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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 rai

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.
ABCLAW 8y ago
>Raising money is a failure mode. If you're trying to build a lifestyle business, yes. That's correct. Incrementally building your recurring revenue is rewarding and doesn't require outside investment and comes with no strings, which keeps the cognitive and administrative overhead of the enterprise low. If you're making a play to win in an emerging market against seriously capitalized contenders, you might not fare so well. In software, most of the product development is fairly bespoke, but in many other industries you require access to capital assets to do anything. Having a portfolio of well placed leases is critical for a retail play. Having capital or leverageable equity is essential for an industry consolidation play. One wouldn't pretend that the founder of a junior mining company 'lacks skills' for issuing a raise on public markets to develop a mining site. By extension, where the value add in an enterprise is not generated from the value of a software product, but by the integration of tech with some other vertical, obtaining serious cash infusions may be the only way for the business plan to succeed.
- AndrewKemendo 8y ago
  I agree with the OP here, and I think it's an interpretation of terms. If a company is "raising money" that means, in almost all cases, that they are actively soliciting or courting investors. They are doing the "Sand Hill Run" or some other such intense, grueling process which attempts to "pitch" the startup to investors in a gamified way. I agree with the OP that this is a failure mode because in almost every case I've seen the company can't survive without it in the short-mid term. If VC are literally hunting you down like Sequoia did with Whatsapp, I wouldn't consider that "Raising Money." They could have done without VC and been perfectly fine - probably better off long term.
  - mdorazio 8y ago
    This is pretty narrow thinking. The #1 reason founders should be raising VC money is to grow faster than they possibly could without it. Could Uber have grown organically without raising millions of dollars? Yes, probably. Would they have been outcompeted by competitors with significantly more money to throw at driver and user acquisition? Absolutely. You have to look at the high-growth startup market as an exercise in game theory rather than as a single-company market. It matters a large amount what other companies could and would do if you don't take funding and grow as quickly as possible.
sonnyblarney 8y ago
No, financing is an important part of any business operation, and very few business that we know would have been successful without it. Of course companies can raise too much, and consider 'a raise' as some kind of material win, and derive too much identity from it ... but that doesn't mean it's bad. A decent round from a good fund is the a really great positive signal, perhaps the most positive. Just because software doesn't have working capital or capex requirements, doesn't mean those costs are magic. People's time is money.
AndrewKemendo 8y ago
This was the hard won lesson for me over the last few years and I think most VC already know this. In fact I'm surprised any VC takes any solicitations because IMO even broaching the topic with a VC without them approaching you first is a negative indicator of growth.
asdff 8y ago
How do you even get something cofounded if you have no money? Is it failure mode to have an idea and be poor? Not everyone can afford to take zero pay until their product gets to market and starts generating returns, you still have to feed and shelter yourself and your cofounders which is very costly.
ttul 8y ago
Raising money does indicate failure. Was Google failing when they raised $25M in 1998? No. They raised because in order to build out their product, they needed capital up front. Several years later, the bet paid off massively. Companies should always be raising capital to match their expected growth trajectory. If you expect to grow by 10% a year - a lifestyle outcome - then get a bank loan because you are probably profitable. If you can grow by 100% a year then go get VC because that kind of growth would be adequate to reward the VC for the risk that naturally comes along with that rate of growth. Somewhere in the middle? Maybe revenue financing is appropriate. But you should always be financing your growth.
ddebernardy 8y ago
I used to think the way you did ~10 years ago. Little did I know... Back then I was running a very comfortable business. My main competitor, if there was any, opened shop with over $10M in the bank. It took a few years for things to play out but I never stood a chance. A half dozen years later I was working on a product that I figured was original at the time. A year in or so, I learned I had two competitors that had raised over $100M to throw around. I stopped on the spot. Measuring your company on the number of customers it has is meaningless if your possible competitor is raising 100x more than you'll earn in the next year or two. Focus on profit and quality; yes. But then, unless you're onto something so supremely complex that essentially no one can reproduce it, rush to get money so you can focus on growing your market before someone goes after it while figuring out the former along the way.
wslh 8y ago
I don't agree, even as a founder who bootstrapped two companies. Nowadays, software companies are capital intensive. They don't start in a garage like in the 70s, 80s, or 90s. Are there exceptions? Sure, but they are outliers. Marketing is one of the components that make your service or product capital intensive. Another is the level of details your product need to be in the market. In the past you were competing in the functionality now you are competing in the UX, multiplatform support, integratuon with other systems, etc.
- jarjoura 8y ago
  The garage stage is usually the seed round, just like YC helps make it a formal process. Get a working provable prototype up and iterate quickly on your idea to something that works and can turn a profit. Then off you go to find customers till you show demand. That's when you evaluate whether a VC fund makes sense for your business. Even back when SJ and Woz were in "the garage" stage building Apple 1s, they were seeded by their previous Blue Box profits and then after clear demand was proven they had Mike Markkula fund them to get Apple 2s built. Companies will always have been and always will be capital intensive, nothing has changed there. Insurance, employees, real-estate, legal, just basic company things have always required significant capital.
  - wslh 8y ago
    If you look at the capital burnt by "unicorns" (e.g. Uber, Rappi) you will find that they are more capital intensive than in the 70s, 80s since they don't need to be cashflow positive for an undefined time and their product and marketing is much more complex and detailed. A clear example of this is computer games, in the 70s and 80s consumers were happy with a few "pixels moving" and now a game require a lot of people. That makes impossible to launch a new game from the garage except for rare indy outliers. Who will win Lyft with ~$ 5b in investment, or Uber with ~24b? Those numbers are independent of the app being built.
    - jarjoura 8y ago
      My friend worked with Travis back when Uber was just a proof of concept in San Francisco. They used private limos and a basic app to connect the two. It worked, was cheap to build, and they proved demand rather quickly. I would call that garage/seed stage. Airbnb was built and rebuilt several times with a few engineers in Brian Chesky’s apartment. They didn’t even have an official office for years at the beginning. Your example is gaming, but all game startups use Kickstarter now as a way to fund the project upfront. It’s not really the same type of business and games are usually one-off finishes products.

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.

ABCLAW 8y ago

>Raising money is a failure mode. If you're trying to build a lifestyle business, yes. That's correct. Incrementally building your recurring revenue is rewarding and doesn't require outside investment and comes with no strings, which keeps the cognitive and administrative overhead of the enterprise low. If you're making a play to win in an emerging market against seriously capitalized contenders, you might not fare so well. In software, most of the product development is fairly bespoke, but in many other industries you require access to capital assets to do anything. Having a portfolio of well placed leases is critical for a retail play. Having capital or leverageable equity is essential for an industry consolidation play. One wouldn't pretend that the founder of a junior mining company 'lacks skills' for issuing a raise on public markets to develop a mining site. By extension, where the value add in an enterprise is not generated from the value of a software product, but by the integration of tech with some other vertical, obtaining serious cash infusions may be the only way for the business plan to succeed.

AndrewKemendo 8y ago
I agree with the OP here, and I think it's an interpretation of terms. If a company is "raising money" that means, in almost all cases, that they are actively soliciting or courting investors. They are doing the "Sand Hill Run" or some other such intense, grueling process which attempts to "pitch" the startup to investors in a gamified way. I agree with the OP that this is a failure mode because in almost every case I've seen the company can't survive without it in the short-mid term. If VC are literally hunting you down like Sequoia did with Whatsapp, I wouldn't consider that "Raising Money." They could have done without VC and been perfectly fine - probably better off long term.
- mdorazio 8y ago
  This is pretty narrow thinking. The #1 reason founders should be raising VC money is to grow faster than they possibly could without it. Could Uber have grown organically without raising millions of dollars? Yes, probably. Would they have been outcompeted by competitors with significantly more money to throw at driver and user acquisition? Absolutely. You have to look at the high-growth startup market as an exercise in game theory rather than as a single-company market. It matters a large amount what other companies could and would do if you don't take funding and grow as quickly as possible.

sonnyblarney 8y ago

No, financing is an important part of any business operation, and very few business that we know would have been successful without it. Of course companies can raise too much, and consider 'a raise' as some kind of material win, and derive too much identity from it ... but that doesn't mean it's bad. A decent round from a good fund is the a really great positive signal, perhaps the most positive. Just because software doesn't have working capital or capex requirements, doesn't mean those costs are magic. People's time is money.

AndrewKemendo 8y ago

This was the hard won lesson for me over the last few years and I think most VC already know this. In fact I'm surprised any VC takes any solicitations because IMO even broaching the topic with a VC without them approaching you first is a negative indicator of growth.

asdff 8y ago

How do you even get something cofounded if you have no money? Is it failure mode to have an idea and be poor? Not everyone can afford to take zero pay until their product gets to market and starts generating returns, you still have to feed and shelter yourself and your cofounders which is very costly.

ttul 8y ago

Raising money does indicate failure. Was Google failing when they raised $25M in 1998? No. They raised because in order to build out their product, they needed capital up front. Several years later, the bet paid off massively. Companies should always be raising capital to match their expected growth trajectory. If you expect to grow by 10% a year - a lifestyle outcome - then get a bank loan because you are probably profitable. If you can grow by 100% a year then go get VC because that kind of growth would be adequate to reward the VC for the risk that naturally comes along with that rate of growth. Somewhere in the middle? Maybe revenue financing is appropriate. But you should always be financing your growth.

ddebernardy 8y ago

I used to think the way you did ~10 years ago. Little did I know... Back then I was running a very comfortable business. My main competitor, if there was any, opened shop with over $10M in the bank. It took a few years for things to play out but I never stood a chance. A half dozen years later I was working on a product that I figured was original at the time. A year in or so, I learned I had two competitors that had raised over $100M to throw around. I stopped on the spot. Measuring your company on the number of customers it has is meaningless if your possible competitor is raising 100x more than you'll earn in the next year or two. Focus on profit and quality; yes. But then, unless you're onto something so supremely complex that essentially no one can reproduce it, rush to get money so you can focus on growing your market before someone goes after it while figuring out the former along the way.

wslh 8y ago

I don't agree, even as a founder who bootstrapped two companies. Nowadays, software companies are capital intensive. They don't start in a garage like in the 70s, 80s, or 90s. Are there exceptions? Sure, but they are outliers. Marketing is one of the components that make your service or product capital intensive. Another is the level of details your product need to be in the market. In the past you were competing in the functionality now you are competing in the UX, multiplatform support, integratuon with other systems, etc.

jarjoura 8y ago
The garage stage is usually the seed round, just like YC helps make it a formal process. Get a working provable prototype up and iterate quickly on your idea to something that works and can turn a profit. Then off you go to find customers till you show demand. That's when you evaluate whether a VC fund makes sense for your business. Even back when SJ and Woz were in "the garage" stage building Apple 1s, they were seeded by their previous Blue Box profits and then after clear demand was proven they had Mike Markkula fund them to get Apple 2s built. Companies will always have been and always will be capital intensive, nothing has changed there. Insurance, employees, real-estate, legal, just basic company things have always required significant capital.
- wslh 8y ago
  If you look at the capital burnt by "unicorns" (e.g. Uber, Rappi) you will find that they are more capital intensive than in the 70s, 80s since they don't need to be cashflow positive for an undefined time and their product and marketing is much more complex and detailed. A clear example of this is computer games, in the 70s and 80s consumers were happy with a few "pixels moving" and now a game require a lot of people. That makes impossible to launch a new game from the garage except for rare indy outliers. Who will win Lyft with ~$ 5b in investment, or Uber with ~24b? Those numbers are independent of the app being built.
  - jarjoura 8y ago
    My friend worked with Travis back when Uber was just a proof of concept in San Francisco. They used private limos and a basic app to connect the two. It worked, was cheap to build, and they proved demand rather quickly. I would call that garage/seed stage. Airbnb was built and rebuilt several times with a few engineers in Brian Chesky’s apartment. They didn’t even have an official office for years at the beginning. Your example is gaming, but all game startups use Kickstarter now as a way to fund the project upfront. It’s not really the same type of business and games are usually one-off finishes products.