18 ms·

Startups Rejecting Venture Capital

413 points by daegloe 8y ago

NickBusey 8y ago
My current startup has taken VC funds. Never again. What a nightmare.
- nullcipher 8y ago
  Can you elaborate?
  - NickBusey 8y ago
    I think TFA did a better job with that than I ever could. Regardless, my short summary is that VCs, in my experience, are the worst of people who don't give a shit about you or your team, and just want to see more and more money. I don't want to deal with or be involved with people like that. Edit: Also I should note, many of our VCs pitched themselves as 'angel' and 'impact' investors. So, while I didn't expect them to just hand us free money, I also didn't expect quite the level of cut-throat behavior we've seen.
    - smartplaya2001 8y ago
      interesting we decided to bootstrap in 2016. Chasing down VC's is such a time drain when you can focus on your product. we now have about 28k users.
      - paulcnichols 8y ago
        Good for you! Doesn’t seem like a hard fork in the road though. You could probably raise a round much easier on way better terms now that you’ve proved the business. Maybe you’ll hit a point where the infusion of money really would make a difference.
      - CalChris 8y ago
        Yes, this is a strong point. VC money saves time but then getting VC money takes time.
    - benmarten 8y ago
      Well, that's kinda expected isn't it? Also keeping in mind that essentially 9/10 startups fail, VC's are well aware of that and basically treat you that way. Welcome to the lions den!
      - deleted 8y ago
        [deleted]
    - fs111 8y ago
      Why would they care about you or your team? It is an investment, not a social service.
      - nathan_long 8y ago
        Business partners are not family, sure. On the other hand, you could easily argue that almost everything is "just business". The doctor is there to treat you, not care about you, your boss is there to extract labor from you, not care about you, your child's teacher is there to impart knowledge, not care about her. Such black-and-white separation of concerns doesn't really fit well with being human, IMO. In most of these cases we want something less than intimacy but more than indifference.
      - brbrodude 8y ago
        A company is composed of people, redo the math.
    - amelius 8y ago
      What exactly does "cut-throat" behavior entail in this case?
      - NickBusey 8y ago
        I've probably already said more than I should at this point under my 'real name'. Maybe once things are fully done and settled I'll do a write up.
- jarjoura 8y ago
  My take on work is there's always someone who will be your boss and dictate what you can and cannot do. If you bootstrap, then it'll be your paying customers. If you take family/angel/seed money, then it'll be them and their expectations. If it's VC money, they will have a seat on the board and expect you perform. If it's the public market, then every quarter you'll be expected to show significant results. I fail to see how a nightmare isn't just code for, I don't like what this person wants me to do, I did this startup to get away from having a boss, but feel free to correct me if I'm wrong.
  - NickBusey 8y ago
    I appreciate the thoughts, but no. That's not what is going on here. Without going into too much detail, if anything the problem is essentially the opposite of what you're describing.
neom 8y ago
To be fair, the NYC VC scene is also abysmal. From what I've experienced there are less than 5 established VC firms (on their 3+ fund) in the city with an eye for vision investing and really want to get behind Founders. I think I made fundraising much much much harder for myself by focusing heavily on raising in NYC. Sadly, many SF folks won't invest in NYC startups due to proximity, so then you're faced with moving your company to SF.
- strgcmc 8y ago
  Just curious, if you're dissatisfied with NYC and the ~5 established funds you've experienced, have you expanded your search parameters a bit? Meaning, looking around in a bit wider regional area, or looking at little-less-established firms? For example, across the river in Newark, NJ, there's : https://newarkventurepartners.com/ https://newarkventurepartners.com/ .
locklock 8y ago
It's a testament to the propaganda that VCs set up in the last ~20 years that this is even a newsworthy article. Since the first dotcom boom, basically, the popular idea of a startup has been synonymous with taking venture capital and then building your business based on making the VC firm fabulously wealthy in the relatively near term. Of course there are a million other ways to build a successful business, but for a while this was the predominant one in the startup world. I'm glad it's changing.
- deleted 8y ago
  [deleted]
eis 8y ago
VCs win if enough of their bets make it big enough to offset the ones that go under. Naturally the big hits are few and the ones that fail are numerous. That means the big hits need to be huge and the failures need to have a certain cap. The latter also means you can't run a company for 10 years in slowmo until they get profitable. And the big hits need to be huge which means they need to take over a nice chunk of a market which you can only do with good funding and moving faster than everyone else. VCs were able to control the startups they invested in to a pretty big degree. What does that mean for founders? It means that you are putting all your eggs into one basket. A founder does not found 20 startups at the same time in the hope that one succeeds. A founder puts his effort usually into only one. So founders take a larger risk than VCs. They make it big or go bust. And the vast majority goes bust when running in supercharged mode. What does that mean for startup employees? Well, they got the worst of all worlds. High risk and little to no upside. Their eggs are also in one basket as they work for only one company AND they don't have the huge upsides that VCs and founders have. The whole game favors only VCs and founders who like big bets. But for the vast majority of people (which includes employees), the VC game is not a great game to play.
- mlthoughts2018 8y ago
  Additionally, the particular mix of attributes you bring up (few and far between options for huge near-term growth) heavily incentivizes exploiting weaknesses in laws and/or outright violation of laws, because one of the only formulaic ways to displace entrenched incumbent businesses is to look at where they are forced to operate inefficiently due to obeying laws and then undercut them by operating more efficiently and skirting / violating those laws. If you take a premise that society is better off most of the time if the business is less efficient but the law is obeyed, then it makes the whole concept of modern VC-backed startup businesses generally a destructive endeavor on society. Obviously not in every individual case, but overall and pretty consistently in the largest growth start-ups.
- hn_throwaway_99 8y ago
  I think your point about employees is especially true, particularly since the large tech companies pay disproportionately so much more. If you are a senior-level software engineer, even if the startup is successful in the "unicorn" range, for most people that means an equity payout on the couple hundred K to the $1 million range for all but the very largest successes. Not bad at all, but when the FAANGS are already paying in the 250-500k range, going to a startup is you are not an exec or founder is almost always a poor financial decision. And remember, the vast majority of startups still fail outright.
mr_puzzled 8y ago
Reposting my question : So let's stay I start a startup, grow and manage to take it public, what happens next? Is the company expected to keep growing indefinitely? What happens if growth is stagnant, but the company is profitable? I also hear about the mid-life and late stage of companies. Can you explain what these terms mean and how being in these stages affects the company? Are there any good examples of publicly traded companies which have lasted a long time (more than a few decades) with minimal impact of the "we have to keep growing" mindset? Finally, what are the pros and cons of being private without vc funding and being a public company? And what role does VC play in the broader economy? Does it manage eg pension money? Are there good resources to understand the lifecycle of VC funded companies and what role VC plays in the broader ecocomy?
- chillacy 8y ago
  > Are there any good examples of publicly traded companies which have lasted a long time (more than a few decades) with minimal impact of the "we have to keep growing" mindset? Are there publicly traded companies which _didn't_ have a thirst for growth? By definition, companies which go to the lengths of raising money on the stock exchange are exactly those who grew beyond small business / private equity levels. So this question seems paradoxical to me.
  - neom 8y ago
    You could look at it more like their are companies like Ford that look a very long time to build a supply chain and distribution network that may have hammered long term innovation thinking, innovation is required to sustain growth over very long periods of time, and many huge companies either don't focus on that because of other business complexities, or because the supply chain is so tight it's very hard to undo and re-tool to innovate.
  - mr_puzzled 8y ago
    I should have worded it differently: what I was trying to ask was - publicly traded companies by definition have to keep growing and have the "we have to keep growing" mindset, and this often negatively impacts the products eg- facebook showing ads way too often, collecting more user data and it's parly driven by the desire to keep growing and earning more ad dollars. Fb is a perfect example of a product going downhill as it grows. Are there companies which continue to make products loved by users even though they have the "we have to keep growing" mindset? One example was Apple, but they are starting to faulter, increasing prices way too much. Some gaming studios are publicly traded and seem to be doing fine. The WWE company also seems to be doing fine. I'm looking for such examples but companies which have been around longer than that.
diego 8y ago
One thing that not many people talk about: there's an oversupply of VC funds spawned by the technological waves of the 90s (internet), 2000s (mobile) and everything in between. Today there isn't a clear wave, yet those funds need to deploy capital. Now there are too many funds pursuing not enough VC-worthy opportunities. The VC bubble will pop sooner or later.
- sonnyblarney 8y ago
  'Oversupply' could simply be communicated in a different supply/demand equilibrium. Cheap capital is probably not such a bad thing for Entrepreneurs. More bad companies get funded, but that's not so bad. More good companies that wouldn't have seen the light of day will also get funded. There's only a 'bubble' if there can be a significant correction. If the US economy goes into heavy recession, then maybe there will be a steep pullback in VC. But otherwise, VC as an asset class may just not get the returns of yesteryear, which is fine.
  - theseatoms 8y ago
    Sounds like the typical terms need to be negotiated in the direction of founders, away from VCs.
- throwawayjava 8y ago
  Not really monotonic. A lot of funds took deep hits during dotcom. Image processing, text processing, and the next wave of robotics/manufacturing. A.k.a., "AI".
- majani 8y ago
  You got your waves wrong. 90s was telco and basic internet, 00s was social media and e-commerce, 2010s is the smartphone and app wave.
tixocloud 8y ago
We've tried going down the VC route but no one's really been interested. So we're pushing on to get customers to help us fund it out.
- keithwhor 8y ago
  That’s just the way VC works. HN posters who have never raised a round of financing in their lives love to pontificate about how cheap money is these days and how easy it is to get funded. It does look that way from the outside. However, this is actively harmful to the psychology of struggling founders, because raising money is objectively difficult. The people who don’t treat it as such are in for a world of hurt and / or disappointment in the future. Get customers. But also, ask founders for advice and seek accelerator programs for mentorship if VC is something you want to pursue. Financing is much more nuanced than HN / movies make it seem. There’s tremendous selection bias around advice because a good proportion of founders who succeed at it are unreasonably lucky. A good chunk more, though, just grinded it the hell out — and those in this category will often just tell you they worked really hard and got lucky. Be persistent. Build your company. Luck comes to those who position themselves to be lucky.
  - tixocloud 8y ago
    Thanks. Indeed, I've found relationships and building trust to be incredible factors of success that often get missed out in all the entrepreneurial advice out there. And trust comes from just working really hard for your customers. I've also found that some VCs don't get what we're doing (because they're not part of the industry) and some do. At least here in the UK anyway. So I've shifted my strategy somewhat to try and leverage corporate VCs while also getting them to bring us into the enterprise market.
  - hsk0823 8y ago
    For those on the outside, especially outside the tech scene all together, looking in, a multi million dollar series A for a company of under 10 employees looks like easy money, compared to say someone trying to run their mom and pop retail shop. Of course most people forget that this money isn't free, there's cost and expectations around how that money will be used.
tozeur 8y ago
Vinod Khosla recently stated that 90% of VCs add no value, 70% add negative value[1]. [1] https://blog.ycombinator.com/vinod-khosla-on-how-to-build-the-future/ https://blog.ycombinator.com/vinod-khosla-on-how-to-build-th...
- mlthoughts2018 8y ago
  That’s a lot of percents.
- sonnyblarney 8y ago
  He said that in the context of adding value on boards, i.e. providing strategic direction. The fundamental impetus of VC's, i.e. 'capital' is generally a good thing for Entrepreneurs.
  - tozeur 8y ago
    I’m aware. I thought was implied. The primary function of VC of course is to provide the C.
- deleted 8y ago
  [deleted]
peterlk 8y ago
This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire people. You have failed to find small team to cofound the company with, or you have failed at developing the necessary skills yourself. I'm not saying that no one should ever raise money, I just want entrepreneurs to stop seeing it as some kind of badge of honor. I hear people measuring themselves on how much money they've raised way too often. You don't build great things by raising money, you build great things by building them. Measuring your company on the number of customers it has is _much_ healthier than measuring your company on how much money it has raised. Focus on profit and quality.
- orev 8y ago
  Time is money — which means you can buy time (i.e. shorter development cycles) with money. Sure, you can putter along with something and possibly make it big eventually, but having money allows you to accelerate that process dramatically. Being a first mover can mean the difference between dominating a market and being completely shut out of it.
- chosenbreed37 8y ago
  > You don't build great things by raising money, you build great things by building them. Maybe not...but you might latest hardware, fancy offices, etc without risking a dime. Not a bad proposition :-)
  - geofft 8y ago
    You're risking much more than a dime, though, aren't you?
- balls187 8y ago
  This seems like a very narrow minded view point. Whether or not founders find it a badge of honor to raise money has no real bearing on the fact that businesses require capital.
trjordan 8y ago
I get the disdain for VCs -- it's a specific model with a specific set of failure modes. So that's fair. What I don't understand is this dislike for investing ahead of growth or success. Why is the expectation that everything can be done bootstrapped or constantly profitable? Companies take investment. If you're building a product that will be valuable for a long time, there will always be a period at the beginning where the entity requires somebody to put their investment into it. If the idea is small enough that one or two rich dudes with Google money can do forgo their salaries, that's great. But even a team of five for 18 months is a significant investment, and somebody needs to pony up. Should startups only consist of rich people who can afford to roll the dice? Instead of fully rejecting the model, I believe that companies should take VC money with a finite plan towards profitability. If you take $2mil in seed money and hire a team of 8, get to $2m / year in revenue. If you want to take another bite at the apple, there will be VCs who fund you at that point. If not, you're not dead. Real progress takes real investment. Ignoring that fact ignores a wild world of interesting, viable companies.
- jchrisa 8y ago
  Free healthcare, free college, and a UBI would go a long way toward making starting a company realistic for more people.
  - lpolovets 8y ago
    None of these things are free. Doctors, teachers, schools, and income guarantees cost money, and that money has to come from somewhere (i.e. taxes). The (unfortunate) reality is that for most people you either need a lot of savings or an investor to get a company off the ground [1]. I am skeptical that free education or a $10k/year UBI would change that. [1] One notable exception is companies that can be started on the side, but UBI would not affect those very much, either.
  - sturgill 8y ago
    Paid for by?... I distrust free anything. VCs aren’t free money; healthcare is paid for by someone; professors have a salary even if tuition is waived; UBI requires cash to materialize from someone’s efforts... Further removing people from the most important parts of life and entrusting those to a benevolent central authority is a risk I’d personally _not_ take. The lessons I learned from the most recent US presidential election is how grateful I am for separation of powers and limits on the scopes that any one person (or branch of government) can actually impose on my day-to-day life. I’d prefer to not see UBI furloughed because two parties I’m not connected to would prefer to grandstand over a budgetary rounding error than solve problems.
nabla9 8y ago
All new companies are not startups. Startups need to have scalable business model. Not all new companies with a scalable business model have the skills or risk taking ability to be a startup that actually scales. Calling every new company that sells products in the internet a startup waters down the meaning of startup. Gradually growing and maybe becoming mid-sized business may be the best option for most. Gambling to become a very rich or starting from scratch again is low probability game. You can do it only few times and only small percentage can succeed.
ergothus 8y ago
As an outsider, I find myself disappointed everytime a company goes public, and VCs seem to be (1) a stepping stone to that and (2) motivated by the same concerns. As a consumer, I find that the shareholders never have my interests at heart, not even indirectly (everyone wants to make money, but a private company seems more likely to decide they make money by actually providing me value). This feels like a massive failure on either (1) my understanding or (2) the market as a whole. Am I wrong about VCs being the same basic issue, only with fewer players?
- padobson 8y ago
  I think what you're describing is really a part of the decision making process by founders and initial investors who are taking the company public or shopping equity to VC. The default mode of a company is to increase shareholder wealth, but a company that clearly communicates to potential investors and the market as a whole that they have a different metric of shareholder value (e.g. social conscience, environmental concerns, customer experience) can still be successful in taking a company public or raising funds from VCs, they'll just be selling equity to a different, if overlapping, group of investors. Companies that want to do good and don't think through how going public or taking investment will change the incentives on which the company operates are destined to end up in the default mode. As always, try to put both your consumer and investment dollars in companies that understand that.
  - ergothus 8y ago
    > a company that clearly communicates to potential investors and the market as a whole that they have a different metric of shareholder value (e.g. social conscience You're talking about things like Ben & Jerry's social contract. I think those are great. But here I'm talking about values like "We want to make money by making great widgets people are happy to buy". Most companies say such things, but after they go public the value seem switch to "find every way to increase the margins and take the lowest thresholds of quality and customer satisfaction that we can have and still remain in business". Compare, say, what Comcast says about customer service and what customers say. The ideal of capitalism is that you can have profit AND happy customers. And I know it's possible, I've seen it any number of products...but I also see tons of successful companies get "killed" by short term greed, even if that company sticks around and is profitable - compared to what it was, it is dead.
lpolovets 8y ago
Caveat: I'm a VC, so I definitely have a horse in this race. A few misc comments: - VC is not for every company. Most VCs will be the first to tell you that: if you're not trying to build for a specific type/size of outcome, then VC funding is going to suck for you, and it's going to suck for the VC. It's not at all in a VC's best interest to invest in a company that has no desire to fit the VC model. - I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise. But because the failure rate is high, VCs have to bet on outlier outcomes. That works for the VC but isn't always ideal for the companies they fund (because the founder is all-in but the VC can absorb many losses as long as at least one of their investments is a big winner). - Many VCs add value and are great, but many other VCs subtract value and are awful. I've met people from both groups over the last 6 years in this job. It's not different than most jobs: there are amazing and awful teachers, politicians, engineers, doctors, etc. - I love all of the new models coming up: revenue-based funding (SaaS capital), funding for ad-based acquisition (Clearbanc), Indie.vc, etc. The more types of investment models there are, the better off everyone will be. If the only companies that look for VC funding are the ones that require VC funding because no other funding model would work, then that's a good scenario because no one is wasting each other's time or looking for suboptimal funding options.
- spectre256 8y ago
  I'm not a VC, but your last point is worth emphasizing. It used to be that if you wanted money for your company your options were basically: - go to your bank for a loan for a little money you have to pay back fairly soon - go to Sand Hill Road and get investment with the condition that you have to shoot for a huge outcome or die trying There's a _lot_ more in the middle now, and that's really cool.
- nickchuck 8y ago
  Great points
- luxmanR1050 8y ago
  What's the smallest annual net income target (say, within 10 years) for a company that you would suggest VC is a good fit for?
wensing 8y ago
The Babe Ruth effect of VC's needing big hits and the entire industry being a hits-driven business (unicorns, PG's Black Swan Farming, etc.) is a relic of the VC industry being not-long-tail compatible (i.e. offline). This will change, and more money will be made in the fat long tail than the hits. I've been writing at length about this movement (https://medium.com/swlh/the-new-bootstrappers-how-alternative-funding-models-are-embracing-founder-lifestyles-bd66a6656120 https://medium.com/swlh/the-new-bootstrappers-how-alternativ...) and the kinds of startups that will emerge as smart investments (https://medium.com/swlh/rise-of-the-transformers-db7887c26689 https://medium.com/swlh/rise-of-the-transformers-db7887c2668...)
- tdaltonc 8y ago
  Your links don't go anywhere.
  - wensing 8y ago
    Thanks! Fixed, I think ...
deleted 8y ago
[deleted]
systemBuilder 8y ago
Most heavily-VC funded companies die Young, even if they make it to IPO, like SGI (now reconstituted as NVidia). VCs don't care about companies, they want to make a quick buck and get out. Most successful startups are self funded for most of their life, e.g Microsoft, Dell, Google, Amazon.
- elefanten 8y ago
  Microsoft, Google and Amazon took vc. Seems Dell may not have, according to a brief glance at wikipedia
  - hsk0823 8y ago
    Dell may have been a dorm room startup, but VC influences exists even in it's first early years from Lee Walker who I don't believe was just a simple salaried employee but must have invested some of his own money for equity, and it had meteoric growth in the first few years from dorm room project to full fledged multinational company with a very quick IPO.
  - adventured 8y ago
    The parent made a point about self-funding. Microsoft was entirely self-funded out of operations, post the initial capital put in by Gates & Allen. It was wildly profitable, with extraordinary margins, at the point where it took a tiny bit of VC. They didn't take VC because they needed it to finance the business, they took it for the relationships they were trying to cultivate to lure talent. The famous Fortune article about the IPO covers all of this: http://fortune.com/2011/03/13/inside-the-deal-that-made-bill-gates-350000000/ http://fortune.com/2011/03/13/inside-the-deal-that-made-bill... They also didn't IPO because they specifically needed the money from the IPO. The parent comment carefully qualified their statement this way: "Most successful startups are self funded for most of their life" Emphasis on most of their life. Amazon was financed by VC for only about the first 2 1/2 years. Uber for example is nearly a decade old and still drinking from the VC tap; Quora is another example of that. Amazon's IPO was just under three years after the founding. Thereafter most of their business expansion was financed by operations in one form or another (including a bunch of debt they took on).
calbear81 8y ago
I agree with the general point of the article that taking VC money leads to a "get rich or die trying" binary mindset which may not be right for all startups. For many startups, it's not necessarily to become a unicorn to be successful, bring riches to their employees, and in general build a better world. However, there are some points that I don't agree with especially this: "Would Facebook’s leadership have ignored warning signs of Russian election meddling or allowed its platform to incite racial violence if it hadn’t, in its early days, prized moving fast and breaking things? Would Uber have engaged in dubious regulatory and legal strategies if it hadn’t prioritized expansion over all else? " Of course, this is subject to survivorship bias but I think it's generally agreed that part of the reason Facebook was able to grow so quickly and Uber was able to capture markets and be the market leader were exactly those things: Moving Fast, Breaking Things, and focused on growth above all else. In hindsight, if they hadn't done that, it's possible that we wouldn't care at all what they did because they wouldn't be the giants they are. There are tradeoffs with every strategy and these two unicorns chose the ones that led to their dominance even if it came with some headaches later on.
simplecomplex 8y ago
Hard to turn VC money down when it’s practically free. None of the founders I know that raised seed capital even had a business plan. Hard to turn down $1,000,000 when all you have to do for it is say yes. Maybe go to a few meetings, make a PowerPoint. I mean really. Some of these investors haven’t even asked for any metrics, a web app was enough. It’s... shocking how cheap VC money is.
- hsk0823 8y ago
  VC money is not free, there's a real cost to it, it's written on the term sheet. VC money is relatively easy money to obtain versus trying to grind for the same amount of capital yourself, but there's certainly a cost to any transaction.
  - ti3 8y ago
    Have you raised VC money recently or in the past? Raising is far from easy - in fact the opposite in my experience. It's a full-time job for 1 person for months, or even the better part of a year. That's one founder taken away from keeping customers happy and building on the product. The cost off the term sheet is real.
- ti3 8y ago
  As a founder attempting to raise pre/seed in 2018, saying yes without much in exchange for funding is how I might have imagined fundraising to be in 2012-2014. Certainly not in 2018 or 2019 without relationships w/ VCs, in my personal experience. VCs asking for order of magnitude ~$100ks ARR before a seed round in '18 and '19 makes total sense for VCs. Lower risk of failure with revenue as evidence. If we get to that point of ARR, we are closer to being a free cash flow positive business and will consider forgoing VC altogether.
lordnacho 8y ago
From the investor point of view, there's a clear problem with the VC model as described. How do you establish that a VC has any skill? If the game is to throw a load of money at different firms, in the hope of getting 99 losers and a massive winner, how do you tell the good ones from the bad ones? Keep in mind there's noise; a guy with alpha might have a bad day before going to meet Uber or Facebook. He then gets 100 losers instead of 99. Or vice versa. This is called skewness in traditional markets. People can sell options and make money quite often, until they blow up, ie the reverse of what I described above. There also seems to be opportunity in less-than-insane growth. I've invested in a couple of firms personally, via connections. Small businesses, with a few sticky customers, and decent scale potential (they both sell via the internet) that need a little bit of cash to grow. You can't throw a few million bucks at any one of them, but you can get a reasonable rate of return. I suspect there's opportunities like this everywhere, but the VC theme creates so much attention people forgot there was an investment world before VC was a thing.
- hsk0823 8y ago
  Define reasonable because to the VC taking the large risk, 5% YoY isn't the goal.
  - lordnacho 8y ago
    Tens of percents.
- solresol 8y ago
  > How do you establish that a VC has any skill? The Queensland University of Technology study showed that startups that took VC funding were no more or less likely to succeed than those that didn't. This suggests that the average VC cannot pick winners better than chance, and that "skill" is therefore not a requirement to be a VC. I find this disturbing.
noddy1 8y ago
Moving towards the model where a portion of early VC investment goes straight into the pocket of the founders and early employees, as bird has done. If I've built a company with an implied valuation of 200 million, why can't I bank a couple of million for a rainy day? I've heard VC's state with a straight face that this is a misalignment of incentives.. apparently if the founder is financially comfortable they aren't "hungry".. this from a venture capitalist who is guaranteed a juicy carry whatever happens to their fund I find this insulting.
- TACIXAT 8y ago
  Any links on what the Bird founder did?
deleted 8y ago
[deleted]
halfway 8y ago
How dangerous is the hypergrowth mandate for startup that has product-market fit and a solid GTM?
ngngngng 8y ago
One thing I don't understand about VC money, and i'm not even sure how to phrase this, are the founders of startups able to pay themselves enough that they're set even if the business fails? What's to stop intelligent people from getting funded, paying themselves large salaries, and then not really caring if it fails or not because you're a couple hundred thousand dollars richer?
- hsk0823 8y ago
  Of course. That's part of raising capital, is funding employee salary. Of course it's not a "they're set", it's a market rate salary given the size of the company and the role you do for the company. What's to stop VC fraud? Generally when you accept VC money, you're giving a board seat to said VC, who is there to yes guide with experience, but is also there to protect their investment.
- mschuster91 8y ago
  > What's to stop intelligent people from getting funded, paying themselves large salaries, and then not really caring if it fails or not because you're a couple hundred thousand dollars richer? The same thing that many VC-backed companies like to ignore (Airbnb, Uber as the most egregious): laws and courts. This kind of behavior can be classified as fraud, intentional bankruptcy or securities law violations.
  - zby 8y ago
    I am not a lawyer but beside some really crazy cases it seems very hard to prove at court.
- zby 8y ago
  VC try to filter out such founders - but it happens and it is the reason of why VCs want quick outcomes and avoid the middle ground of slow growth profitable companies. They want their companies either go down quickly or grow up enormously also quickly, because the more time it takes the easier it is for the founders to make good life out of it without giving back anything to the investors. This is the principal-agent problem and VCs have a particular way of working around it, traditional private equity has another way and banks have yet different one (and crowdfunding does not https://medium.com/@zby/the-problem-with-crowdfunding-81b53f963387 https://medium.com/@zby/the-problem-with-crowdfunding-81b53f...).
frankdenbow 8y ago
Love that this message is getting out and resonating with so many people. If you're interested in seeing some more talks from companies in this realm, we have videos at http://inflectionconf.com/blog http://inflectionconf.com/blog
sudosteph 8y ago
Good for them. I'm not going to pretend I'm actually in a place where I even have the ability to make the choice that these founders made, but I've been reflecting deeply on whether I will seek VC support in the future, and I'm pretty set against it. At least I'm set against any VC's based in SV. I don't think they're bad people or anything, and even quite like some individuals who work for VCs. But the way they operate, seems to perpetuate monoculture and wealth inequality. I know first-hand there are brilliant, ambitious people outside of the SV/NYC bubble, and I don't think VCs really give any care about those people besides perhaps offering to pay to relocate them. As a result, the mindset of these VC people is increasingly isolated from the nation and world as a whole. I've read so many stories about how they are encouraging diversity by funding immigrants who went to Stanford, as if race/sex/nationality is the whole picture. Where are the founders who grew up in trailer parks or projects? Who speak with a noticeable apppalachian, southern, or AAVE accent? Who worked their butts off in the military and community colleges/state colleges, because those are actually the most accessible doors to learning for Americans not from privileged backgrounds? Where are the people who want to build things, but value their family, extended families, local and religious communities more than the promise of extreme wealth in in a few select cities? Those people are out there, and they are capable and ready. I know it's still just talk, but very soon, I'm going to put my money and my body where my mouth is and return to NC. I'm going to build things with those people. If by good fortune we see success - the money won't go towards making rich californians richer.
- opportune 8y ago
  lol yeah if you're talking about "diversity" in terms of who VC funds I can guarantee it will be a combo of white+indian+east asian men for the next couple decades in terms of who gets the phat funding There are a lot of women-only funds but in terms of total capital + efficacy so far they are essentially nominal
ig1 8y ago
The real problem is that we don't have a more effective capital model. While there's lots of experiments in funding going on, no-one's really figured out a risk model that works in good times let alone bad. Fundamentally new businesses fail at a high rate, it's the nature of new businesses. But that means cost of capital is going to be high to cover the cost, but without high-growth it's hard to justify that cost (and that's not even getting into things like fraud which are a big reason new businesses can't get financing)
avi990 8y ago
venture capital should be minimal in initial rounds. Nowadays most of the startups know their potential, good or bad. They understand how their competitors are making and how much their startup will be worth. So, I see the point why they are rejecting the VC funds. Most startups nowadays are looking for buy outs or acquisitions on different terms
DGAP 8y ago
Seems strange to have a NYT article about this without mentioning Basecamp/ 37Signals. They've been a proponent of the bootstrapping model for a decade.
- antaviana 8y ago
  AFAIK, they received seed money from Jeff Bezos (although perhaps they did not really need it).
ThomPete 8y ago
As someone who helped design than a 100 startups in various capacities and has been heavily involved with the whole VC scene one of the things that I kept seeing was the misalignment between the founders and the VC's type of skin in the game. A founder for most startups is either trying to find product/market fit or raising money. Many VC/Angels are great for the operational/financial side of the advice but at least in my experience when it came to finding a proper market for your company their advice often sounded right but wasn't possible to implement for various reasons as it was very generalized. One of the primary and perfectly reasonable reasons is that VC's are thinking about an entire portfolio of companies and doesn't have the same kind of skin in the game as the founder which mean they will think differently and less contextual about the companies. There is definitely an argument to be made for the fact that it's not the VC's job to care about the specific company more than they need to and there are plenty of VC's out there who are perfectly able to care properly but it's also a very exaggerated market and let's be frank not everyone who has money to invest have a lot of experience in "the work". After I left Square in 2017, I wanted to find a way to help both with getting much faster to product market fit but at the same time also having the opportunity to provide capital alongside which I believe will align my interest with the founders much more. So I ended up deciding to set up a creative venture studio which so far has been a great decision as it allows me both do my own and invest either capital or sweat equity in other companies AND I get to meet some really amazing people from around the world.
tylertringas 8y ago
If you find these critiques of VC are resonating but also feel like a bit of capital, a mentorship group, and shared resources would help you build a sustainable profitable business, then I'd love any questions or comments on our Shared Earnings Agreement structure: https://earnestcapital.com/shared-earnings-agreement/ https://earnestcapital.com/shared-earnings-agreement/
LogicX 8y ago
We raised on indie.vc terms, but not with Indie.vc - just a group of angels. Best decision we made. Now we’re profitable, and get to be in control of our future decisions - including whether to raise more or not. Highly recommend folks checkout the indie.vc terms - I describe it as even more founder friendly SAFE note. Not every investor will be comfortable with it. Took us longer to raise and lost out on potential investors and plenty of funds as a result; but was still worth it in the end IMHO.
zackmorris 8y ago
From the article: Aniyia Williams, who started the nonprofit Black & Brown Founders, said a venture-funded system that encourages many failures for every one success is particularly unfair to black, latinx and women founders who “are rarely afforded the opportunity to fail, period.” Members of these organizations, she added, see more value when whole groups in their communities thrive, rather than venture’s winner-take-all model. The transition from good-of-the-few to good-of-the-many means we might be at a crossroads in finance. Agism, nationalism and even wealthism (among many others) have been running rampant for centuries. Discrimination is so interwoven into US culture and history that the major issues of our time (like wealth inequality) probably require revolutionary rather than evolutionary solutions. I've also been watching a lot of VICELAND lately and have been following the mantra of: cultural revolution requires personal evolution.
bayesian_horse 8y ago
One problem with rejecting venture capital (or any other form of external capital) is that the founders (and likely the early employees) are investing in the company, in the form of lower pay. Which is all fine and dandy, but the founders are likely risking most of their net worth, including the potential income of some of their best years. Taking outside capital not only means growing faster, but also diversification.
- jarjoura 8y ago
  Another problem this article misses is that it's quite arrogant to assume a founder has other means to build a company. Most founders are quite honestly usually young and that also means they lack capital, but would otherwise be brilliant and the perfect person/team to create the next Facebook/Uber.
  - bayesian_horse 8y ago
    I think most startups who don't use external money try to grow from their own cash flow. Which in turn means lower payout and wages to the founders or early employees. "No VC" can also mean the founders take on loans, angel investors or friends&family.
stanfordkid 8y ago
What is Zebras Unite or any of the startups/venture firms mentioned in this article ... and why are any of them considered meaningful or impactful organizations? The idea that startups are rejecting venture capital en masse on the basis of interviewing a hodge podge of random startups and micro VC's this journalist seems to be friends with is absurd.
geoffroberts 8y ago
My start-up has taken chosen to take this path, and wrote about others who are choosing to do the same within the SaaS space. https://www.outseta.com/posts/saas-start-ups-quest-for-independent-growth https://www.outseta.com/posts/saas-start-ups-quest-for-indep...
michaeldorian 8y ago
If money is the soul reason you're working, it's pretty hard to beat FAANG. Came from FAANG and now doing the startup thing. The experience you learn at startup is priceless. But don't come in thinking you'll get rich. That's the gravy part.
adventured 8y ago
Reasons why I'll probably never take traditional venture capital again: - Costs are low enough I don't need them for much if anything. - I'm unwilling to accept any form of liquidity preferences. Not under any circumstances. They don't get to further offload risk upon other owners like cowards, they have to ride the same risk train as every other owner. Liquidity preferences and the various types of abuses deployed through them are the greatest scams going in the VC world. In a typical start-up there is no greater way that VCs cheat the other owners. - I don't believe in vesting the founders in cases where they've built the initial product over time (eg 6-12 months). I found the company, I build the product, I launch the product, the VC gets to ride my train, then they want me to vest my existing ownership. Nope. My shares are already fully vested, it's my company. These days I only allow VCs to pitch me, I never pitch them. If you build something that matters at all, the VCs seek you out anyway. In the US there's a hundred billion dollars in VC money every year desperately looking for ventures, make it beg for your attention. - VCs are only allowed to have common shares. They ride in the same boat as everyone else. They get no choice in the matter. - There is a lot more money chasing few decent start-ups. That equation is only going to continue to get worse in the favor of the founders. There are a lot of reasons for this, including the cost of starting up being low, and also the requirement for the Fed to keep interest rates permanently low so the US Government doesn't collapse (that will perpetually keep money sloshing around the system looking for returns, feeding bubbles, etc). Just ~4% on a soon-to-be $30 trillion in public debt would collapse the US Government, they can never allow that, which tells you how they're going to be forced to behave over time. There will be periods of ups and downs to this, however it's going to be higher ups and higher lows for loose capital over the near term, due to the Fed flooding the system with liquidity (at least for the next few decades, who knows beyond that). These terms are non-negotiable. The VCs can take a hike if they don't like it. For practical purposes there's an unlimited supply of other capital and other VCs, especially if you have something good at all. This is how all start-ups should deal with venture capitalists for the next 20 years or so, until something breaks with how the Fed is going to be forced to finance the US Govt with perma low rates. Capital is in a begging position during that time, use that fact to your advantage.
jarjoura 8y ago
For everyone bitching about VC's demand on speed and profits, it wouldn't be any different working inside of FAANG. Your team is given a time limit on how fast it can work and it will need to make the parent organization money otherwise it'll get shut down and re-org'd after a year or two. If you bootstrap a company, and it's successful enough to turn a profit, you're still at the mercy of finding a steady stream of customers. Most successful bootstrapped companies usually find 1 or 2 anchor companies that then start dictating how your company should run so that you can get paid and continue the relationship. Also, companies will prefer to have other options, so your bootstrapped company will be one of many options. (or replaced internally) There really is no magical solution to working and making money. You should just approach this problem as, I want to build a company, I believe in this idea so much I'm willing to risk a lot to make it happen. If a VC gets you what you need but forces you to get there in 3 or 4 years time, but you think you need 5, it's not like you have a better option to prove your idea, so figure out how to get there in 3 or 4.
nicholast 8y ago
There are some games where it's simply not possible to compete without 'jet fuel' if you will. The key is understanding if this applies.
dzonga 8y ago
DHH and Jason from Basecamp have been talking about this since day 0. Even now we've indiehackers owned by stripe.
Proven 8y ago
Because compared to before the shift from CAPEX to OPEX is making that easier for more startups than before. Thank Amazon, Azure and Google helped by the generous Fed.
joncrane 8y ago
I remember about 8 years ago when I was founding a company to repair cell phones. The local municipality had a program where I could meet with a mentor to help me set up a company. Create a business plan and estimate costs and revenues, which could serve as input to a loan application with a local bank. In this scenario, the bank charges interest and does not get an ownership stake nor input into how the company is run. Whatever happened to this way of doing things? What is it about VC that is so much better than small loans from a traditional lending institution?
crb002 8y ago
VCs are the equity equivalent of loan sharks.
Mikho 8y ago
It's easy -- you build a lifestyle business or you build a big, usually scalable, business. If you are building a lifestyle business, VCs most probably even won't give you money. To grow one needs money. If you are building a big business the options are to take money as a credit or get VC money. Usually, banks do not credit those risky assets. So, the solution is obvious. Another thing -- for a lifestyle business it's just very hard to hire anybody good without options that have no chances to be executed. Also, a good business model without aggressive growth could be copied easily by a big company that targets the same audience. Yeah, it's difficult to build a Basecamp. There are just so many examples that managed to do that. Even Atlassian took VC money at some point to be able to secure stability for the team. So, there is no sense in the article. If founders were clueless enough not to understand what they get into by taking VC money, maybe they deserve the results. It's important to understand from the get-go that VC money is just a tool that serves a very particular goal. If one does not target that goal, not need to get the money.

413 points by daegloe 8y ago

NickBusey 8y ago

My current startup has taken VC funds. Never again. What a nightmare.

nullcipher 8y ago
Can you elaborate?
- NickBusey 8y ago
  I think TFA did a better job with that than I ever could. Regardless, my short summary is that VCs, in my experience, are the worst of people who don't give a shit about you or your team, and just want to see more and more money. I don't want to deal with or be involved with people like that. Edit: Also I should note, many of our VCs pitched themselves as 'angel' and 'impact' investors. So, while I didn't expect them to just hand us free money, I also didn't expect quite the level of cut-throat behavior we've seen.
  - smartplaya2001 8y ago
    interesting we decided to bootstrap in 2016. Chasing down VC's is such a time drain when you can focus on your product. we now have about 28k users.
    - paulcnichols 8y ago
      Good for you! Doesn’t seem like a hard fork in the road though. You could probably raise a round much easier on way better terms now that you’ve proved the business. Maybe you’ll hit a point where the infusion of money really would make a difference.
    - CalChris 8y ago
      Yes, this is a strong point. VC money saves time but then getting VC money takes time.
  - benmarten 8y ago
    Well, that's kinda expected isn't it? Also keeping in mind that essentially 9/10 startups fail, VC's are well aware of that and basically treat you that way. Welcome to the lions den!
    - deleted 8y ago
      [deleted]
  - fs111 8y ago
    Why would they care about you or your team? It is an investment, not a social service.
    - nathan_long 8y ago
      Business partners are not family, sure. On the other hand, you could easily argue that almost everything is "just business". The doctor is there to treat you, not care about you, your boss is there to extract labor from you, not care about you, your child's teacher is there to impart knowledge, not care about her. Such black-and-white separation of concerns doesn't really fit well with being human, IMO. In most of these cases we want something less than intimacy but more than indifference.
    - brbrodude 8y ago
      A company is composed of people, redo the math.
  - amelius 8y ago
    What exactly does "cut-throat" behavior entail in this case?
    - NickBusey 8y ago
      I've probably already said more than I should at this point under my 'real name'. Maybe once things are fully done and settled I'll do a write up.
jarjoura 8y ago
My take on work is there's always someone who will be your boss and dictate what you can and cannot do. If you bootstrap, then it'll be your paying customers. If you take family/angel/seed money, then it'll be them and their expectations. If it's VC money, they will have a seat on the board and expect you perform. If it's the public market, then every quarter you'll be expected to show significant results. I fail to see how a nightmare isn't just code for, I don't like what this person wants me to do, I did this startup to get away from having a boss, but feel free to correct me if I'm wrong.
- NickBusey 8y ago
  I appreciate the thoughts, but no. That's not what is going on here. Without going into too much detail, if anything the problem is essentially the opposite of what you're describing.

neom 8y ago

To be fair, the NYC VC scene is also abysmal. From what I've experienced there are less than 5 established VC firms (on their 3+ fund) in the city with an eye for vision investing and really want to get behind Founders. I think I made fundraising much much much harder for myself by focusing heavily on raising in NYC. Sadly, many SF folks won't invest in NYC startups due to proximity, so then you're faced with moving your company to SF.

strgcmc 8y ago
Just curious, if you're dissatisfied with NYC and the ~5 established funds you've experienced, have you expanded your search parameters a bit? Meaning, looking around in a bit wider regional area, or looking at little-less-established firms? For example, across the river in Newark, NJ, there's : https://newarkventurepartners.com/ https://newarkventurepartners.com/ .

locklock 8y ago

It's a testament to the propaganda that VCs set up in the last ~20 years that this is even a newsworthy article. Since the first dotcom boom, basically, the popular idea of a startup has been synonymous with taking venture capital and then building your business based on making the VC firm fabulously wealthy in the relatively near term. Of course there are a million other ways to build a successful business, but for a while this was the predominant one in the startup world. I'm glad it's changing.

deleted 8y ago
[deleted]

eis 8y ago

VCs win if enough of their bets make it big enough to offset the ones that go under. Naturally the big hits are few and the ones that fail are numerous. That means the big hits need to be huge and the failures need to have a certain cap. The latter also means you can't run a company for 10 years in slowmo until they get profitable. And the big hits need to be huge which means they need to take over a nice chunk of a market which you can only do with good funding and moving faster than everyone else. VCs were able to control the startups they invested in to a pretty big degree. What does that mean for founders? It means that you are putting all your eggs into one basket. A founder does not found 20 startups at the same time in the hope that one succeeds. A founder puts his effort usually into only one. So founders take a larger risk than VCs. They make it big or go bust. And the vast majority goes bust when running in supercharged mode. What does that mean for startup employees? Well, they got the worst of all worlds. High risk and little to no upside. Their eggs are also in one basket as they work for only one company AND they don't have the huge upsides that VCs and founders have. The whole game favors only VCs and founders who like big bets. But for the vast majority of people (which includes employees), the VC game is not a great game to play.

mlthoughts2018 8y ago
Additionally, the particular mix of attributes you bring up (few and far between options for huge near-term growth) heavily incentivizes exploiting weaknesses in laws and/or outright violation of laws, because one of the only formulaic ways to displace entrenched incumbent businesses is to look at where they are forced to operate inefficiently due to obeying laws and then undercut them by operating more efficiently and skirting / violating those laws. If you take a premise that society is better off most of the time if the business is less efficient but the law is obeyed, then it makes the whole concept of modern VC-backed startup businesses generally a destructive endeavor on society. Obviously not in every individual case, but overall and pretty consistently in the largest growth start-ups.
hn_throwaway_99 8y ago
I think your point about employees is especially true, particularly since the large tech companies pay disproportionately so much more. If you are a senior-level software engineer, even if the startup is successful in the "unicorn" range, for most people that means an equity payout on the couple hundred K to the $1 million range for all but the very largest successes. Not bad at all, but when the FAANGS are already paying in the 250-500k range, going to a startup is you are not an exec or founder is almost always a poor financial decision. And remember, the vast majority of startups still fail outright.

mr_puzzled 8y ago

Reposting my question : So let's stay I start a startup, grow and manage to take it public, what happens next? Is the company expected to keep growing indefinitely? What happens if growth is stagnant, but the company is profitable? I also hear about the mid-life and late stage of companies. Can you explain what these terms mean and how being in these stages affects the company? Are there any good examples of publicly traded companies which have lasted a long time (more than a few decades) with minimal impact of the "we have to keep growing" mindset? Finally, what are the pros and cons of being private without vc funding and being a public company? And what role does VC play in the broader economy? Does it manage eg pension money? Are there good resources to understand the lifecycle of VC funded companies and what role VC plays in the broader ecocomy?

chillacy 8y ago
> Are there any good examples of publicly traded companies which have lasted a long time (more than a few decades) with minimal impact of the "we have to keep growing" mindset? Are there publicly traded companies which _didn't_ have a thirst for growth? By definition, companies which go to the lengths of raising money on the stock exchange are exactly those who grew beyond small business / private equity levels. So this question seems paradoxical to me.
- neom 8y ago
  You could look at it more like their are companies like Ford that look a very long time to build a supply chain and distribution network that may have hammered long term innovation thinking, innovation is required to sustain growth over very long periods of time, and many huge companies either don't focus on that because of other business complexities, or because the supply chain is so tight it's very hard to undo and re-tool to innovate.
- mr_puzzled 8y ago
  I should have worded it differently: what I was trying to ask was - publicly traded companies by definition have to keep growing and have the "we have to keep growing" mindset, and this often negatively impacts the products eg- facebook showing ads way too often, collecting more user data and it's parly driven by the desire to keep growing and earning more ad dollars. Fb is a perfect example of a product going downhill as it grows. Are there companies which continue to make products loved by users even though they have the "we have to keep growing" mindset? One example was Apple, but they are starting to faulter, increasing prices way too much. Some gaming studios are publicly traded and seem to be doing fine. The WWE company also seems to be doing fine. I'm looking for such examples but companies which have been around longer than that.

diego 8y ago

One thing that not many people talk about: there's an oversupply of VC funds spawned by the technological waves of the 90s (internet), 2000s (mobile) and everything in between. Today there isn't a clear wave, yet those funds need to deploy capital. Now there are too many funds pursuing not enough VC-worthy opportunities. The VC bubble will pop sooner or later.

sonnyblarney 8y ago
'Oversupply' could simply be communicated in a different supply/demand equilibrium. Cheap capital is probably not such a bad thing for Entrepreneurs. More bad companies get funded, but that's not so bad. More good companies that wouldn't have seen the light of day will also get funded. There's only a 'bubble' if there can be a significant correction. If the US economy goes into heavy recession, then maybe there will be a steep pullback in VC. But otherwise, VC as an asset class may just not get the returns of yesteryear, which is fine.
- theseatoms 8y ago
  Sounds like the typical terms need to be negotiated in the direction of founders, away from VCs.
throwawayjava 8y ago
Not really monotonic. A lot of funds took deep hits during dotcom. Image processing, text processing, and the next wave of robotics/manufacturing. A.k.a., "AI".
majani 8y ago
You got your waves wrong. 90s was telco and basic internet, 00s was social media and e-commerce, 2010s is the smartphone and app wave.

tixocloud 8y ago

We've tried going down the VC route but no one's really been interested. So we're pushing on to get customers to help us fund it out.

keithwhor 8y ago
That’s just the way VC works. HN posters who have never raised a round of financing in their lives love to pontificate about how cheap money is these days and how easy it is to get funded. It does look that way from the outside. However, this is actively harmful to the psychology of struggling founders, because raising money is objectively difficult. The people who don’t treat it as such are in for a world of hurt and / or disappointment in the future. Get customers. But also, ask founders for advice and seek accelerator programs for mentorship if VC is something you want to pursue. Financing is much more nuanced than HN / movies make it seem. There’s tremendous selection bias around advice because a good proportion of founders who succeed at it are unreasonably lucky. A good chunk more, though, just grinded it the hell out — and those in this category will often just tell you they worked really hard and got lucky. Be persistent. Build your company. Luck comes to those who position themselves to be lucky.
- tixocloud 8y ago
  Thanks. Indeed, I've found relationships and building trust to be incredible factors of success that often get missed out in all the entrepreneurial advice out there. And trust comes from just working really hard for your customers. I've also found that some VCs don't get what we're doing (because they're not part of the industry) and some do. At least here in the UK anyway. So I've shifted my strategy somewhat to try and leverage corporate VCs while also getting them to bring us into the enterprise market.
- hsk0823 8y ago
  For those on the outside, especially outside the tech scene all together, looking in, a multi million dollar series A for a company of under 10 employees looks like easy money, compared to say someone trying to run their mom and pop retail shop. Of course most people forget that this money isn't free, there's cost and expectations around how that money will be used.

tozeur 8y ago

Vinod Khosla recently stated that 90% of VCs add no value, 70% add negative value[1]. [1] https://blog.ycombinator.com/vinod-khosla-on-how-to-build-the-future/ https://blog.ycombinator.com/vinod-khosla-on-how-to-build-th...

mlthoughts2018 8y ago
That’s a lot of percents.
sonnyblarney 8y ago
He said that in the context of adding value on boards, i.e. providing strategic direction. The fundamental impetus of VC's, i.e. 'capital' is generally a good thing for Entrepreneurs.
- tozeur 8y ago
  I’m aware. I thought was implied. The primary function of VC of course is to provide the C.
deleted 8y ago
[deleted]

peterlk 8y ago

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire people. You have failed to find small team to cofound the company with, or you have failed at developing the necessary skills yourself. I'm not saying that no one should ever raise money, I just want entrepreneurs to stop seeing it as some kind of badge of honor. I hear people measuring themselves on how much money they've raised way too often. You don't build great things by raising money, you build great things by building them. Measuring your company on the number of customers it has is _much_ healthier than measuring your company on how much money it has raised. Focus on profit and quality.

orev 8y ago
Time is money — which means you can buy time (i.e. shorter development cycles) with money. Sure, you can putter along with something and possibly make it big eventually, but having money allows you to accelerate that process dramatically. Being a first mover can mean the difference between dominating a market and being completely shut out of it.
chosenbreed37 8y ago
> You don't build great things by raising money, you build great things by building them. Maybe not...but you might latest hardware, fancy offices, etc without risking a dime. Not a bad proposition :-)
- geofft 8y ago
  You're risking much more than a dime, though, aren't you?
balls187 8y ago
This seems like a very narrow minded view point. Whether or not founders find it a badge of honor to raise money has no real bearing on the fact that businesses require capital.

trjordan 8y ago

I get the disdain for VCs -- it's a specific model with a specific set of failure modes. So that's fair. What I don't understand is this dislike for investing ahead of growth or success. Why is the expectation that everything can be done bootstrapped or constantly profitable? Companies take investment. If you're building a product that will be valuable for a long time, there will always be a period at the beginning where the entity requires somebody to put their investment into it. If the idea is small enough that one or two rich dudes with Google money can do forgo their salaries, that's great. But even a team of five for 18 months is a significant investment, and somebody needs to pony up. Should startups only consist of rich people who can afford to roll the dice? Instead of fully rejecting the model, I believe that companies should take VC money with a finite plan towards profitability. If you take $2mil in seed money and hire a team of 8, get to $2m / year in revenue. If you want to take another bite at the apple, there will be VCs who fund you at that point. If not, you're not dead. Real progress takes real investment. Ignoring that fact ignores a wild world of interesting, viable companies.

jchrisa 8y ago
Free healthcare, free college, and a UBI would go a long way toward making starting a company realistic for more people.
- lpolovets 8y ago
  None of these things are free. Doctors, teachers, schools, and income guarantees cost money, and that money has to come from somewhere (i.e. taxes). The (unfortunate) reality is that for most people you either need a lot of savings or an investor to get a company off the ground [1]. I am skeptical that free education or a $10k/year UBI would change that. [1] One notable exception is companies that can be started on the side, but UBI would not affect those very much, either.
- sturgill 8y ago
  Paid for by?... I distrust free anything. VCs aren’t free money; healthcare is paid for by someone; professors have a salary even if tuition is waived; UBI requires cash to materialize from someone’s efforts... Further removing people from the most important parts of life and entrusting those to a benevolent central authority is a risk I’d personally _not_ take. The lessons I learned from the most recent US presidential election is how grateful I am for separation of powers and limits on the scopes that any one person (or branch of government) can actually impose on my day-to-day life. I’d prefer to not see UBI furloughed because two parties I’m not connected to would prefer to grandstand over a budgetary rounding error than solve problems.

nabla9 8y ago

All new companies are not startups. Startups need to have scalable business model. Not all new companies with a scalable business model have the skills or risk taking ability to be a startup that actually scales. Calling every new company that sells products in the internet a startup waters down the meaning of startup. Gradually growing and maybe becoming mid-sized business may be the best option for most. Gambling to become a very rich or starting from scratch again is low probability game. You can do it only few times and only small percentage can succeed.

ergothus 8y ago

As an outsider, I find myself disappointed everytime a company goes public, and VCs seem to be (1) a stepping stone to that and (2) motivated by the same concerns. As a consumer, I find that the shareholders never have my interests at heart, not even indirectly (everyone wants to make money, but a private company seems more likely to decide they make money by actually providing me value). This feels like a massive failure on either (1) my understanding or (2) the market as a whole. Am I wrong about VCs being the same basic issue, only with fewer players?

padobson 8y ago
I think what you're describing is really a part of the decision making process by founders and initial investors who are taking the company public or shopping equity to VC. The default mode of a company is to increase shareholder wealth, but a company that clearly communicates to potential investors and the market as a whole that they have a different metric of shareholder value (e.g. social conscience, environmental concerns, customer experience) can still be successful in taking a company public or raising funds from VCs, they'll just be selling equity to a different, if overlapping, group of investors. Companies that want to do good and don't think through how going public or taking investment will change the incentives on which the company operates are destined to end up in the default mode. As always, try to put both your consumer and investment dollars in companies that understand that.
- ergothus 8y ago
  > a company that clearly communicates to potential investors and the market as a whole that they have a different metric of shareholder value (e.g. social conscience You're talking about things like Ben & Jerry's social contract. I think those are great. But here I'm talking about values like "We want to make money by making great widgets people are happy to buy". Most companies say such things, but after they go public the value seem switch to "find every way to increase the margins and take the lowest thresholds of quality and customer satisfaction that we can have and still remain in business". Compare, say, what Comcast says about customer service and what customers say. The ideal of capitalism is that you can have profit AND happy customers. And I know it's possible, I've seen it any number of products...but I also see tons of successful companies get "killed" by short term greed, even if that company sticks around and is profitable - compared to what it was, it is dead.

lpolovets 8y ago

Caveat: I'm a VC, so I definitely have a horse in this race. A few misc comments: - VC is not for every company. Most VCs will be the first to tell you that: if you're not trying to build for a specific type/size of outcome, then VC funding is going to suck for you, and it's going to suck for the VC. It's not at all in a VC's best interest to invest in a company that has no desire to fit the VC model. - I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise. But because the failure rate is high, VCs have to bet on outlier outcomes. That works for the VC but isn't always ideal for the companies they fund (because the founder is all-in but the VC can absorb many losses as long as at least one of their investments is a big winner). - Many VCs add value and are great, but many other VCs subtract value and are awful. I've met people from both groups over the last 6 years in this job. It's not different than most jobs: there are amazing and awful teachers, politicians, engineers, doctors, etc. - I love all of the new models coming up: revenue-based funding (SaaS capital), funding for ad-based acquisition (Clearbanc), Indie.vc, etc. The more types of investment models there are, the better off everyone will be. If the only companies that look for VC funding are the ones that require VC funding because no other funding model would work, then that's a good scenario because no one is wasting each other's time or looking for suboptimal funding options.

spectre256 8y ago
I'm not a VC, but your last point is worth emphasizing. It used to be that if you wanted money for your company your options were basically: - go to your bank for a loan for a little money you have to pay back fairly soon - go to Sand Hill Road and get investment with the condition that you have to shoot for a huge outcome or die trying There's a _lot_ more in the middle now, and that's really cool.
nickchuck 8y ago
Great points
luxmanR1050 8y ago
What's the smallest annual net income target (say, within 10 years) for a company that you would suggest VC is a good fit for?

wensing 8y ago

The Babe Ruth effect of VC's needing big hits and the entire industry being a hits-driven business (unicorns, PG's Black Swan Farming, etc.) is a relic of the VC industry being not-long-tail compatible (i.e. offline). This will change, and more money will be made in the fat long tail than the hits. I've been writing at length about this movement (https://medium.com/swlh/the-new-bootstrappers-how-alternative-funding-models-are-embracing-founder-lifestyles-bd66a6656120 https://medium.com/swlh/the-new-bootstrappers-how-alternativ...) and the kinds of startups that will emerge as smart investments (https://medium.com/swlh/rise-of-the-transformers-db7887c26689 https://medium.com/swlh/rise-of-the-transformers-db7887c2668...)

tdaltonc 8y ago
Your links don't go anywhere.
- wensing 8y ago
  Thanks! Fixed, I think ...

deleted 8y ago

[deleted]

systemBuilder 8y ago

Most heavily-VC funded companies die Young, even if they make it to IPO, like SGI (now reconstituted as NVidia). VCs don't care about companies, they want to make a quick buck and get out. Most successful startups are self funded for most of their life, e.g Microsoft, Dell, Google, Amazon.

elefanten 8y ago
Microsoft, Google and Amazon took vc. Seems Dell may not have, according to a brief glance at wikipedia
- hsk0823 8y ago
  Dell may have been a dorm room startup, but VC influences exists even in it's first early years from Lee Walker who I don't believe was just a simple salaried employee but must have invested some of his own money for equity, and it had meteoric growth in the first few years from dorm room project to full fledged multinational company with a very quick IPO.
- adventured 8y ago
  The parent made a point about self-funding. Microsoft was entirely self-funded out of operations, post the initial capital put in by Gates & Allen. It was wildly profitable, with extraordinary margins, at the point where it took a tiny bit of VC. They didn't take VC because they needed it to finance the business, they took it for the relationships they were trying to cultivate to lure talent. The famous Fortune article about the IPO covers all of this: http://fortune.com/2011/03/13/inside-the-deal-that-made-bill-gates-350000000/ http://fortune.com/2011/03/13/inside-the-deal-that-made-bill... They also didn't IPO because they specifically needed the money from the IPO. The parent comment carefully qualified their statement this way: "Most successful startups are self funded for most of their life" Emphasis on most of their life. Amazon was financed by VC for only about the first 2 1/2 years. Uber for example is nearly a decade old and still drinking from the VC tap; Quora is another example of that. Amazon's IPO was just under three years after the founding. Thereafter most of their business expansion was financed by operations in one form or another (including a bunch of debt they took on).

calbear81 8y ago

I agree with the general point of the article that taking VC money leads to a "get rich or die trying" binary mindset which may not be right for all startups. For many startups, it's not necessarily to become a unicorn to be successful, bring riches to their employees, and in general build a better world. However, there are some points that I don't agree with especially this: "Would Facebook’s leadership have ignored warning signs of Russian election meddling or allowed its platform to incite racial violence if it hadn’t, in its early days, prized moving fast and breaking things? Would Uber have engaged in dubious regulatory and legal strategies if it hadn’t prioritized expansion over all else? " Of course, this is subject to survivorship bias but I think it's generally agreed that part of the reason Facebook was able to grow so quickly and Uber was able to capture markets and be the market leader were exactly those things: Moving Fast, Breaking Things, and focused on growth above all else. In hindsight, if they hadn't done that, it's possible that we wouldn't care at all what they did because they wouldn't be the giants they are. There are tradeoffs with every strategy and these two unicorns chose the ones that led to their dominance even if it came with some headaches later on.

simplecomplex 8y ago

Hard to turn VC money down when it’s practically free. None of the founders I know that raised seed capital even had a business plan. Hard to turn down $1,000,000 when all you have to do for it is say yes. Maybe go to a few meetings, make a PowerPoint. I mean really. Some of these investors haven’t even asked for any metrics, a web app was enough. It’s... shocking how cheap VC money is.

hsk0823 8y ago
VC money is not free, there's a real cost to it, it's written on the term sheet. VC money is relatively easy money to obtain versus trying to grind for the same amount of capital yourself, but there's certainly a cost to any transaction.
- ti3 8y ago
  Have you raised VC money recently or in the past? Raising is far from easy - in fact the opposite in my experience. It's a full-time job for 1 person for months, or even the better part of a year. That's one founder taken away from keeping customers happy and building on the product. The cost off the term sheet is real.
ti3 8y ago
As a founder attempting to raise pre/seed in 2018, saying yes without much in exchange for funding is how I might have imagined fundraising to be in 2012-2014. Certainly not in 2018 or 2019 without relationships w/ VCs, in my personal experience. VCs asking for order of magnitude ~$100ks ARR before a seed round in '18 and '19 makes total sense for VCs. Lower risk of failure with revenue as evidence. If we get to that point of ARR, we are closer to being a free cash flow positive business and will consider forgoing VC altogether.

lordnacho 8y ago

From the investor point of view, there's a clear problem with the VC model as described. How do you establish that a VC has any skill? If the game is to throw a load of money at different firms, in the hope of getting 99 losers and a massive winner, how do you tell the good ones from the bad ones? Keep in mind there's noise; a guy with alpha might have a bad day before going to meet Uber or Facebook. He then gets 100 losers instead of 99. Or vice versa. This is called skewness in traditional markets. People can sell options and make money quite often, until they blow up, ie the reverse of what I described above. There also seems to be opportunity in less-than-insane growth. I've invested in a couple of firms personally, via connections. Small businesses, with a few sticky customers, and decent scale potential (they both sell via the internet) that need a little bit of cash to grow. You can't throw a few million bucks at any one of them, but you can get a reasonable rate of return. I suspect there's opportunities like this everywhere, but the VC theme creates so much attention people forgot there was an investment world before VC was a thing.

hsk0823 8y ago
Define reasonable because to the VC taking the large risk, 5% YoY isn't the goal.
- lordnacho 8y ago
  Tens of percents.
solresol 8y ago
> How do you establish that a VC has any skill? The Queensland University of Technology study showed that startups that took VC funding were no more or less likely to succeed than those that didn't. This suggests that the average VC cannot pick winners better than chance, and that "skill" is therefore not a requirement to be a VC. I find this disturbing.

noddy1 8y ago

Moving towards the model where a portion of early VC investment goes straight into the pocket of the founders and early employees, as bird has done. If I've built a company with an implied valuation of 200 million, why can't I bank a couple of million for a rainy day? I've heard VC's state with a straight face that this is a misalignment of incentives.. apparently if the founder is financially comfortable they aren't "hungry".. this from a venture capitalist who is guaranteed a juicy carry whatever happens to their fund I find this insulting.

TACIXAT 8y ago
Any links on what the Bird founder did?

deleted 8y ago

[deleted]

halfway 8y ago

How dangerous is the hypergrowth mandate for startup that has product-market fit and a solid GTM?

ngngngng 8y ago

One thing I don't understand about VC money, and i'm not even sure how to phrase this, are the founders of startups able to pay themselves enough that they're set even if the business fails? What's to stop intelligent people from getting funded, paying themselves large salaries, and then not really caring if it fails or not because you're a couple hundred thousand dollars richer?

hsk0823 8y ago
Of course. That's part of raising capital, is funding employee salary. Of course it's not a "they're set", it's a market rate salary given the size of the company and the role you do for the company. What's to stop VC fraud? Generally when you accept VC money, you're giving a board seat to said VC, who is there to yes guide with experience, but is also there to protect their investment.
mschuster91 8y ago
> What's to stop intelligent people from getting funded, paying themselves large salaries, and then not really caring if it fails or not because you're a couple hundred thousand dollars richer? The same thing that many VC-backed companies like to ignore (Airbnb, Uber as the most egregious): laws and courts. This kind of behavior can be classified as fraud, intentional bankruptcy or securities law violations.
- zby 8y ago
  I am not a lawyer but beside some really crazy cases it seems very hard to prove at court.
zby 8y ago
VC try to filter out such founders - but it happens and it is the reason of why VCs want quick outcomes and avoid the middle ground of slow growth profitable companies. They want their companies either go down quickly or grow up enormously also quickly, because the more time it takes the easier it is for the founders to make good life out of it without giving back anything to the investors. This is the principal-agent problem and VCs have a particular way of working around it, traditional private equity has another way and banks have yet different one (and crowdfunding does not https://medium.com/@zby/the-problem-with-crowdfunding-81b53f963387 https://medium.com/@zby/the-problem-with-crowdfunding-81b53f...).

frankdenbow 8y ago

Love that this message is getting out and resonating with so many people. If you're interested in seeing some more talks from companies in this realm, we have videos at http://inflectionconf.com/blog http://inflectionconf.com/blog

sudosteph 8y ago

Good for them. I'm not going to pretend I'm actually in a place where I even have the ability to make the choice that these founders made, but I've been reflecting deeply on whether I will seek VC support in the future, and I'm pretty set against it. At least I'm set against any VC's based in SV. I don't think they're bad people or anything, and even quite like some individuals who work for VCs. But the way they operate, seems to perpetuate monoculture and wealth inequality. I know first-hand there are brilliant, ambitious people outside of the SV/NYC bubble, and I don't think VCs really give any care about those people besides perhaps offering to pay to relocate them. As a result, the mindset of these VC people is increasingly isolated from the nation and world as a whole. I've read so many stories about how they are encouraging diversity by funding immigrants who went to Stanford, as if race/sex/nationality is the whole picture. Where are the founders who grew up in trailer parks or projects? Who speak with a noticeable apppalachian, southern, or AAVE accent? Who worked their butts off in the military and community colleges/state colleges, because those are actually the most accessible doors to learning for Americans not from privileged backgrounds? Where are the people who want to build things, but value their family, extended families, local and religious communities more than the promise of extreme wealth in in a few select cities? Those people are out there, and they are capable and ready. I know it's still just talk, but very soon, I'm going to put my money and my body where my mouth is and return to NC. I'm going to build things with those people. If by good fortune we see success - the money won't go towards making rich californians richer.

opportune 8y ago
lol yeah if you're talking about "diversity" in terms of who VC funds I can guarantee it will be a combo of white+indian+east asian men for the next couple decades in terms of who gets the phat funding There are a lot of women-only funds but in terms of total capital + efficacy so far they are essentially nominal

ig1 8y ago

The real problem is that we don't have a more effective capital model. While there's lots of experiments in funding going on, no-one's really figured out a risk model that works in good times let alone bad. Fundamentally new businesses fail at a high rate, it's the nature of new businesses. But that means cost of capital is going to be high to cover the cost, but without high-growth it's hard to justify that cost (and that's not even getting into things like fraud which are a big reason new businesses can't get financing)

avi990 8y ago

venture capital should be minimal in initial rounds. Nowadays most of the startups know their potential, good or bad. They understand how their competitors are making and how much their startup will be worth. So, I see the point why they are rejecting the VC funds. Most startups nowadays are looking for buy outs or acquisitions on different terms

DGAP 8y ago

Seems strange to have a NYT article about this without mentioning Basecamp/ 37Signals. They've been a proponent of the bootstrapping model for a decade.

antaviana 8y ago
AFAIK, they received seed money from Jeff Bezos (although perhaps they did not really need it).

ThomPete 8y ago

As someone who helped design than a 100 startups in various capacities and has been heavily involved with the whole VC scene one of the things that I kept seeing was the misalignment between the founders and the VC's type of skin in the game. A founder for most startups is either trying to find product/market fit or raising money. Many VC/Angels are great for the operational/financial side of the advice but at least in my experience when it came to finding a proper market for your company their advice often sounded right but wasn't possible to implement for various reasons as it was very generalized. One of the primary and perfectly reasonable reasons is that VC's are thinking about an entire portfolio of companies and doesn't have the same kind of skin in the game as the founder which mean they will think differently and less contextual about the companies. There is definitely an argument to be made for the fact that it's not the VC's job to care about the specific company more than they need to and there are plenty of VC's out there who are perfectly able to care properly but it's also a very exaggerated market and let's be frank not everyone who has money to invest have a lot of experience in "the work". After I left Square in 2017, I wanted to find a way to help both with getting much faster to product market fit but at the same time also having the opportunity to provide capital alongside which I believe will align my interest with the founders much more. So I ended up deciding to set up a creative venture studio which so far has been a great decision as it allows me both do my own and invest either capital or sweat equity in other companies AND I get to meet some really amazing people from around the world.

tylertringas 8y ago

If you find these critiques of VC are resonating but also feel like a bit of capital, a mentorship group, and shared resources would help you build a sustainable profitable business, then I'd love any questions or comments on our Shared Earnings Agreement structure: https://earnestcapital.com/shared-earnings-agreement/ https://earnestcapital.com/shared-earnings-agreement/

LogicX 8y ago

We raised on indie.vc terms, but not with Indie.vc - just a group of angels. Best decision we made. Now we’re profitable, and get to be in control of our future decisions - including whether to raise more or not. Highly recommend folks checkout the indie.vc terms - I describe it as even more founder friendly SAFE note. Not every investor will be comfortable with it. Took us longer to raise and lost out on potential investors and plenty of funds as a result; but was still worth it in the end IMHO.

zackmorris 8y ago

From the article: Aniyia Williams, who started the nonprofit Black & Brown Founders, said a venture-funded system that encourages many failures for every one success is particularly unfair to black, latinx and women founders who “are rarely afforded the opportunity to fail, period.” Members of these organizations, she added, see more value when whole groups in their communities thrive, rather than venture’s winner-take-all model. The transition from good-of-the-few to good-of-the-many means we might be at a crossroads in finance. Agism, nationalism and even wealthism (among many others) have been running rampant for centuries. Discrimination is so interwoven into US culture and history that the major issues of our time (like wealth inequality) probably require revolutionary rather than evolutionary solutions. I've also been watching a lot of VICELAND lately and have been following the mantra of: cultural revolution requires personal evolution.

bayesian_horse 8y ago

One problem with rejecting venture capital (or any other form of external capital) is that the founders (and likely the early employees) are investing in the company, in the form of lower pay. Which is all fine and dandy, but the founders are likely risking most of their net worth, including the potential income of some of their best years. Taking outside capital not only means growing faster, but also diversification.

jarjoura 8y ago
Another problem this article misses is that it's quite arrogant to assume a founder has other means to build a company. Most founders are quite honestly usually young and that also means they lack capital, but would otherwise be brilliant and the perfect person/team to create the next Facebook/Uber.
- bayesian_horse 8y ago
  I think most startups who don't use external money try to grow from their own cash flow. Which in turn means lower payout and wages to the founders or early employees. "No VC" can also mean the founders take on loans, angel investors or friends&family.

stanfordkid 8y ago

What is Zebras Unite or any of the startups/venture firms mentioned in this article ... and why are any of them considered meaningful or impactful organizations? The idea that startups are rejecting venture capital en masse on the basis of interviewing a hodge podge of random startups and micro VC's this journalist seems to be friends with is absurd.

geoffroberts 8y ago

My start-up has taken chosen to take this path, and wrote about others who are choosing to do the same within the SaaS space. https://www.outseta.com/posts/saas-start-ups-quest-for-independent-growth https://www.outseta.com/posts/saas-start-ups-quest-for-indep...

michaeldorian 8y ago

If money is the soul reason you're working, it's pretty hard to beat FAANG. Came from FAANG and now doing the startup thing. The experience you learn at startup is priceless. But don't come in thinking you'll get rich. That's the gravy part.

adventured 8y ago

Reasons why I'll probably never take traditional venture capital again: - Costs are low enough I don't need them for much if anything. - I'm unwilling to accept any form of liquidity preferences. Not under any circumstances. They don't get to further offload risk upon other owners like cowards, they have to ride the same risk train as every other owner. Liquidity preferences and the various types of abuses deployed through them are the greatest scams going in the VC world. In a typical start-up there is no greater way that VCs cheat the other owners. - I don't believe in vesting the founders in cases where they've built the initial product over time (eg 6-12 months). I found the company, I build the product, I launch the product, the VC gets to ride my train, then they want me to vest my existing ownership. Nope. My shares are already fully vested, it's my company. These days I only allow VCs to pitch me, I never pitch them. If you build something that matters at all, the VCs seek you out anyway. In the US there's a hundred billion dollars in VC money every year desperately looking for ventures, make it beg for your attention. - VCs are only allowed to have common shares. They ride in the same boat as everyone else. They get no choice in the matter. - There is a lot more money chasing few decent start-ups. That equation is only going to continue to get worse in the favor of the founders. There are a lot of reasons for this, including the cost of starting up being low, and also the requirement for the Fed to keep interest rates permanently low so the US Government doesn't collapse (that will perpetually keep money sloshing around the system looking for returns, feeding bubbles, etc). Just ~4% on a soon-to-be $30 trillion in public debt would collapse the US Government, they can never allow that, which tells you how they're going to be forced to behave over time. There will be periods of ups and downs to this, however it's going to be higher ups and higher lows for loose capital over the near term, due to the Fed flooding the system with liquidity (at least for the next few decades, who knows beyond that). These terms are non-negotiable. The VCs can take a hike if they don't like it. For practical purposes there's an unlimited supply of other capital and other VCs, especially if you have something good at all. This is how all start-ups should deal with venture capitalists for the next 20 years or so, until something breaks with how the Fed is going to be forced to finance the US Govt with perma low rates. Capital is in a begging position during that time, use that fact to your advantage.

jarjoura 8y ago

For everyone bitching about VC's demand on speed and profits, it wouldn't be any different working inside of FAANG. Your team is given a time limit on how fast it can work and it will need to make the parent organization money otherwise it'll get shut down and re-org'd after a year or two. If you bootstrap a company, and it's successful enough to turn a profit, you're still at the mercy of finding a steady stream of customers. Most successful bootstrapped companies usually find 1 or 2 anchor companies that then start dictating how your company should run so that you can get paid and continue the relationship. Also, companies will prefer to have other options, so your bootstrapped company will be one of many options. (or replaced internally) There really is no magical solution to working and making money. You should just approach this problem as, I want to build a company, I believe in this idea so much I'm willing to risk a lot to make it happen. If a VC gets you what you need but forces you to get there in 3 or 4 years time, but you think you need 5, it's not like you have a better option to prove your idea, so figure out how to get there in 3 or 4.

nicholast 8y ago

There are some games where it's simply not possible to compete without 'jet fuel' if you will. The key is understanding if this applies.

dzonga 8y ago

DHH and Jason from Basecamp have been talking about this since day 0. Even now we've indiehackers owned by stripe.

Proven 8y ago

Because compared to before the shift from CAPEX to OPEX is making that easier for more startups than before. Thank Amazon, Azure and Google helped by the generous Fed.

joncrane 8y ago

I remember about 8 years ago when I was founding a company to repair cell phones. The local municipality had a program where I could meet with a mentor to help me set up a company. Create a business plan and estimate costs and revenues, which could serve as input to a loan application with a local bank. In this scenario, the bank charges interest and does not get an ownership stake nor input into how the company is run. Whatever happened to this way of doing things? What is it about VC that is so much better than small loans from a traditional lending institution?

crb002 8y ago

VCs are the equity equivalent of loan sharks.

Mikho 8y ago

It's easy -- you build a lifestyle business or you build a big, usually scalable, business. If you are building a lifestyle business, VCs most probably even won't give you money. To grow one needs money. If you are building a big business the options are to take money as a credit or get VC money. Usually, banks do not credit those risky assets. So, the solution is obvious. Another thing -- for a lifestyle business it's just very hard to hire anybody good without options that have no chances to be executed. Also, a good business model without aggressive growth could be copied easily by a big company that targets the same audience. Yeah, it's difficult to build a Basecamp. There are just so many examples that managed to do that. Even Atlassian took VC money at some point to be able to secure stability for the team. So, there is no sense in the article. If founders were clueless enough not to understand what they get into by taking VC money, maybe they deserve the results. It's important to understand from the get-go that VC money is just a tool that serves a very particular goal. If one does not target that goal, not need to get the money.