6 ms·

One of the things that bothers me about the startup ecosystem is how much it's oriented around VC. There's nothing wrong with VC, but you also have to understan

by ufmace 5y ago

One of the things that bothers me about the startup ecosystem is how much it's oriented around VC. There's nothing wrong with VC, but you also have to understand that they have a specific business model and are looking for only a specific type of startup to invest in. They want the companies that are small enough that they can buy a big chunk for relatively cheap, and ambitious enough that they might possibly have ultra 1000x unicorn growth. They know that most will fail; that's fine, they intend to make it all up on the superstar. It's perfectly fine to start a company that's only going to grow 10x or 20x best-case. VCs won't be interested in you, but that's fine, you don't necessarily need investment.

moonchrome 5y ago
>It's perfectly fine to start a company that's only going to grow 10x or 20x best-case. VCs won't be interested in you, but that's fine, you don't necessarily need investment. But is that a startup at that point or just a small business ?
- ghaff 5y ago
  Well,it's just a business if you self-referentially define startup as a business which must have the characteristics that would make VCs interested in investing in it. (In fairness, I'd probably roll my eyes if someone called their McDonald's franchise or arts & crafts retail store a "startup" but plenty of today's big businesses got to where they are without VC funding or really looking much like what people think of as a startup today.)
  - deleted 5y ago
    [deleted]
  - duped 5y ago
    To me (just some random person on the internet that works at startups) the defining characteristics of a startup are growth and employee equity as compensation. The second has to come from the first, since equity is worthless if there isn't some future promise of payout.
  - hn_throwaway_99 5y ago
    We've been over this a lot before. I'm not saying pg's definition is the end-all and be-all, but for usefulness in discussion "high growth potential business" is the most reasonable definition: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
    - ghaff 5y ago
      I don't really disagree. Much as the "But pg says..." school of argument is like fingernails on a blackboard for me, there is clearly a qualitative difference between a business that's just intended to support one or two people and maybe some other employee--and has no larger ambitions--and one that will possibly take off or, more likely, close down within five years (or whatever). Obviously there are still other businesses that aren't inherently self-limiting but that aren't really constructed for go big or go home either.
      - blacktriangle 5y ago
        The problem with "startup" is that there are two separate issues mixed up in the same word. PG defined it as hypergrowth which is certainly one class of startup, but there's another one as well. The other aspect of startups is that they are newish products doing something new in new markets. As such, issues like product-market fit are key. The problem is when you start to say things like you're not a startup, you're a traditional business is that most traditional businesses don't have the product market fit issue, and thus most traditional businesses are far far less risky. For example, I don't need to convince a bank that my coffee shop will achieve product-market fit, we know people love coffee and have lots of tools for evaluation the financials of a potential coffee shop, which is why I can get a bank loan to go start up my shop. Now there's the issue of starting a company that is trying something new and lacks product-market fit, thus is higher risk and we don't have good tools to evaluate those risks, but is also looking to grow conservatively thus isn't able to get the interest of those looking to give out high-risk funding, ie VCs.
        ghaff 5y ago
        Not that I have tried to get a loan for a coffee shop but IMO there's very much a question of fit of your particular coffeeshop concept and your particular market (and location). The parameters are narrower than in the case of some totally novel software or hardware product but just because "people buy and drink coffee" is not remotely a guarantee that your particular coffeeshop will be sufficiently successful to stay in business.
IgorPartola 5y ago
Police to bank robber: “why do you rob banks?” Robber: “that’s where the money is. What, do you want me to rob libraries?” VC have money. Spending other people’s money is a frequent pastime. If SoftBank is willing to give you $100m to expand the reach of your IRC replacement, why wouldn’t you take it? Combine this with companies that are built to be sold to one of FAANG (ones that try to solve an actual customer’s problem but mostly just enough to catch the eye of a giant and sell to them) and you have SV.
- arbuge 5y ago
  > why wouldn’t you take it? One reason is because of what you're giving up in exchange. Obviously equity, for one. Quite possibly also control, if the investors also get board seats as part of the deal. If they have a different vision for the company's future (not to mention your personal future) than you do, that could create problems.
  - IgorPartola 5y ago
    Well of course. But between working as a drone for a company and getting VC money to spend (with restriction) on how you see fit, the VC option is pretty appealing.
    - codingdave 5y ago
      There is a middle ground - start something yourself, bootstrap, get profitable, spend the revenue how you see fit without restriction, and own it all. And you can still exit down the road if you so choose.
    - lazide 5y ago
      The restrictions, stress, and pressure that comes with VC feels a lot different when you see them on a term sheet you are trying to decide to sign or not after already busting your butt for a long time making something real, vs from behind that desk at a company. It is a real, and sometimes very undesirable tradeoff. Go big or go home, vs wealthy but not obscenely so through steady effort?
jvanderbot 5y ago
The sibling comments go immediately to the evils or virtues of VC as though that were justification to stay small or go big, but this comment captures the vast majority of small business activity that produces thriving economies and stable lives for owners and workers alike. I have friends who opened automatic garage door repair shops. They are a two-state business and live comfortably and are engaged in the lives and wellbeing of their employees. Disruption is glamorous but small is foundational.
0x4d464d48 5y ago
"It's perfectly fine to start a company that's only going to grow 10x or 20x best-case. VCs won't be interested in you, but that's fine, you don't necessarily need investment." I'm not saying this is your fault and I get where you're coming from. But saying 'only' 10x-20x growth is 'fine' as if that's something to be embarrassed about... Yeesh, talk about messed up perspective... By my reckoning, if you're generating value, have a sustainable business and are giving people gainful employment that in and of itself should be reward enough.
- tl 5y ago
  Definitions help: Start a company: You + enough business not to go under in X months = covering living expenses for one person or family = $50k / year starting negative of working up to profitable 10x = $500k / year, by the previous measure = competing with the top end of a big tech salary. So there are people reasonably "unhappy" at 10x because of opportunity costs.
  - 0x4d464d48 5y ago
    Yep. Being able to create an honest, profitable business pulling in 'only' 500k$/annum. Must suck to be that guy. It's real easy to play the 'grass is always greener' game. Everyone has their own aims in life. Some want money, some want to live a life they're proud of and pretty much everyone is some combination of the two. But trying to frame someone establishing a business with 10x-20x growth as a failure, assuming they're able to support themselves and believe in the value of their venture, is absurd.
    - lazide 5y ago
      500k profit a year (which is still good!) often means 5 mil/yr revenue. Considering the years of work, super high stress, lack of support network common to this, and generally bootstrapping from their own funds? That is decent, but considering all those factors, far from a huge win. If they had put similar work (with the same skill set) into a normal job, they would likely have similar returns with less risk. Especially since there is large ongoing risk of market shifts or the like making it fail with no warning in the future, and at least working in someone else’s enterprise they wouldn’t have their capital at risk.
boringg 5y ago
I’m sorry I feel like we should clarify your numbers. VC money hopes for 10x or 20x as a goal and is quite happy to have that in their portfolio. If you are a 1x-5x company that isn’t enough return for the equity risk. 1000x is an anomaly and would make one fund round do exceptionally well compared to all others but most funds don’t ever get that kind of investment return.
satvikpendem 5y ago
One reason of many that I like Indie Hackers, it's geared towards bootstrapping without VC involvement [0]. [0] https://indiehackers.com https://indiehackers.com

by ufmace 5y ago

moonchrome 5y ago

>It's perfectly fine to start a company that's only going to grow 10x or 20x best-case. VCs won't be interested in you, but that's fine, you don't necessarily need investment. But is that a startup at that point or just a small business ?

ghaff 5y ago
Well,it's just a business if you self-referentially define startup as a business which must have the characteristics that would make VCs interested in investing in it. (In fairness, I'd probably roll my eyes if someone called their McDonald's franchise or arts & crafts retail store a "startup" but plenty of today's big businesses got to where they are without VC funding or really looking much like what people think of as a startup today.)
- deleted 5y ago
  [deleted]
- duped 5y ago
  To me (just some random person on the internet that works at startups) the defining characteristics of a startup are growth and employee equity as compensation. The second has to come from the first, since equity is worthless if there isn't some future promise of payout.
- hn_throwaway_99 5y ago
  We've been over this a lot before. I'm not saying pg's definition is the end-all and be-all, but for usefulness in discussion "high growth potential business" is the most reasonable definition: http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
  - ghaff 5y ago
    I don't really disagree. Much as the "But pg says..." school of argument is like fingernails on a blackboard for me, there is clearly a qualitative difference between a business that's just intended to support one or two people and maybe some other employee--and has no larger ambitions--and one that will possibly take off or, more likely, close down within five years (or whatever). Obviously there are still other businesses that aren't inherently self-limiting but that aren't really constructed for go big or go home either.
    - blacktriangle 5y ago
      The problem with "startup" is that there are two separate issues mixed up in the same word. PG defined it as hypergrowth which is certainly one class of startup, but there's another one as well. The other aspect of startups is that they are newish products doing something new in new markets. As such, issues like product-market fit are key. The problem is when you start to say things like you're not a startup, you're a traditional business is that most traditional businesses don't have the product market fit issue, and thus most traditional businesses are far far less risky. For example, I don't need to convince a bank that my coffee shop will achieve product-market fit, we know people love coffee and have lots of tools for evaluation the financials of a potential coffee shop, which is why I can get a bank loan to go start up my shop. Now there's the issue of starting a company that is trying something new and lacks product-market fit, thus is higher risk and we don't have good tools to evaluate those risks, but is also looking to grow conservatively thus isn't able to get the interest of those looking to give out high-risk funding, ie VCs.
      - ghaff 5y ago
        Not that I have tried to get a loan for a coffee shop but IMO there's very much a question of fit of your particular coffeeshop concept and your particular market (and location). The parameters are narrower than in the case of some totally novel software or hardware product but just because "people buy and drink coffee" is not remotely a guarantee that your particular coffeeshop will be sufficiently successful to stay in business.

IgorPartola 5y ago

Police to bank robber: “why do you rob banks?” Robber: “that’s where the money is. What, do you want me to rob libraries?” VC have money. Spending other people’s money is a frequent pastime. If SoftBank is willing to give you $100m to expand the reach of your IRC replacement, why wouldn’t you take it? Combine this with companies that are built to be sold to one of FAANG (ones that try to solve an actual customer’s problem but mostly just enough to catch the eye of a giant and sell to them) and you have SV.

arbuge 5y ago
> why wouldn’t you take it? One reason is because of what you're giving up in exchange. Obviously equity, for one. Quite possibly also control, if the investors also get board seats as part of the deal. If they have a different vision for the company's future (not to mention your personal future) than you do, that could create problems.
- IgorPartola 5y ago
  Well of course. But between working as a drone for a company and getting VC money to spend (with restriction) on how you see fit, the VC option is pretty appealing.
  - codingdave 5y ago
    There is a middle ground - start something yourself, bootstrap, get profitable, spend the revenue how you see fit without restriction, and own it all. And you can still exit down the road if you so choose.
  - lazide 5y ago
    The restrictions, stress, and pressure that comes with VC feels a lot different when you see them on a term sheet you are trying to decide to sign or not after already busting your butt for a long time making something real, vs from behind that desk at a company. It is a real, and sometimes very undesirable tradeoff. Go big or go home, vs wealthy but not obscenely so through steady effort?

jvanderbot 5y ago

The sibling comments go immediately to the evils or virtues of VC as though that were justification to stay small or go big, but this comment captures the vast majority of small business activity that produces thriving economies and stable lives for owners and workers alike. I have friends who opened automatic garage door repair shops. They are a two-state business and live comfortably and are engaged in the lives and wellbeing of their employees. Disruption is glamorous but small is foundational.

0x4d464d48 5y ago

"It's perfectly fine to start a company that's only going to grow 10x or 20x best-case. VCs won't be interested in you, but that's fine, you don't necessarily need investment." I'm not saying this is your fault and I get where you're coming from. But saying 'only' 10x-20x growth is 'fine' as if that's something to be embarrassed about... Yeesh, talk about messed up perspective... By my reckoning, if you're generating value, have a sustainable business and are giving people gainful employment that in and of itself should be reward enough.

tl 5y ago
Definitions help: Start a company: You + enough business not to go under in X months = covering living expenses for one person or family = $50k / year starting negative of working up to profitable 10x = $500k / year, by the previous measure = competing with the top end of a big tech salary. So there are people reasonably "unhappy" at 10x because of opportunity costs.
- 0x4d464d48 5y ago
  Yep. Being able to create an honest, profitable business pulling in 'only' 500k$/annum. Must suck to be that guy. It's real easy to play the 'grass is always greener' game. Everyone has their own aims in life. Some want money, some want to live a life they're proud of and pretty much everyone is some combination of the two. But trying to frame someone establishing a business with 10x-20x growth as a failure, assuming they're able to support themselves and believe in the value of their venture, is absurd.
  - lazide 5y ago
    500k profit a year (which is still good!) often means 5 mil/yr revenue. Considering the years of work, super high stress, lack of support network common to this, and generally bootstrapping from their own funds? That is decent, but considering all those factors, far from a huge win. If they had put similar work (with the same skill set) into a normal job, they would likely have similar returns with less risk. Especially since there is large ongoing risk of market shifts or the like making it fail with no warning in the future, and at least working in someone else’s enterprise they wouldn’t have their capital at risk.

boringg 5y ago

I’m sorry I feel like we should clarify your numbers. VC money hopes for 10x or 20x as a goal and is quite happy to have that in their portfolio. If you are a 1x-5x company that isn’t enough return for the equity risk. 1000x is an anomaly and would make one fund round do exceptionally well compared to all others but most funds don’t ever get that kind of investment return.

satvikpendem 5y ago

One reason of many that I like Indie Hackers, it's geared towards bootstrapping without VC involvement [0]. [0] https://indiehackers.com https://indiehackers.com