4 ms·

I'm having trouble reconciling your numbers here. You've been operating for 8 years, but your revenue is only $1M and you've been investing half of that into y

I'm having trouble reconciling your numbers here. You've been operating for 8 years, but your revenue is only $1M and you've been investing half of that into your tech stack every year, so your operating budget for core business operations is $500k or less? That's like... two and a half developers. I'm guessing you're not US-based with those kind of numbers, but even so, at a glance, I wouldn't invest in you as a VC, either. From the numbers, you've built a lifestyle business.

EGreg 7y ago
This set of distinctions and decision tree is the problem. A startup that has actual early revenues, has been around for years with millions of people using its apps and doesn’t need VC to survive is called derisively a “lifestyle business”. You’re right, most VCs wouldn’t invest in such a startup. But if I spin off a “hot” NEW company with a cofounder growing 10% week over week with zero friction (no revenues) then the hockey stick looks attractive even with tens of thousands of people and a series of rounds can be closed before any revenue is made. Why is having revenues and years spent developing in-house code less likely to produce exponential growth and a unicorn? Why is that worse than two college dropouts who cobbled together a solution and went viral for a while, such as Lantern or Shyo or Videology? Or a viral sensation flash in the pan like Down to Lunch? I have never heard it articulated well. At any rate, we have a factory for making VC-attractive companies, if we wanted to go that route. Companies that do one thing, grow the userbase exponentially with no revenues, etc. As for the numbers... yes we did spend most of our revenues on development. The team is in Russia and Ukraine, I live in NYC. To answer your original question... we put out apps that have generated $600K very little upkeep, from 7 million downloads. We got additional money revenues and from angel investors. The platform is all about reusability — money spent on it is money spent on our projects and core business. But we open sourced it also. Just like Basecamp open sourced Ruby on Rails, or Fabien open sourced symfony etc back in the day. Just because we give it away doesn’t mean it improving it isn’t directly tied to our core business.
- mdorazio 7y ago
  I didn't mean "lifestyle business" to be a negative term and don't use it that way... ever. The opposite, actually - I think actually-sustainable small businesses are far better in general than bullshit startups. However, you specifically said you have been trying repeatedly to get VC money and have been getting turned away. VCs don't invest in lifestyle businesses because that's not how their funds work. The entire VC business model only works if they invest in companies with high risk/high growth prospects and the potential to be unicorns. To answer your question, the answer is statistics - VCs have a large history to draw from and have seen that viral companies and flash in the pan businesses either grow to massive exits or fail completely in a short time far more often than businesses like yours. On average, businesses like yours will continue a slow growth trajectory and have mediocre exits, if any exit happens at all, after the expected fund payout period has already passed. Basically, it's a drag on the fund portfolio and time/resources of the VC, so they won't invest - it's better that a company fail quickly while trying for unicorn status than it is that it chug along in sustainable small business mode for a decade. On the flip side, there is an entire industry of funding available to you that isn't available to startups with awful financials - banks love to loan money to small, sustainable businesses with decent profitability. If you need growth cash, get a small business loan.

EGreg 7y ago

This set of distinctions and decision tree is the problem. A startup that has actual early revenues, has been around for years with millions of people using its apps and doesn’t need VC to survive is called derisively a “lifestyle business”. You’re right, most VCs wouldn’t invest in such a startup. But if I spin off a “hot” NEW company with a cofounder growing 10% week over week with zero friction (no revenues) then the hockey stick looks attractive even with tens of thousands of people and a series of rounds can be closed before any revenue is made. Why is having revenues and years spent developing in-house code less likely to produce exponential growth and a unicorn? Why is that worse than two college dropouts who cobbled together a solution and went viral for a while, such as Lantern or Shyo or Videology? Or a viral sensation flash in the pan like Down to Lunch? I have never heard it articulated well. At any rate, we have a factory for making VC-attractive companies, if we wanted to go that route. Companies that do one thing, grow the userbase exponentially with no revenues, etc. As for the numbers... yes we did spend most of our revenues on development. The team is in Russia and Ukraine, I live in NYC. To answer your original question... we put out apps that have generated $600K very little upkeep, from 7 million downloads. We got additional money revenues and from angel investors. The platform is all about reusability — money spent on it is money spent on our projects and core business. But we open sourced it also. Just like Basecamp open sourced Ruby on Rails, or Fabien open sourced symfony etc back in the day. Just because we give it away doesn’t mean it improving it isn’t directly tied to our core business.

mdorazio 7y ago
I didn't mean "lifestyle business" to be a negative term and don't use it that way... ever. The opposite, actually - I think actually-sustainable small businesses are far better in general than bullshit startups. However, you specifically said you have been trying repeatedly to get VC money and have been getting turned away. VCs don't invest in lifestyle businesses because that's not how their funds work. The entire VC business model only works if they invest in companies with high risk/high growth prospects and the potential to be unicorns. To answer your question, the answer is statistics - VCs have a large history to draw from and have seen that viral companies and flash in the pan businesses either grow to massive exits or fail completely in a short time far more often than businesses like yours. On average, businesses like yours will continue a slow growth trajectory and have mediocre exits, if any exit happens at all, after the expected fund payout period has already passed. Basically, it's a drag on the fund portfolio and time/resources of the VC, so they won't invest - it's better that a company fail quickly while trying for unicorn status than it is that it chug along in sustainable small business mode for a decade. On the flip side, there is an entire industry of funding available to you that isn't available to startups with awful financials - banks love to loan money to small, sustainable businesses with decent profitability. If you need growth cash, get a small business loan.