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Markus Frind: "Do VC Backed Founders Actually Make Any Money?"

16 points by toffer 19y ago

pg 19y ago
He has a point, though he's wrong in a lot of details. It's true that one of the best ways to make a lot of money out of a startup is not to raise too much. What he doesn't seem to get is that some startups actually cost a lot to start. Loopt, for example, could not have been built without VC scale money. If you want to do something like that (or Google), you need millions. And if you succeed, you end up rich. Ending up with 10% of the company is not so bad if the company is worth a billion dollars. Also, his statistics are junk. That "government report" showing that most small businesses are still in operation after 4 years has nothing to do with startups. The small businesses they're talking about are plumbers and shoe shops. The success rate is lower for startups. Which makes sense, because the payoff, if the company succeeds, is much higher.
- willarson 19y ago
  In general I would like to throw PlentyOfFish out as a bad data point. His experience has been atypical, although he doesn't seem to agree. He was a single founder, and he did everything himself... which is better phrased as 'everything that got done, he did'. He didn't have any plan or roadmap; he went along and did what he wanted to, and it worked out well. Much (most?) of his revenue comes from Google AdSense, which has not been as generous to many other who have chosen it as their primary source of revenue (this is largely helped by his site being lower on resources (some pictures and a lot of text), instead of media intensive).
  - staunch 19y ago
    It is a bad data point. It's an SEO site that managed to become a destination, almost purely by accident. Sort of like AdultFriendFinder, which makes hundreds of millions doing a similar thing.
  - Tichy 19y ago
    Getting rich by doing a startup seems to be atypical. I don't see why that data point shouldn't count. My impression so far is that "doing what you want to do" is among the most promising strategies for success.
    - willarson 19y ago
      My point is that it is a bad point among successful startups, not that it is a bad point among startups in general. Looking at startups in general isn't particularly interesting for an entrepreneur compared to looking at those that are particularly successful (or fail in epic flames). Doing what you want is a good way to make macro decisions. Should I try to be a dentist or a programmer? I like programming, I'll do that. Unless your psychological makeup is perfect, it doesn't do quite as well for micro decisions. Should I eat that chocolate cake? Well, I want to. Should I go to work today? Nah, I'm tired. Should I drink that next beer? Why the hell not? I guess it comes down to that I should have been clearer in drawing the distinctions I was trying to make.
ph0rque 19y ago
"What would you rather own, 100% of something or 5% of a dream?" This goes directly against what I've heard before: "a small piece of a big pie is better than a large piece of nothing."
- davidw 19y ago
  Someone should make a big collection of these pithy bits of advice that get written up in bullet points, each one with the opposing bullet point that gets brought up by some other purveyor of wisdom. I'm certain that for a lot of these people, their advice is not exactly scientific, but more along the lines of "I did this and this and this, and it all worked out", which is fine, but in a complex system like that, who knows what caused what, and what is just noise. One of the things I liked about 'Founders at Work' was that it was such a wide array of people and undertakings, that it did actually give some insight into things that were common to othewise diverse groups.
- JohnN 19y ago
  I could be putting words into markus's mouth, but I think what he is getting at, is that to be successful in a start-up you don't really need vc money. there are plenty of other ways to do it. Start-ups are too obsessed with funding. You hear about start-ups building products no way as complicated as loopt and yet they are getting 5 million. What are they spending it on!?! The fact of the matter is, many start-ups will not be profitable even with a seemingly good idea and vc money to propel them. I get the sense that a lot of the funding craze is an attempt to stave off bankruptcy, nothing more.
waleedka 19y ago
If funding reduces your share to X of it's current value, then it should increase the value of your company to, at least, 1/x of it's current valuation. For example, if funding reduces your 100% ownership to 25% (x = 0.25), then you'll have to multiply the value of your company by 4 (1/.25) to end up with the same valuation. If you think funding will push you beyond the 4x, then it's a good deal.
wschroter 19y ago
The % that you get is only a small point of taking on money. It's all the control and day-to-day mechanics that you are really giving up.
staunch 19y ago
Supposedly Kevin Rose has much more than 10% of Digg, same with Mark Zuckerberg/Facebook. Didn't the Google guys maintain a lot of equity as well? I think some people use VC as a crutch and other's use it as a tool. The ones that do the latter seem to do pretty well.

16 points by toffer 19y ago

pg 19y ago

He has a point, though he's wrong in a lot of details. It's true that one of the best ways to make a lot of money out of a startup is not to raise too much. What he doesn't seem to get is that some startups actually cost a lot to start. Loopt, for example, could not have been built without VC scale money. If you want to do something like that (or Google), you need millions. And if you succeed, you end up rich. Ending up with 10% of the company is not so bad if the company is worth a billion dollars. Also, his statistics are junk. That "government report" showing that most small businesses are still in operation after 4 years has nothing to do with startups. The small businesses they're talking about are plumbers and shoe shops. The success rate is lower for startups. Which makes sense, because the payoff, if the company succeeds, is much higher.

willarson 19y ago
In general I would like to throw PlentyOfFish out as a bad data point. His experience has been atypical, although he doesn't seem to agree. He was a single founder, and he did everything himself... which is better phrased as 'everything that got done, he did'. He didn't have any plan or roadmap; he went along and did what he wanted to, and it worked out well. Much (most?) of his revenue comes from Google AdSense, which has not been as generous to many other who have chosen it as their primary source of revenue (this is largely helped by his site being lower on resources (some pictures and a lot of text), instead of media intensive).
- staunch 19y ago
  It is a bad data point. It's an SEO site that managed to become a destination, almost purely by accident. Sort of like AdultFriendFinder, which makes hundreds of millions doing a similar thing.
- Tichy 19y ago
  Getting rich by doing a startup seems to be atypical. I don't see why that data point shouldn't count. My impression so far is that "doing what you want to do" is among the most promising strategies for success.
  - willarson 19y ago
    My point is that it is a bad point among successful startups, not that it is a bad point among startups in general. Looking at startups in general isn't particularly interesting for an entrepreneur compared to looking at those that are particularly successful (or fail in epic flames). Doing what you want is a good way to make macro decisions. Should I try to be a dentist or a programmer? I like programming, I'll do that. Unless your psychological makeup is perfect, it doesn't do quite as well for micro decisions. Should I eat that chocolate cake? Well, I want to. Should I go to work today? Nah, I'm tired. Should I drink that next beer? Why the hell not? I guess it comes down to that I should have been clearer in drawing the distinctions I was trying to make.

ph0rque 19y ago

"What would you rather own, 100% of something or 5% of a dream?" This goes directly against what I've heard before: "a small piece of a big pie is better than a large piece of nothing."

davidw 19y ago
Someone should make a big collection of these pithy bits of advice that get written up in bullet points, each one with the opposing bullet point that gets brought up by some other purveyor of wisdom. I'm certain that for a lot of these people, their advice is not exactly scientific, but more along the lines of "I did this and this and this, and it all worked out", which is fine, but in a complex system like that, who knows what caused what, and what is just noise. One of the things I liked about 'Founders at Work' was that it was such a wide array of people and undertakings, that it did actually give some insight into things that were common to othewise diverse groups.
JohnN 19y ago
I could be putting words into markus's mouth, but I think what he is getting at, is that to be successful in a start-up you don't really need vc money. there are plenty of other ways to do it. Start-ups are too obsessed with funding. You hear about start-ups building products no way as complicated as loopt and yet they are getting 5 million. What are they spending it on!?! The fact of the matter is, many start-ups will not be profitable even with a seemingly good idea and vc money to propel them. I get the sense that a lot of the funding craze is an attempt to stave off bankruptcy, nothing more.

waleedka 19y ago

If funding reduces your share to X of it's current value, then it should increase the value of your company to, at least, 1/x of it's current valuation. For example, if funding reduces your 100% ownership to 25% (x = 0.25), then you'll have to multiply the value of your company by 4 (1/.25) to end up with the same valuation. If you think funding will push you beyond the 4x, then it's a good deal.

wschroter 19y ago

The % that you get is only a small point of taking on money. It's all the control and day-to-day mechanics that you are really giving up.

staunch 19y ago

Supposedly Kevin Rose has much more than 10% of Digg, same with Mark Zuckerberg/Facebook. Didn't the Google guys maintain a lot of equity as well? I think some people use VC as a crutch and other's use it as a tool. The ones that do the latter seem to do pretty well.