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Capital efficiency is a great point of view. The take that every dollar from a customer is worth 5 is a really good conversation to have with a CEO. It bucks t

Capital efficiency is a great point of view. The take that every dollar from a customer is worth 5 is a really good conversation to have with a CEO. It bucks the trend that showing revenue (and then, showing profit) are liquidation events, not just investment opportunities. So it's not saying much that if you show revenue, you get a chance to liquidate or raise an up round. People have known that forever. The more valuable perspective here is that many startups deliver products that are copies of stuff that already exists. That's just what VCs fund. So capital efficiency is your special sauce. It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content. This is totally opposite of the trend to fund AI companies, which seek to replace the human being. Seems so much more capital-efficient to get the human being into doing expensive labor for free. This leads to the most interesting counterpoint to the POV advanced here: capital efficiency is super important, but it's also super boring. Maybe there are investors who want to line up outside your door to do your thing capital efficiently. But the people working for you, especially at the beginning, do not care. People want to be thought leaders, not penny pinchers.

stevedc3 8y ago
OP here. Thanks for reading. Good comments. As far as winning out vs competitors, efficiency can be key. There is no question there. One of the things about frontier tech (autonomous, AR, sensor networks, ML) is that many people are funded and do it too early. So they need to somehow last. Most startups spend the money within two years or less. It’s programmed into the psychy. A Sequoia would never admit this but they want you to spend your money fast and move on to the next thing if you aren’t growing fast enough. Buying one more year can be crucial.
- adamqureshi 8y ago
  I need to build my v2 and am avoiding accepting angel funding from an investor who wants 30% for $250k. Sales are not stopping at this point. I am using stripe for all sales. Do you have a suggestion for me to get a loan? I need $150k to build v2 AND keep the lights on for say 12-14 months. Thanks.
  - Qworg 8y ago
    Check with SVB or Lighter Capital?
    - adamqureshi 8y ago
      I spoke to these guys: https://stripe.com/works-with/fundingcircle https://stripe.com/works-with/fundingcircle But they want tax returns and credit score. Thank you and i will look into Lighter Capita. SVB is silicon valley bank?
      - Qworg 8y ago
        Yes. Tax returns and a credit score for your business? Or are they asking for a personal guarantee?
    - adamqureshi 8y ago
      I just applied to Lighter Capital. Thank you very much!
  - robocat 8y ago
    If the business doesn't have a need for high growth (which it perhaps doesn't if 250k moves the needle), why not consider more sweat-equity? We decided not to take angel investment, took longer to build a small business, and gave equity to more founders. We're very proud of our profitable centicorn (one hundredth the size of a unicorn).
    - adamqureshi 8y ago
      I agree. But I'm on WP and the sales are not slowing down.I need to build out offWP to a web app. Keep the WP version running while standing up the web app build. But the engineers want $12,500 for 100 hours/sprint for both. I get a designer + Engineer. I'm thinking just pay enough to get to a web app with maybe 2 sprints $12,500 X 2 = $25k. Start making sales and then use the sales to keep paying if needed to increase sales / expand add new features from customer feedback.
  - 8y ago
- nicodjimenez 8y ago
  Agreed. Many startups just need time to get going. Not all startups can achieve 8% weekly growth rates in the first 2 years.
- pmart123 8y ago
  Aren’t some of the frontier tech investments to also understand the space, where the tech is currently at, and what team members to back or grab when the space is ready? To me, it would make sense for Sequoia to allocate some capital to these situations in order to capitalize on when the tech is ready to move from frontier to viable?
- borski 8y ago
  Actually every VC I’ve spoken to freely admits this. It’s “grow big, fast, or try again later” That’s why it’s a horrendous idea to take VC funding if you’re not looking to spend it fast, and take huge risks. If you want to be capital efficient, do that, then raise when you know you can spend the money and the ROI is “guaranteed” (meaning you have a successful sales and execution engine), because then you can do it on your terms. Otherwise, you raise, lose control, and are beholden to VCs for your next dollar. Good luck with that negotiation; they have the leverage. Profit and revenue gives startups leverage, in nearly every way.
- patrickxie 8y ago
  Your second tweet in the article regarding to the rate of returns. What's time horizon?
barry-cotter 8y ago
> It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content. If this is right then the recent EU directive with the link tax, upload filter and censorship machine provisions will kill consumer internet startups in the EU, permanently. > Maybe there are investors who want to line up outside your door to do your thing capital efficiently. Another way of putting this is that operational excellence is a good moat. Pg talks about this repeatedly with his insistence that most startups fail through poor execution than anything else, through avoidable mistakes. This boring focus on operational excellence, on putting best practices into practice reliably and repeatedly. That’s what software private equity portfolios like Constellation Software do. Make big boring profits.

stevedc3 8y ago

OP here. Thanks for reading. Good comments. As far as winning out vs competitors, efficiency can be key. There is no question there. One of the things about frontier tech (autonomous, AR, sensor networks, ML) is that many people are funded and do it too early. So they need to somehow last. Most startups spend the money within two years or less. It’s programmed into the psychy. A Sequoia would never admit this but they want you to spend your money fast and move on to the next thing if you aren’t growing fast enough. Buying one more year can be crucial.

adamqureshi 8y ago
I need to build my v2 and am avoiding accepting angel funding from an investor who wants 30% for $250k. Sales are not stopping at this point. I am using stripe for all sales. Do you have a suggestion for me to get a loan? I need $150k to build v2 AND keep the lights on for say 12-14 months. Thanks.
- Qworg 8y ago
  Check with SVB or Lighter Capital?
  - adamqureshi 8y ago
    I spoke to these guys: https://stripe.com/works-with/fundingcircle https://stripe.com/works-with/fundingcircle But they want tax returns and credit score. Thank you and i will look into Lighter Capita. SVB is silicon valley bank?
    - Qworg 8y ago
      Yes. Tax returns and a credit score for your business? Or are they asking for a personal guarantee?
  - adamqureshi 8y ago
    I just applied to Lighter Capital. Thank you very much!
- robocat 8y ago
  If the business doesn't have a need for high growth (which it perhaps doesn't if 250k moves the needle), why not consider more sweat-equity? We decided not to take angel investment, took longer to build a small business, and gave equity to more founders. We're very proud of our profitable centicorn (one hundredth the size of a unicorn).
  - adamqureshi 8y ago
    I agree. But I'm on WP and the sales are not slowing down.I need to build out offWP to a web app. Keep the WP version running while standing up the web app build. But the engineers want $12,500 for 100 hours/sprint for both. I get a designer + Engineer. I'm thinking just pay enough to get to a web app with maybe 2 sprints $12,500 X 2 = $25k. Start making sales and then use the sales to keep paying if needed to increase sales / expand add new features from customer feedback.
- 8y ago
nicodjimenez 8y ago
Agreed. Many startups just need time to get going. Not all startups can achieve 8% weekly growth rates in the first 2 years.
pmart123 8y ago
Aren’t some of the frontier tech investments to also understand the space, where the tech is currently at, and what team members to back or grab when the space is ready? To me, it would make sense for Sequoia to allocate some capital to these situations in order to capitalize on when the tech is ready to move from frontier to viable?
borski 8y ago
Actually every VC I’ve spoken to freely admits this. It’s “grow big, fast, or try again later” That’s why it’s a horrendous idea to take VC funding if you’re not looking to spend it fast, and take huge risks. If you want to be capital efficient, do that, then raise when you know you can spend the money and the ROI is “guaranteed” (meaning you have a successful sales and execution engine), because then you can do it on your terms. Otherwise, you raise, lose control, and are beholden to VCs for your next dollar. Good luck with that negotiation; they have the leverage. Profit and revenue gives startups leverage, in nearly every way.
patrickxie 8y ago
Your second tweet in the article regarding to the rate of returns. What's time horizon?

barry-cotter 8y ago

> It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content. If this is right then the recent EU directive with the link tax, upload filter and censorship machine provisions will kill consumer internet startups in the EU, permanently. > Maybe there are investors who want to line up outside your door to do your thing capital efficiently. Another way of putting this is that operational excellence is a good moat. Pg talks about this repeatedly with his insistence that most startups fail through poor execution than anything else, through avoidable mistakes. This boring focus on operational excellence, on putting best practices into practice reliably and repeatedly. That’s what software private equity portfolios like Constellation Software do. Make big boring profits.