6 ms·

As somebody new to the world of startups, I'm wondering why taking a small seed round and then work hard to bootstrap within a few years (with the help of the e

by gip 6y ago

As somebody new to the world of startups, I'm wondering why taking a small seed round and then work hard to bootstrap within a few years (with the help of the extra seed cash) isn't a viable option?

ampdepolymerase 6y ago
Not all VCs are made equal and not all startups can take advantage of fundraising. Network is just as important and it could mean the difference between a 50 million dollars company (bootstrapped) versus a 500 million dollars company (multiple rounds of fundraising with brand name VCs). All these are contingent on the fact that your product has the ability to scale. If it is a rather niche area, then no amount of funding will make a difference.
brianwawok 6y ago
Most seed givers such as YC won’t let you. If your goal is seed -> bootstrap, you will be auto rejected. VCs want you to hit it big or burn out within 5-10 years. Remember they are using investors money, and investors want their money back. If your plan is to bootstrap (which I think is wise and the path I took with my current startup) , look into angels and Friends and family Rounds. Most family rounds are totally OK with a longer horizon. That said, not all people have the friends and family to do such a raise, in which case what do you do?
- snowmaker 6y ago
  Actually, at YC we tell every company we fund that ideally they would treat every dollar they raise from investors as the last, and get profitable from the money they raised already. Not every company can do that (i.e., Boom, which is building supersonic airplanes) but if you can, you should.
  - gip 6y ago
    At equal execution, I suspect there is often (but not always) a direct relationship between investment and speed of execution / time to profitability (since with more investment it will be easier to attract great talent and iterate faster). Assuming what I'm saying above is correct, that means that YC is advising founders to take the slow road to profitability? (Nothing wrong with that!)
    - snowmaker 6y ago
      Not quite. The ideal situation is to not have to raise money, by being default alive: http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html Just because you don't have to raise money doesn't mean you never do. Sometimes founders who are running a profitable business and don't need investors will nonetheless choose to raise money because someone offers it on very good terms and they believe they can use it to grow faster.
      - brianwawok 6y ago
        If founders did not need to raise money, you would be out of a job yah?
  - aabhay 6y ago
    Which of the companies in your portfolio have successfully done this? I.e. reach profitability early on then not raise future funding rounds?
    - brianwawok 6y ago
      Would also like to hear from other YC alums about how much pressure they felt to hire faster than they were comfortable with vs stay steady and profitable?
- ignoramous 6y ago
  > ...in which case what do you do? https://earnestcapital.com/what-we-invest-in/ https://earnestcapital.com/what-we-invest-in/ is one such "not vc" VC (?) "We are not the best fit investors for founders who have a business plan of raising millions more in capital every 12 to 18 months. We’re not opposed to our founders raising more capital later on, but we have a strong preference for opportunities where the Plan A after raising from us is to get to break-even and grow the business through cashflows. Typically founders raising more than $2m will not be a fit for us."
  - brianwawok 6y ago
    I like it, there is a definite need for this kind of investing in the market. No you can't launch an Uber or AirBNB in a crowded marketplace like this, but not all marketplaces are as crowded.
threeseed 6y ago
My guess is that once they initially raise a seed round they plan their business around re-raising in 18 months. After all it’s the standard advice they get from YC and their investors. And so it becomes a self fulfilling prophecy and by the time they want to change it’s too late (firing 3/4 of your team causes its own headaches). It’s a shame there isn’t exit interviews for seed companies once they run out of money or go onto Series A. Because it would hugely benefit the ecosystem.

by gip 6y ago

As somebody new to the world of startups, I'm wondering why taking a small seed round and then work hard to bootstrap within a few years (with the help of the extra seed cash) isn't a viable option?

ampdepolymerase 6y ago

Not all VCs are made equal and not all startups can take advantage of fundraising. Network is just as important and it could mean the difference between a 50 million dollars company (bootstrapped) versus a 500 million dollars company (multiple rounds of fundraising with brand name VCs). All these are contingent on the fact that your product has the ability to scale. If it is a rather niche area, then no amount of funding will make a difference.

brianwawok 6y ago

Most seed givers such as YC won’t let you. If your goal is seed -> bootstrap, you will be auto rejected. VCs want you to hit it big or burn out within 5-10 years. Remember they are using investors money, and investors want their money back. If your plan is to bootstrap (which I think is wise and the path I took with my current startup) , look into angels and Friends and family Rounds. Most family rounds are totally OK with a longer horizon. That said, not all people have the friends and family to do such a raise, in which case what do you do?

snowmaker 6y ago
Actually, at YC we tell every company we fund that ideally they would treat every dollar they raise from investors as the last, and get profitable from the money they raised already. Not every company can do that (i.e., Boom, which is building supersonic airplanes) but if you can, you should.
- gip 6y ago
  At equal execution, I suspect there is often (but not always) a direct relationship between investment and speed of execution / time to profitability (since with more investment it will be easier to attract great talent and iterate faster). Assuming what I'm saying above is correct, that means that YC is advising founders to take the slow road to profitability? (Nothing wrong with that!)
  - snowmaker 6y ago
    Not quite. The ideal situation is to not have to raise money, by being default alive: http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html Just because you don't have to raise money doesn't mean you never do. Sometimes founders who are running a profitable business and don't need investors will nonetheless choose to raise money because someone offers it on very good terms and they believe they can use it to grow faster.
    - brianwawok 6y ago
      If founders did not need to raise money, you would be out of a job yah?
- aabhay 6y ago
  Which of the companies in your portfolio have successfully done this? I.e. reach profitability early on then not raise future funding rounds?
  - brianwawok 6y ago
    Would also like to hear from other YC alums about how much pressure they felt to hire faster than they were comfortable with vs stay steady and profitable?
ignoramous 6y ago
> ...in which case what do you do? https://earnestcapital.com/what-we-invest-in/ https://earnestcapital.com/what-we-invest-in/ is one such "not vc" VC (?) "We are not the best fit investors for founders who have a business plan of raising millions more in capital every 12 to 18 months. We’re not opposed to our founders raising more capital later on, but we have a strong preference for opportunities where the Plan A after raising from us is to get to break-even and grow the business through cashflows. Typically founders raising more than $2m will not be a fit for us."
- brianwawok 6y ago
  I like it, there is a definite need for this kind of investing in the market. No you can't launch an Uber or AirBNB in a crowded marketplace like this, but not all marketplaces are as crowded.

threeseed 6y ago

My guess is that once they initially raise a seed round they plan their business around re-raising in 18 months. After all it’s the standard advice they get from YC and their investors. And so it becomes a self fulfilling prophecy and by the time they want to change it’s too late (firing 3/4 of your team causes its own headaches). It’s a shame there isn’t exit interviews for seed companies once they run out of money or go onto Series A. Because it would hugely benefit the ecosystem.