds like a questionable proposition. Why would I put off testing the most fundamental hypothesis of my business (can it be profitable)? Are there any known companies that explicitly didn't take any money after YC? It feels like once you take the first bit you're sliding down the slope since investors are pushing to take further rounds which usually pop up valuation. YC->bootstrap mode seems like a reasonable approach but the YC program seems to be built around pitching to the next round of investment (demo day). Has YC considered an alternate program where the explicit goal is being profitable after the program (black number day instead of demo day)?

lowglow 10y ago

I'd like to see more companies bootstrapping with help from their communities they build that see real value in their products. Building a transparent and open product with community feedback around things that work is the core of what we're trying to facilitate with Baqqer (https://baqqer.com/ https://baqqer.com/). I believe this builds strong, robust products that aren't built in a silo and launched without an audience.

Lordarminius 10y ago

One thing I haven't seen mentioned yet in all the comments (or maybe I just missed it)is that a capital infusion can allow you buy talent and expertise which in turn permits you to grow faster. In the article Rudzin worked for 20 years within the industry and he surely within that time had accumulated a lot of niche knowledge which helped him succeed. Say X is a high school teacher with an insight that a better mattress is needed in the marketplace. She follows up on this and goes on to start a company that initially shows traction. X after a while will discover that her lack of knowledge in finance, distribution, negotiation, HR, legal etc (in a general sense, and on an industry-specific level) is a barrier to her companys development. Capital will help solve this problem by allowing her 'buy' and domesticate expertise within the company and and use same for expansion and growth.