4 ms·

There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software business

There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software businesses have matured to the point where VC funding might not be necessary at all. At what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point. In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.

david927 16y ago
But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life? What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.
- Swizec 16y ago
  But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding". The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
  - david927 16y ago
    But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as [bootstrapping]? No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares. Take a look here: http://www.me-vc.com http://www.me-vc.com
    - eru 16y ago
      Yes. Too bad the legal framework isn't ready, yet.
- T_S_ 16y ago
  If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low. BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
  - blasdel 16y ago
    That's why realistic restaurateurs buy all their initial fixtures and equipment used from liquidation auctions :)
pjhyett 16y ago
When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least. Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all. Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.
blasdel 16y ago
My parents did this when they started their software company in the early 80s. It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool). At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.

david927 16y ago

But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life? What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.

Swizec 16y ago
But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding". The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
- david927 16y ago
  But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as [bootstrapping]? No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares. Take a look here: http://www.me-vc.com http://www.me-vc.com
  - eru 16y ago
    Yes. Too bad the legal framework isn't ready, yet.
T_S_ 16y ago
If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low. BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
- blasdel 16y ago
  That's why realistic restaurateurs buy all their initial fixtures and equipment used from liquidation auctions :)

pjhyett 16y ago

When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least. Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all. Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.

blasdel 16y ago

My parents did this when they started their software company in the early 80s. It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool). At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.