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Is Having Too Much Money Bad for Startups?

7 points by buckpost 15y ago

PaulHoule 15y ago
We can all think of companies that have gotten $50M in funding and have little to show for it... Or which have something that you'd think could be so much better if you could spend that much on it. "Lean startups" with less money are more focused, but they are less likely to be doing something really interesting with technology that involves a sustained development effort. Instead, they pick up some existing technology and quickly apply it to a market segment. As a byproduct, lean startups look pretty boring to some people.
- itmag 15y ago
  If they gave $50M to the Open Source Ecology guys, we could start to change the basic food-production business model of society for the better. Now THAT is properly leveraged cash. And something that has wide-reaching implications. Spending $50M on photo-sharing apps? What the fuck kinda drugs are they smoking? And may I please refrain from partaking in the second-hand smoke thereof?
  - billpatrianakos 15y ago
    Haha seriously! $50 million for something that requires a VPS and some code to start? I honestly don't think I could put that much money into a photo sharing app if I tried. Even if I paid the developer a million dollars to create it, a million dollars for servers, a million dollars for someone to maintain it, a million on design, and 5 million on marketing I still have $41 million left. So do I just pocket that? What's the deal? I'm honestly perplexed and I've asked before and the answers I get are never able to explain why these startups need or are even worth such amounts. Everyone pretty much says "yeah, I don't get it either". Please, I'm being serious, can someone educate us on how this makes sense?
itmag 15y ago
Here's a question that will probably get me downvoted: what exactly is it that costs so much money in startups? Is it servers? Is it paying awesome brogrammers the exorbitant wages that they oh so deserve? Is it paying for marketing? Or something else? I kind of need to know which one it typically is, since I am planning to start a startup. If it's wages, then, well, I am going to do real great since me and my partners are used to working for scraps in Sweden anyway. But if it's something else then we might be hosed unless we get outside funding.
- billpatrianakos 15y ago
  You took the words right out of my mouth. I've brought this up before and it seems that people are very aware of this and actually agree with us. A startup can run with a single server and a coder for $20,000 and that's being generous. The money helps you build momentum and get marketing to get users. But if you lack a product or lack a model that will actually generate revenue then the funding is worthless. You end up with a bunch of failed startups, burned VCs and a bust bubble. Then all the good startups that actually have a working product and a viable profit making model will be punished by all the guys who wanted to get in on trendy Startupland and burst the bubble for everyone else.
  - itmag 15y ago
    Also, why is it seemingly always a bunch of crap that gets funded by VCs? Is there no one who will take a step back and fund tech that levels us all up for the long haul? Investors: enough with social shopping, Facebook for cats, and crowdsourced geo-optimized micro-lattes already. Fund something that truly creates WEALTH. Prime example: http://opensourceecology.org/wiki/Global_Village_Construction_Set http://opensourceecology.org/wiki/Global_Village_Constructio...
    - billpatrianakos 15y ago
      It seems like they're disconnected from reality nits like there' this Silocon Valley bubble that the VCs are living in. I'm up on all the trendy tech news too but I'm out in Chicago so maybe I'm able to see things differently from the outside. Haven't they figured out that unless your some huge corporation like Google you can't break into the social space. It's already been dominated by the big 3 (Facebook, Twitter, G+). Social is becoming cliche and its actually turning people off now. That's not to say the startup party is over, it's just that now that we have entertainment and novelty all squared away they can focus on other things. Dropbox for instance is a company that's not exactly serving a humanitarian purpose but they're doing awesome things that are going to change the way we work with our devices. Spotify I think is also worthy of the money because it has given us something a lot of us have dreamed of: access to pretty much any music, on demand, for free. Like on demand radio. Again, it's not helping people in profound humanitarian ways but they're doing awesome things (opinions on artists pay and all that have nothing to do with what I'm talking about here so please don't go off on that tangent). But instead of finding these truly unique and innovative companies they throw money at exactly what you said, Facebook for cats and other lame wannabe sites with founders who think they're next in line to dethrone Zuckerberg because it's cool to be a billionaire. I think there are still people who get it and they're smart about where they put their money but far too many are getting into this like some gold rush. They invest based on "oh tech startups are trendy and they'll make me rich no matter who they are" kind of thinking. Honestly, I'd totally forgo funding for something I can do on a shoestring budget (and I am) and I'm the end come out with a better product that I'm in control of completely. That's real success. Funding has its place but it's being abused nowadays.
lpolovets 15y ago
The biggest risk of having too much money is not that you'll spend it, but that you'll lose your sense of urgency. When you have 6 months of cash in the bank, you're going to release MVPs, you're going to be customer-focused, and you're going to be super-driven to hit the next milestone so that you can get enough additional revenue (or additional funding) to stay in business. When you have 36 months of cash in the bank, the urgency can fade very quickly: you end up working on features without talking to customers because you think the features are useful and you can afford to be wrong; you end up tweaking things endlessly before launching because you can afford to be a perfectionist; you end up doing a lot of things that you shouldn't be doing because you feel like you can afford them. Pretty soon, you once again have 6 months of funding left, but now your culture is no longer in the right place to be scrappy and urgent and desperate in the way that you were before a mega-funding round.

7 points by buckpost 15y ago

We can all think of companies that have gotten $50M in funding and have little to show for it... Or which have something that you'd think could be so much better if you could spend that much on it. "Lean startups" with less money are more focused, but they are less likely to be doing something really interesting with technology that involves a sustained development effort. Instead, they pick up some existing technology and quickly apply it to a market segment. As a byproduct, lean startups look pretty boring to some people.

itmag 15y ago
If they gave $50M to the Open Source Ecology guys, we could start to change the basic food-production business model of society for the better. Now THAT is properly leveraged cash. And something that has wide-reaching implications. Spending $50M on photo-sharing apps? What the fuck kinda drugs are they smoking? And may I please refrain from partaking in the second-hand smoke thereof?
- billpatrianakos 15y ago
  Haha seriously! $50 million for something that requires a VPS and some code to start? I honestly don't think I could put that much money into a photo sharing app if I tried. Even if I paid the developer a million dollars to create it, a million dollars for servers, a million dollars for someone to maintain it, a million on design, and 5 million on marketing I still have $41 million left. So do I just pocket that? What's the deal? I'm honestly perplexed and I've asked before and the answers I get are never able to explain why these startups need or are even worth such amounts. Everyone pretty much says "yeah, I don't get it either". Please, I'm being serious, can someone educate us on how this makes sense?

itmag 15y ago

Here's a question that will probably get me downvoted: what exactly is it that costs so much money in startups? Is it servers? Is it paying awesome brogrammers the exorbitant wages that they oh so deserve? Is it paying for marketing? Or something else? I kind of need to know which one it typically is, since I am planning to start a startup. If it's wages, then, well, I am going to do real great since me and my partners are used to working for scraps in Sweden anyway. But if it's something else then we might be hosed unless we get outside funding.

billpatrianakos 15y ago
You took the words right out of my mouth. I've brought this up before and it seems that people are very aware of this and actually agree with us. A startup can run with a single server and a coder for $20,000 and that's being generous. The money helps you build momentum and get marketing to get users. But if you lack a product or lack a model that will actually generate revenue then the funding is worthless. You end up with a bunch of failed startups, burned VCs and a bust bubble. Then all the good startups that actually have a working product and a viable profit making model will be punished by all the guys who wanted to get in on trendy Startupland and burst the bubble for everyone else.
- itmag 15y ago
  Also, why is it seemingly always a bunch of crap that gets funded by VCs? Is there no one who will take a step back and fund tech that levels us all up for the long haul? Investors: enough with social shopping, Facebook for cats, and crowdsourced geo-optimized micro-lattes already. Fund something that truly creates WEALTH. Prime example: http://opensourceecology.org/wiki/Global_Village_Construction_Set http://opensourceecology.org/wiki/Global_Village_Constructio...
  - billpatrianakos 15y ago
    It seems like they're disconnected from reality nits like there' this Silocon Valley bubble that the VCs are living in. I'm up on all the trendy tech news too but I'm out in Chicago so maybe I'm able to see things differently from the outside. Haven't they figured out that unless your some huge corporation like Google you can't break into the social space. It's already been dominated by the big 3 (Facebook, Twitter, G+). Social is becoming cliche and its actually turning people off now. That's not to say the startup party is over, it's just that now that we have entertainment and novelty all squared away they can focus on other things. Dropbox for instance is a company that's not exactly serving a humanitarian purpose but they're doing awesome things that are going to change the way we work with our devices. Spotify I think is also worthy of the money because it has given us something a lot of us have dreamed of: access to pretty much any music, on demand, for free. Like on demand radio. Again, it's not helping people in profound humanitarian ways but they're doing awesome things (opinions on artists pay and all that have nothing to do with what I'm talking about here so please don't go off on that tangent). But instead of finding these truly unique and innovative companies they throw money at exactly what you said, Facebook for cats and other lame wannabe sites with founders who think they're next in line to dethrone Zuckerberg because it's cool to be a billionaire. I think there are still people who get it and they're smart about where they put their money but far too many are getting into this like some gold rush. They invest based on "oh tech startups are trendy and they'll make me rich no matter who they are" kind of thinking. Honestly, I'd totally forgo funding for something I can do on a shoestring budget (and I am) and I'm the end come out with a better product that I'm in control of completely. That's real success. Funding has its place but it's being abused nowadays.

lpolovets 15y ago

The biggest risk of having too much money is not that you'll spend it, but that you'll lose your sense of urgency. When you have 6 months of cash in the bank, you're going to release MVPs, you're going to be customer-focused, and you're going to be super-driven to hit the next milestone so that you can get enough additional revenue (or additional funding) to stay in business. When you have 36 months of cash in the bank, the urgency can fade very quickly: you end up working on features without talking to customers because you think the features are useful and you can afford to be wrong; you end up tweaking things endlessly before launching because you can afford to be a perfectionist; you end up doing a lot of things that you shouldn't be doing because you feel like you can afford them. Pretty soon, you once again have 6 months of funding left, but now your culture is no longer in the right place to be scrappy and urgent and desperate in the way that you were before a mega-funding round.