5 ms·

> In this universe, of bootstrapping to several hundred thousand per month in revenue, a founder can walk away with $5m, $10m, $20m (depending on the multiple)

> In this universe, of bootstrapping to several hundred thousand per month in revenue, a founder can walk away with $5m, $10m, $20m (depending on the multiple) in around half the time it’d take to build a “unicorn”. The odds of this level of success for a solo bootstrapped founder is much smaller when you don’t raise. If you look at the stats on startup success (exits), funding has a strong positive correlation. There are good and bad reasons to raise capital and many startups do raise for bad reasons, but that doesn’t mean that funding is inherently bad or should be eliminated as an option.

graderjs 5y ago
Peter the Thiel? How very out of character to be pushing fund raising
imgabe 5y ago
What are the odds, exactly? I don’t see where they say that VC funding should be eliminated, just that this is another option that more people are pursuing.
- peterthehacker 5y ago
  This has been analyzed by many, but the stats you see reported often are that 9/10 startups fail while 7/10 venture-backed startups fail [0]. Perhaps the reason why a startup has no investor interest is because the market is too small, so cutting the data by TAM (if possible) might be interesting. We don’t have data for these micro-TAM startups showing whether they succeed more or less than any other startup. But the data we do have does show an advantage to raising money from VC vs. not. But to be clear, my point is that funding should be a more complicated and nuanced discussion. And if there’s a $5M+ potential return, like the author proposes, then there should be investor interest. The question is whether it’s a good idea for the company to raise. [0] https://review42.com/resources/what-percentage-of-startups-fail/ https://review42.com/resources/what-percentage-of-startups-f...
lugged 5y ago
Survivorship bias. One person unicorns don't generally exit in the same way, this whole article was about the problems trying to raise for small one person companies.
- fighterpilot 5y ago
  And selection bias. The most successful startups attract the most VC interest. It's like Harvard grads. Yes, they're a very high calibre and more successful on average, but a lot (not all) of that is selection instead of creation.
- peterthehacker 5y ago
  How is that survivorship bias? Bootstrapped, small, one person companies are still startups, where the odds of success are less than 10%, while venture-backed startups is 20%-30%. [0][1] What non-survivors are excluded from these cohorts? [0] https://www.wsj.com/articles/SB10000872396390443720204578004980476429190 https://www.wsj.com/articles/SB10000872396390443720204578004... [1] https://www.embroker.com/blog/startup-statistics/ https://www.embroker.com/blog/startup-statistics/
  - lugged 5y ago
    You're defining success using a metric one person companies don't use to define success. The only ones that survive to success are "normal startups" which are not actually normal at all for most businesses around the world.
    - peterthehacker 5y ago
      That’s not survivorship bias. And the measures of success in the article I cited are universal. The way you’re describing success (not going out of business) is included in those sources.
      - lugged 5y ago
        No they're not. Making a solid living is what's important to these companies. Not finding investment. Exits maybe.
deleted 5y ago
[deleted]
throw63738 5y ago
"Leave" is wrong idea in this context. If it generates money, hire some support staff and just leave it running. Do not sell, where would u invest anyway? $5m profit over a few years is very common for a small businesses.
- kayhi 5y ago
  5m in profit in a few years seems very rare from my experience talking with small business owners.
cj 5y ago
The common rational used as a counterpoint (including during my time at YC) was “if taking on $xx million in exchange for 20% of the company increases the value of your equity by more than 20%, it’s a win-win. The one (major) caveat is that taking on significant funding also means you need to repay all of the amount raised when you sell your company (legally referred to as a 1x liquidation preference). My main worry for modern day SaaS founders raising giant seed rounds (often $5-10mm) is that after taking that money, you’ve now raised the minimum price you would need to sell the company for you or your employees to financially gain from a sales. After raising $10mm, if you go and sell for $12mm a year later, the first $10mm goes straight back to your investors, and the left over $2mm goes to whoever owns the shares of the company. When a startup that raised a $10mm seed goes on to raise a $25mm Series A, the company can no longer sell for less than $35mm (1x liquidation preference to investors). In other words, we’re seeing a shift of mindset to one of “go big or go home, there’s no middle ground”. The one exception is sometimes VCs allow founders to take money off the table during large rounds (but of course that often doesn’t trickle down to employees with stock options, etc). And then there are founders who accept 2x or 3x liquidation preference terms, which double or triple to problem described above. This is just one of many reasons I favor bootstrapping and reinvesting profits for long-term organic growth rather than short-term VC-fueled hypergrowth.
madamelic 5y ago
The nice thing about solo bootstrapped is that it is extremely quick & easy to cut losses. Most 'indie hacker' founders have 5 - 10+ failed businesses that didn't grow fast enough or just weren't quite right. The indie hacker scene is pretty different from your typical VC startup where a business is 3 - 5 years minimum, most indie hackers are running on time frames of 1 - 3 months to gain traction.
41209 5y ago
That's not a fair comparison. If I'm able to raise funding, it means that some very smart people think they'll be able to get their money back. Compare this to just me creating a website vowing to re invent bowing. No one's looked at my business plan. Do I even have a business plan ?
- lostcolony 5y ago
  -Thank- you. I scrolled through all the replies until I saw this one, because it seemed like such an obvious reason for why there would be a correlation. The first is "someone had an idea", and the latter is "someone had an idea that outsiders vetted and decided to put money towards". Of course the latter would be more likely to succeed. That doesn't mean the latter would not have succeeded had they foregone investing, nor that the former would have succeeded had they only been able to raise funds.
  - ilrwbwrkhv 5y ago
    Ehh. If you look at the VC world, it is hard for the VCs to bet right. Which means it is essentially just a gamble.
    - lostcolony 5y ago
      So you're saying you disagree with the parent that started this thread, that there isn't even a correlation. I'm not saying I agree, just that even if there is such a correlation it does not imply causation, for a -very- obvious reason.
    - 41209 5y ago
      They still gamble intelligently. Would you give some random programer 10 million ? Every one of us could probably create a website, but only a select few could create a business ready to receive funding.

graderjs 5y ago

Peter the Thiel? How very out of character to be pushing fund raising

imgabe 5y ago

What are the odds, exactly? I don’t see where they say that VC funding should be eliminated, just that this is another option that more people are pursuing.

peterthehacker 5y ago
This has been analyzed by many, but the stats you see reported often are that 9/10 startups fail while 7/10 venture-backed startups fail [0]. Perhaps the reason why a startup has no investor interest is because the market is too small, so cutting the data by TAM (if possible) might be interesting. We don’t have data for these micro-TAM startups showing whether they succeed more or less than any other startup. But the data we do have does show an advantage to raising money from VC vs. not. But to be clear, my point is that funding should be a more complicated and nuanced discussion. And if there’s a $5M+ potential return, like the author proposes, then there should be investor interest. The question is whether it’s a good idea for the company to raise. [0] https://review42.com/resources/what-percentage-of-startups-fail/ https://review42.com/resources/what-percentage-of-startups-f...

lugged 5y ago

Survivorship bias. One person unicorns don't generally exit in the same way, this whole article was about the problems trying to raise for small one person companies.

fighterpilot 5y ago
And selection bias. The most successful startups attract the most VC interest. It's like Harvard grads. Yes, they're a very high calibre and more successful on average, but a lot (not all) of that is selection instead of creation.
peterthehacker 5y ago
How is that survivorship bias? Bootstrapped, small, one person companies are still startups, where the odds of success are less than 10%, while venture-backed startups is 20%-30%. [0][1] What non-survivors are excluded from these cohorts? [0] https://www.wsj.com/articles/SB10000872396390443720204578004980476429190 https://www.wsj.com/articles/SB10000872396390443720204578004... [1] https://www.embroker.com/blog/startup-statistics/ https://www.embroker.com/blog/startup-statistics/
- lugged 5y ago
  You're defining success using a metric one person companies don't use to define success. The only ones that survive to success are "normal startups" which are not actually normal at all for most businesses around the world.
  - peterthehacker 5y ago
    That’s not survivorship bias. And the measures of success in the article I cited are universal. The way you’re describing success (not going out of business) is included in those sources.
    - lugged 5y ago
      No they're not. Making a solid living is what's important to these companies. Not finding investment. Exits maybe.

deleted 5y ago

[deleted]

throw63738 5y ago

"Leave" is wrong idea in this context. If it generates money, hire some support staff and just leave it running. Do not sell, where would u invest anyway? $5m profit over a few years is very common for a small businesses.

kayhi 5y ago
5m in profit in a few years seems very rare from my experience talking with small business owners.

cj 5y ago

The common rational used as a counterpoint (including during my time at YC) was “if taking on $xx million in exchange for 20% of the company increases the value of your equity by more than 20%, it’s a win-win. The one (major) caveat is that taking on significant funding also means you need to repay all of the amount raised when you sell your company (legally referred to as a 1x liquidation preference). My main worry for modern day SaaS founders raising giant seed rounds (often $5-10mm) is that after taking that money, you’ve now raised the minimum price you would need to sell the company for you or your employees to financially gain from a sales. After raising $10mm, if you go and sell for $12mm a year later, the first $10mm goes straight back to your investors, and the left over $2mm goes to whoever owns the shares of the company. When a startup that raised a $10mm seed goes on to raise a $25mm Series A, the company can no longer sell for less than $35mm (1x liquidation preference to investors). In other words, we’re seeing a shift of mindset to one of “go big or go home, there’s no middle ground”. The one exception is sometimes VCs allow founders to take money off the table during large rounds (but of course that often doesn’t trickle down to employees with stock options, etc). And then there are founders who accept 2x or 3x liquidation preference terms, which double or triple to problem described above. This is just one of many reasons I favor bootstrapping and reinvesting profits for long-term organic growth rather than short-term VC-fueled hypergrowth.

madamelic 5y ago

The nice thing about solo bootstrapped is that it is extremely quick & easy to cut losses. Most 'indie hacker' founders have 5 - 10+ failed businesses that didn't grow fast enough or just weren't quite right. The indie hacker scene is pretty different from your typical VC startup where a business is 3 - 5 years minimum, most indie hackers are running on time frames of 1 - 3 months to gain traction.

41209 5y ago

That's not a fair comparison. If I'm able to raise funding, it means that some very smart people think they'll be able to get their money back. Compare this to just me creating a website vowing to re invent bowing. No one's looked at my business plan. Do I even have a business plan ?

lostcolony 5y ago
-Thank- you. I scrolled through all the replies until I saw this one, because it seemed like such an obvious reason for why there would be a correlation. The first is "someone had an idea", and the latter is "someone had an idea that outsiders vetted and decided to put money towards". Of course the latter would be more likely to succeed. That doesn't mean the latter would not have succeeded had they foregone investing, nor that the former would have succeeded had they only been able to raise funds.
- ilrwbwrkhv 5y ago
  Ehh. If you look at the VC world, it is hard for the VCs to bet right. Which means it is essentially just a gamble.
  - lostcolony 5y ago
    So you're saying you disagree with the parent that started this thread, that there isn't even a correlation. I'm not saying I agree, just that even if there is such a correlation it does not imply causation, for a -very- obvious reason.
  - 41209 5y ago
    They still gamble intelligently. Would you give some random programer 10 million ? Every one of us could probably create a website, but only a select few could create a business ready to receive funding.