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Does "The Equity Equation" apply to VC's as well?
Grappling with the formula for deciding whether to take investment or to stay bootstrapped. Assume you're ramen profitable. Any insight would be appreciated.
- wensing 16y agoIn case you don't remember, here's "The Equity Equation": http://paulgraham.com/equity.html http://paulgraham.com/equity.html
- _delirium 16y agoThat particular decision seems to involve enough incomparable quantities that I'd focus on those rather than the actual valuation equation. Taking VC versus not taking VC puts you on different enough trajectories that it seems worth looking at your preferences there, first. For example, two extreme points: 1) the scale-up-fast, exit-within-a-few-years VC-backed shot; and 2) the "lifestyle business", growing to sustained revenues that are enough to make the founders a nice income indefinitely, with no intention of selling.
- pg 16y agoIt would apply to any deal in which you trade equity for something, but VC deals are usually not straight swaps of cash for equity. E.g. they usually get liquidation preferences and the ability to veto small exits, both of which might decrease your expected value by truncating the curve of outcomes.
- wensing 16y agoThank you.