5 ms·

In a nutshell, the situation is that the startup is: > ... not growing but it's not dying. ... and the founder doesn't really know what to do. Makes me think

by apo 7y ago

In a nutshell, the situation is that the startup is: > ... not growing but it's not dying. ... and the founder doesn't really know what to do. Makes me think of Paul Graham's concept of "default alive/dead": > When I talk to a startup that's been operating for more than 8 or 9 months, the first thing I want to know is almost always the same. Assuming their expenses remain constant and their revenue growth is what it has been over the last several months, do they make it to profitability on the money they have left? Or to put it more dramatically, by default do they live or die? http://paulgraham.com/aord.html http://paulgraham.com/aord.html I think this is a much more valuable place to start the conversation. The available options (which may or may not include shutdown) depend strongly on the answer to the question "are you default alive or default dead?"

situational87 7y ago
This is the old way of thinking, profitability doesn't seem to matter much anymore. The last two startups I worked for were (luckily) profitable and growing, but when the Series A investors found out about this they got very angry and started demanding we increase spending on things we didn't need: more engineers, more AWS, more initiatives for crazy tangents, hire a growth hacker, hire a growth marketer, then some more engineers who have nothing to work on. The demand for perpetual (even artificial, fraudulent) growth is prioritized over all else. The VCs can't get out of their investment unless things have grown. That's all that matters to them. Neither of those startups is around anymore, they were both driven out of business by this demand for more growth. The Series A investors couldn't care less, they exited long before the end and left someone else holding the bag.
- jjeaff 7y ago
  There is another reason they want spending to increase. They need you to run out of money before you hit profitability or else you won't need to do another round of financing so that the VCs can take a larger piece of the pie.
  - tru3_power 7y ago
    This is messed up man. I bet a lot of a good startups are killed for no good reason (and only for greed)
- sharkweek 7y ago
  It’s kind of a joke but the scene from HBO’s Silicon Valley with their investor telling them to remain “pre-revenue” for as long as possible to maintain the appearance of endless possibility always struck me as more accurate than the joke might imply.
- randall 7y ago
  Solution: Ignore VCs. They're incentivized for you to be Facebook size. Not the size of the business's opportunity * your execution strength, which is how you stay in business.
- ilikehurdles 7y ago
  Dumb question incoming. If your company is marginally profitable and stable, and you choose to ignore demands from an early minority stakeholder investor to spend more, what are the consequences? I get that they might stand in the way of future funding rounds, but what if you simply don't need future funding rounds? The VC likely has eight times as many bleeding startups as it has profitable, let alone growing startups. Would they ditch a profitable slow one?
  - shartshooter 7y ago
    Your reputation can be significantly tarnished in the eyes of vc’s if you go that route. There’s nothing stopping you from ignoring investors(assuming you’ve got the board seats to retain control) but the expectation, generally, when taking vc I that 1) you’ll do whatever it takes to keep scaling 2) the market you’re going after is significant and 3) if either of those two things change then you’ll pivot/shutdown/etc. This isn’t gospel but I have a friend at a tier 1 vc who told me something to the effect of: we’ve got $X00MM in this fund. We’ve got four years to invest the money and will choose something like 40 companies over that time. Two need to become unicorns to make their nut. If you don’t have the intent to be that, then they don’t want to invest. Of course there are vc’s And angels who don’t follow that methodology but for the most part they want to invest in _growth_ startups rather than lifestyle businesses.
- hinkley 7y ago
  Do you remember those stories about label reps getting bands hooked on drugs so they were beholden to the label? Those people found a new place to work. There's pushing people out of their comfort zone, and there's pushing people way out of their comfort zone so they are perpetually off-balance and need your help.
- gnicholas 7y ago
  Were they raising their next round and trying to demonstrate to LPs that they pick high-growth startups?
- gms 7y ago
  https://twitter.com/paulg/status/1160446857270579200 https://twitter.com/paulg/status/1160446857270579200
- bryanrasmussen 7y ago
  profitability matters for how much you need the VC. Of course they might want you to need them more than you want to need them, and in their eyes therefore profitability might be a minus.

by apo 7y ago

situational87 7y ago

This is the old way of thinking, profitability doesn't seem to matter much anymore. The last two startups I worked for were (luckily) profitable and growing, but when the Series A investors found out about this they got very angry and started demanding we increase spending on things we didn't need: more engineers, more AWS, more initiatives for crazy tangents, hire a growth hacker, hire a growth marketer, then some more engineers who have nothing to work on. The demand for perpetual (even artificial, fraudulent) growth is prioritized over all else. The VCs can't get out of their investment unless things have grown. That's all that matters to them. Neither of those startups is around anymore, they were both driven out of business by this demand for more growth. The Series A investors couldn't care less, they exited long before the end and left someone else holding the bag.

jjeaff 7y ago
There is another reason they want spending to increase. They need you to run out of money before you hit profitability or else you won't need to do another round of financing so that the VCs can take a larger piece of the pie.
- tru3_power 7y ago
  This is messed up man. I bet a lot of a good startups are killed for no good reason (and only for greed)
sharkweek 7y ago
It’s kind of a joke but the scene from HBO’s Silicon Valley with their investor telling them to remain “pre-revenue” for as long as possible to maintain the appearance of endless possibility always struck me as more accurate than the joke might imply.
randall 7y ago
Solution: Ignore VCs. They're incentivized for you to be Facebook size. Not the size of the business's opportunity * your execution strength, which is how you stay in business.
ilikehurdles 7y ago
Dumb question incoming. If your company is marginally profitable and stable, and you choose to ignore demands from an early minority stakeholder investor to spend more, what are the consequences? I get that they might stand in the way of future funding rounds, but what if you simply don't need future funding rounds? The VC likely has eight times as many bleeding startups as it has profitable, let alone growing startups. Would they ditch a profitable slow one?
- shartshooter 7y ago
  Your reputation can be significantly tarnished in the eyes of vc’s if you go that route. There’s nothing stopping you from ignoring investors(assuming you’ve got the board seats to retain control) but the expectation, generally, when taking vc I that 1) you’ll do whatever it takes to keep scaling 2) the market you’re going after is significant and 3) if either of those two things change then you’ll pivot/shutdown/etc. This isn’t gospel but I have a friend at a tier 1 vc who told me something to the effect of: we’ve got $X00MM in this fund. We’ve got four years to invest the money and will choose something like 40 companies over that time. Two need to become unicorns to make their nut. If you don’t have the intent to be that, then they don’t want to invest. Of course there are vc’s And angels who don’t follow that methodology but for the most part they want to invest in _growth_ startups rather than lifestyle businesses.
hinkley 7y ago
Do you remember those stories about label reps getting bands hooked on drugs so they were beholden to the label? Those people found a new place to work. There's pushing people out of their comfort zone, and there's pushing people way out of their comfort zone so they are perpetually off-balance and need your help.
gnicholas 7y ago
Were they raising their next round and trying to demonstrate to LPs that they pick high-growth startups?
gms 7y ago
https://twitter.com/paulg/status/1160446857270579200 https://twitter.com/paulg/status/1160446857270579200
bryanrasmussen 7y ago
profitability matters for how much you need the VC. Of course they might want you to need them more than you want to need them, and in their eyes therefore profitability might be a minus.