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Don't Take VC Funding – It Will Destroy Your Company

• tomrod 3y ago
  It won't destroy the company. Rather, it defines it, for better or for worse. And it may remove the connection to the founders' vision for the company.
  • dylan604 3y ago
    >remove the connection to the founder's vision How is that not destroying the company from the founder's perspective? Is there any way to take the "don't accept VC money" relevant to anyone that's not a founder?
    • DriverDaily 3y ago
      Are “destroy the purity of my idea” and “destroy the company” the same?
      • tomrod 3y ago
        I personally view them as separate.
    • tomrod 3y ago
      Primarily a semantics game. Your business entity will still exist if you take VC money. However, the VC now has a say in the business and its profits, while their target may not be aligned to the founders' vision, hence a wedge that splits the company from the vision. That wedge may immediately divorce (what most would call a destruction) or it may take time.
• synergy20 3y ago
  It depends, without VC many people will never have any company to start with. Not all company can be a lean one, some just need external investment to gain speed to survive, some indeed has no needed for VC. Take it when it's good for you, avoid it if you don't really need it.
  • deleted 3y ago
    [deleted]
  • KerrAvon 3y ago
    reading the article might help here
    • echelon 3y ago
      This is an unhelpful comment and tone that doesn't add much. Many of us come to HN for the discussion and don't even care for the articles. Threads will often digress into interesting and orthogonal tangents. A better way to respond might be, "your comment is true in some circumstances, but the article states condition X, which makes the advice applicable."
      • Capricorn2481 3y ago
        Which is why this place is just Reddit with more flowery language and an illusion of expertise
        • echelon 3y ago
          I really don't agree. This place is filled with some of the most intelligent subject matter experts in the world.
          • Capricorn2481 3y ago
            Filled? I would say some really intelligent 1% programmers use this site to reach out to average programmers like me. Discussions around programming are often filled with people that tried a technology for 15 minutes and gave up. Every other subject? It's a lot of cherry picked data and political dog whistling with an occasional expert
        • surgical_fire 3y ago
          If I had more upvotes to give you, I would. I come here because quite often the links posted are useful and interesting. While the comment section sometimes have meaningful on-topic insights, those are few and far between. Most often are just bad takes and/or things that are unrelated to the content at hand, interwoven with a unique brand of mutual fart sniffing. Your description does it justice.
• deleted 3y ago
  [deleted]
• carschno 3y ago
  This lecture about post-growth entrepreneurship at the University of Amsterdam lays out some of the issues: https://youtube.com/watch?v=ApINAX7XEqc&list=PL14vcCXv7XVONAwzNv0ApYwZ5iepLzz3S https://youtube.com/watch?v=ApINAX7XEqc&list=PL14vcCXv7XVONA...
• DeathArrow 3y ago
  >So, what about those 10 million Euros? If MagicalUnicorn were your company, would you as a founder personally receive that sweet cash when your company gets VC funding? Nope. If the company receives 10 millions for 50% of the shares and it becomes valued at 100 millions, you can sell the other 50 % of the shares for 50 millions and let the venture capitalists deal with the business while you enjoy cocktails at the beach.
  • caned 3y ago
    There's a question of values here. VC may be the path for maximum monetary gain and maximum growth, but maybe it's not if you want to _make_ something that represents your values. Once your 50% slips to 49% and below, it's game over.
• lloydatkinson 3y ago
  I can’t imagine the post lasting long here of all places.
  • adventured 3y ago
    The topic of not taking VC is routinely discussed on HN. It's a very popular subject. I've been coming here for ~11-12 years and there has always been a vibrant back and forth, pro / con, discussion on the subject of why or when VC makes sense (or not).
• DethNinja 3y ago
  On the other hand, my first self-funded startup got destroyed by a VC funded venture. They had a worse product but far better marketing and they used every dirty trick in book to tarnish my company’s reputation. There is no way I’ll start another startup unless I receive backing from a huge VC company. Current economic paradigm is more similar to centralised/controlled economies of USSR. Thus if you want to succeed, you will need friends with connections to central banks.
  • chris_j 3y ago
    What does SSBC mean in this context?
    • DethNinja 3y ago
      Sorry, it was meant to be USSR (Union of Soviet Socialist Republics).
      • chris_j 3y ago
        Many thanks, makes sense now.
  • Sosh101 3y ago
    I second this. Have had a similar experience.
    • getmeinrn 3y ago
      I'm interested, can you share?
  • jorvi 3y ago
    > central banks I think you mean big banks. Aside from maybe a line of communication due to their financial size, VCs have very little to do with the Fed or ECB.
    • uLogMicheal 3y ago
• deleted 3y ago
  [deleted]
• DeathArrow 3y ago
  >You know, in ancient times, when Peter Drucker, the Master Yoda of business books, was still roaming the planet (alongside dinosaurs, probably) and writing business books, the definition of a successful company actually included the fact that the company was making more money than it was spending - it was profitable. I guess some companies like Yahoo were never profitable but some people got rich buying and selling shares.
  • adhesive_wombat 3y ago
    And some companies are only profitable as-run for the shareholders, temporarily, despite being theoretically sound long-term businesses. Take a profitable company, cut costs to bone, arbitrage off all the goodwill generated by an erstwhile decent product, strip assets, pay executive salaries, bonuses and dividends on the "stunning" short term profits and flit before the emptied husk crashes down on top of the employees that once made it work. Bonus dead-eyed vulture points if it's public infrastructure and the tax payer is now on the hook for double-digit billions to restore the damage you did. This week, water, but the same happens over and over again in every sector: https://theconversation.com/how-thames-water-came-to-be-flooded-with-debt-and-what-it-means-for-taxpayers-208788 https://theconversation.com/how-thames-water-came-to-be-floo...
    • buzzscale 3y ago
      Fascinating. Seems like similar issue risk management issue to silicon valley bank where they didn't account for a jump in interest rates and increase in inflation.
      • adhesive_wombat 3y ago
        Calling such shameless pocket-stuffing a "risk management issue" seems to rather be like calling a drink-driving accident that kills a pedestrian an "unforeseen kinetic event".
  • adventured 3y ago
    Yahoo isn't a good example. They were able to routinely turn a profit after the dotcom bust. Their business was very similar to Twitter's profitable years in terms of margins (pre Elon; 10-20% operating income margins). Yahoo had a gigantic (at the time), successful ad business and a lot of properties to display the ads on. As of right now, the single greatest example in modern business history is Uber. Although they continue to trim their operating losses and it appears they may reach sustainability ($14.1b revenue with $8.5b operating loss in 2019; trimmed to a $1.8b operating loss on $31b in revenue the past four quarters). Their history of loss generation is astounding. Upwards of $30 billion in operating losses since 2009. Even in an ideal scenario it'll probably take them 10+ years after they finally reach an operating profit to turn that net positive.
• burlesona 3y ago
  This article is technically correct about a lot of things, but it also feels like it’s over-thinking things. Yes if you take big VC investments, the purpose is to grow a big company and sell it later, and at that point the deal really is “rocket ship or bust.” But there are also a lot of VCs who are happy to invest small amounts very early, don’t get control of the company, and would be happy to see you get profitable without taking any more investment — often these smallest investors are called “angels” but there are also firms that specialize in these kinds of investment. It’s fine for the author to be all high and mighty about looking down on taking funding, but for most people bootstrapping isn’t practical or even possible, the business they want to run requires full-time focus and attention, and they don’t have the means to work for 2+ years without a paycheck. VC funding gives people like that a chance to try!
• allenleee 3y ago
  VC money is the rocket fuel. If you're not going to build a rocket, then don't take resources. There are plenty of tech startups generating over $100 million in revenue that didn't require that fuel.
  • nvrgngvup 3y ago
    [dead]
  • klysm 3y ago
    I’ve seen several people say that in this thread - who is the original source of that analogy?
    • netcruiser 3y ago
      Mr Wonderful?
• lifeisstillgood 3y ago
  At some point around 2008 starting a (tech) company became possible at "ramen" levels - middle class kids could launch on AWS etc. Tech VC struggled to adjust and a new breed of VC (ie ycombinator) saw a gap and exploited it - they needed smart founders who could get to series A with minimal funding. (more fairly they also (slowly?) paid founders much more and encouraged earlier liquidity so founders you know could see earlier payoffs) anyway, the point was that it became possible to launch and run with small capital investment. But at some point you had to hire more people to do the extra coding bits. I am wondering if LLMs are about to chnage that. The coding output is so good it could put off hiring a tranche of new devs for months or years. "create a web page to show the cities in yellow where users > 1 poker per month" is something you used to hire someone to do, and correct their work. now you are hiring OpenAI. How much early phase work can be delegated to OpenAI if you know the right questions? Can the onboarding work through a chat bot? the initial demos? And is the next ycombinator skill set going to be "I know the right questions to ask ChatGPT to allow you to keep lean for another year?"
• eastdakota 3y ago
  You’re so right! It was an absolute disaster for us. Never do it!!!!! Kidding aside, it is true that raising money from VCs puts you on a very defined path with really only three potential outcomes: 1) failure, 2) sell to acquirer, or 3) go public. There are a small handful of exceptions, mostly for companies that throw off massive amounts of cash, but, realistically, those are the outcomes. If you don’t like any of those end states and what it realistically will take to get to them, don’t raise money from VCs. But, having done so and been successful and taken a company public, I can say: it’s pretty great and I have zero regrets about anyone we raised money from. And I’m proud that everyone who invested in us prior to going public made at least a 10x return. While there are plenty of VC horror stories, there are fairytales as well.
  • dabeeeenster 3y ago
    > While there are plenty of VC horror stories, there are fairytales as well. What's the ratio, though??? 10/1? 20/1? 50/1?
    • getoffmycase 3y ago
      According to a talk I heard from a VC, the bulk of investments return very little, several may 2x to 5x, a few may 5x, and one will 15-20x or greater. They’re looking for a 10+% return on the entire portfolio.
    • metadat 3y ago
      In my experience, around 5% of VCs I've met in real life are truly decent human beings, even in cases where they don't have to be. The rest have been pure capitalistic sharks (which is understandable, given the entire sector filters for this).
      • bombcar 3y ago
        The best VC I ever interacted with was retiring and treated us more like a fun project than a VC investment. Kelts is going longer than he should have and exited with a small return eventually.
• sf4lifer 3y ago
  Only take rocket fuel (VC funding) if you've got a rocket (PMF in a massive TAM with net revenue retention) If you don't have a rocket, the rocket fuel will be wasted and disappointing in any other vehicle. Ideally you bootstrap until it's clear. But if you start the company with VC funding, you should know the expectation. If you truly have a rocket the economics of VC funding is favorable for everyone.
  • anonzzzies 3y ago
    How do you know if you have a Rocket? Many (most?) VC funded companies are just appearance, no substance and it’s all very apparent. All the new AI ‘products’ for instance. So those are clearly not rockets, just blah and hype. Maybe we had rockets before, but I don’t want to lie and cheat like some of our vc invested companies did (most are gone). Never were rockets, just hype, Twitter presence and faking all around.
    • TrackerFF 3y ago
      monthly/annual growth? To be honest, startups play on another level than most SMBs. With a SMB, you can double your growth every year for 5-10 years straight, and do very well, but not be interesting for VCs. To be interesting and relevant for VC money, you need a business that can scale to millions of users. If you can show that you're able to double growth every month (or similar short-window metrics) with an idea that could scale to a billion dollar company, you'll get the interviews all right. Hype is a big part of growth. The problem, so to speak, is that you'll be competing against other startups - and if you they have the VC money, but you don't, there's a good chance they'll outpace/outgrow you. I think it's very noble to grow as much as you can organically - but realistically speaking, it's difficult to compete against those that are funded. And you don't really need to use the money you get - being funded also comes with a signaling effect. You get lots of publicity, and get to signal that serious investors are willing to back you.
      • esafak 3y ago
        Actually you would be interesting for VCs if you started compounded from a reasonable start like $1m/year. Doubling for five years would get you to $32m/year, and 10 years to 1b/year, leading to a $10b valuation. One common benchmark for startups at the $1m/year stage is T2D3 (triple, triple, double, double, double).
• ahmedfromtunis 3y ago
  The writer is not an entrepreneur (according to his bio), and didn't back his "analysis" with any form of data (beyond some anecdotal telltales) — yet his conclusion is stated without any sliver of doubt: "it *will* destroy your company"!
  • sfink 3y ago
    I think the conclusion is justifiable, but it relies on the author's definition of "destroy". "If you want to run a company that looks like X, then taking VC money will prevent that from happening" is a pretty easy conclusion to make, though the only value in it is in the description of potentially surprising parts of what not-X looks like, to allow readers to judge whether they care.
• liorben-david 3y ago
  > You confess that you as a founder were still not able to make the company profitable with the resources you currently had. You’re bleeding money, and you need more. For a lot of companies this is true, but tons of business models require economies of scale to be profitable and there's nothing wrong with that. It's not a failure to say that a company can't be profitable at a small scale. The real issues are the plethora of companies where the unit economics will never make sense regardless of scale. Painting VC money with such a large brush is unhelpful. > VC Funding Means You Will Sell Your Company I think this is the more serious critique. Your VC investor wants you to make an exit, either through IPO or acquisition. This is the VC business model. A steadily growing profitable business will almost never provide the kind of return neccesary to compensate the risk of a VC firm. If that's something you're okay with, great.
• vidarh 3y ago
  Having co-founded multiple companies and been an early or the first employee at several more, several of which have taken VC funding, this feel unnuanced. Of the VC funded companies I've been involved with I think only one would've happened at all without VC funding because they'd have been too capital intensive. For the one that we could've done without a VC, I do somewhat regret taking VC money, as we ended up pushed by investors into selling off a part of the business that could've been a nice lifestyle business, but it's not at all a given it'd have grown enough without taking investment to be worth it. I've bootstrapped businesses too, and it's an arduous process and often far slower. If you're successful you're then lucky enough to be fully in the drivers seat, and that's great. If you're not, chances are you've wasted far more time. Overall it boils down to what do you want? VC accelerates the the whole process, and multiplies outcomes - both risks and rewards. If you feel comfortable with taking a higher risk for a chance at either making it big fast or failing fast, then VC investment can be great. If your idea is your baby or your life's mission and it's what you want to keep doing whether or not it's a runaway success, VC might be a poor fit for you unless you happen to strike it lucky very quickly and can dictate terms - control can slip away very fast if things go in the wrong direction or too slow. I'm far less likely to take VC money if I were to start something today largely because I've got enough money that it'd take far better terms to make it feel worth it, but I don't regret taking investment in the past other than maybe that single one I mentioned.
• version_five 3y ago
  I recognize there must be good VCs around, but so much of what you see looks really like a kid's game to me. So many douchy people with the same cliche advice acting like they're visionaries. And a certain kind of "lifestyle" "founder" fawning all over them. Starting a company has been commoditized and turned into an internship for smart kids. I know it's not all like this but for anyone seriously interested in doing something different, the whole scene comes off as very unappealing.
  • freediverx 3y ago
    VC is a cancer on society. No exceptions.
    • dang 3y ago
      Ok, but can you please stop posting unsubstantive comments to Hacker News? We're hoping for something different here. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  • fullstackchris 3y ago
    I think it falls into a few categories: and you can _feel_ the difference. There is type one: the company just going through the motions because they're just the NPC that feels "oh I now its time to 'do' VC because that's what everyone does" Then another type: some of the deep tech startups full of super smart people, even publishing papers, and are usually backed by one or more major institutions (universities, companies, etc.) you can literally feel the passion pouring out of their employees Then even still there is a third but very rare type: that startup that bootstrapped itself to profitability without any VC at all! (IMO most impressive and difficult)
    • disgruntledphd2 3y ago
      GitHub did this, and took VC later on.
  • mafuyu 3y ago
• DeathArrow 3y ago
  >Maybe it’s the amount of customers a company has, or the speed at which that customer base is growing. Business dudes like to call it traction, but I’m not sure whether they know what they’re really talking about. I’m not even sure if they know what they’re talking about. Regardless, whatever traction may be, the minor problem is that, well, having traction doesn’t magically make your company profitable. People wondered how Google and Facebook will going to be profitable with billions of users and gaining no money from those users. There's always going to be a way to convert users into money. Many companies are trying to grow at first and then find a way to monetize the user base.
  • constantly 3y ago
    What about all the VC-funded companies that were never able to find a way to convert users into money? “Always” is a very big stretch here.
  • vidarh 3y ago
    There's however not always going to be a way to convert users into enough money. During the dot-com boom, the VC's who invested in the company I co-founded around that time pushed us to switch from planning to charge for our service (vanity e-mail accounts) to offering them for free to attract users, driven by the greed of seeing pre-revenue companies in some instances acquired at a valuation of up to $4,000 per user before the bubble burst. We stupidly agreed (everyone understood the $4k per user was a crazy aberration, but it triggered thoughts of "but even if we get to just $400 per user fast enough to get acquired...), and ended up selling off that service a year and and a half or so later for a pittance after pivoting (we did the ".name" top level domain, which was not a great money maker either - was eventually sold to Verisign and I got a little unexpected cheque years after I'd left, but nowhere close to f-you money), but the point being that there were a whole lot of companies spending far more on acquiring users at that point on the basis of crazy per-user valuations than there was any realistic way of earning back. So, yeah, you can always convert users into money, but that doesn't necessarily mean you'll be able to convert them into profit.
  • nvrgngvup 3y ago
    [dead]
• raesene9 3y ago
  The article has a lot of interesting points, but seems to miss out on one of the main reasons (IMO) that startups take funding, which is to grow faster than (or as fast as) their competition. Unless you're lucky enough to be in a market segment without competition, you need to keep an eye on what your competitors are up to. If they can expand faster, add features faster and get more customers than you, it damages your chance of success in that market segment. Taking VC money could provide that velosity. That said ofc I do agree that, if your goal is to run a profitable business for a long time, taking VC cash is quite possibly a bad idea, depends on what the founders goals are.
  • anonzzzies 3y ago
    OR (as you say, but many miss) you do not care about being the market leader. I just want to have a nice company with nice people, no stress and making millions for all to live. I don’t need vc money, stress, be the market leader or ‘be faster than the competition’. A LOT of services or products you can make a long term (decades) money with like this. I don’t need more than 10m euros in my life, nor do my colleagues and our clients are happy. No idea why I want all this misery of competing, stress, exposure, running all the time etc etc.
    • detourdog 3y ago
      The biggest obstacle I see to using VC money is that it has a good opportunity to distort incentives. If a company has a vision fulfilling every request outside of the vision could be considered a distraction. The VC has legitimate concerns outside of the scope of the company vision. Apple is one of the few modern companies that I can think of where the VC money was useful. If anyone can remember google before going public and after going public might mourn the old google. Imagine if google wasn't romanced by Wall Street but followed their own path like craigslist.org. I believe that google would have been much more collaborative. I can't see where going public helped google be good at internet search.
      • disgruntledphd2 3y ago
        Yeah I remember discussing this with friends back in 2004 and concluding that Don't be Evil was dead. Took a little longer than I expected but they got there in the end.
• asim 3y ago
  For every example there is the counter example. It's sort of hard for me to take this advice seriously without the author actually having had raised money. I couldn't tell from skimming it but it feels like it's a lot of common things we know are written by someone who was either rejected by VCs or has a real aversion to it. Look venture capital serves a purpose and that purpose is to accelerate and grow innovative technologies that would otherwise not be capable of doing it another way. Part of that assumption is there will be a way to "capitalize" on that investment and it will go on to be incredibly valuable for end users, businesses or an acquirer. The most important technologies of our lives and the foundations for most things we use were venture funded, that's a fact. I've worked at bootstrapped companies, I've worked at VC funded companies. I've seen exits and I've seen deaths. I've done the solo founder thing, raised money, blah blah. What I'll tell you is, raise money if you believe there is no other way for you to achieve the goal of turning your vision into a reality without it. Seek out the expertise, the past experience, the people who will be most helpful to you. If they happen to be in venture, then there you go, but if there's a different path, take it. If you have any sort of incentive misalignment with your investors, yes it's going to destroy your company, but even more so it's going to ruin your life, your relationships, the joy you had in the thing you were building. You can either see VC funding as a game and the hot shiny thing to chase that will solve all your problems or you can be truly realistic about it and understand that it's a tool like any other to build and manifest into reality a product and vision you have for something you believe should exist. Today due to the saturation of accelerators, venture and the abundance of capital it's basically just a lifestyle thing that you raise a round and hack on side projects like it's a job but there's also the self selecting group within there who take it really seriously. So you know when I bootstrapped for 4 years solo, raised funding and tried to build a product/team/company through COVID it was a brutal experience but one I took seriously and tried really hard not just to manifest my vision into reality but also take care of the people on that journey, be forthright with my investors, etc. It's hard man, only do it if you really get that.
• aaa_aaa 3y ago
  > On a quick side note, let’s talk about lottery winners for a moment. Their situation might seem quite similar. After receiving their winnings, they often end up unhappy, broke, or worse yet, dead. According to current research, this is false.
• dangus 3y ago
  I’ve taken a class on new venture funding and what this article misses out on is a discussion of the term sheet. VC can be a great deal for the company and the founder, or it can be a really bad one. That often depends on what ends up being negotiated into the term sheet that is signed by the VC and founders: what’s the pre-money valuation, what’s the liquidation preference, etc etc. Basically, this article says “don’t buy a cheeseburger, it’s a bad deal” without having a discussion about how much the cheeseburger cost.
• cheeseblubber 3y ago
  The person ultimately responsible for the success of your company is yourself and most likely you'll fail regardless of VCs. I take issues with some of the second order effects: 1. "Because your goal is to sell the company later, it has to grow." You don't have to hire just because you take VC money. You should hire at the right rate. 2. "You’ll be spending much of your time on finding the next investors". If you manage your burn properly you wouldn't have to and you should aim to be default alive. http://www.paulgraham.com/aord.html http://www.paulgraham.com/aord.html 3. "You have to focus on large markets with many (or large) customers" Yes you shouldn't take VC money if you don't want to go big eventually. 4. "Making existing customers happy is less important than acquiring many more new customers" You have to do both and the goal should be to make existing customers so happy that tell others which will drive growth. If you don't make a product people love you won't win in the long run anyways. Finally I think a common mistakes for Founders is making their VC's their boss. Although I agree with some of the sentiment of there is some perverse incentives with VCs as a founder you should take ownership of the decisions that impact your company.
  • detourdog 3y ago
    That list sounds right I think their is nuance for this one >3. "You have to focus on large markets with many (or large) customers" >Yes you shouldn't take VC money if you don't want to go big eventually. One can want to grow to a point of organically understanding the problem domain before going big. The VC and the company may differ on the short term but agree on the long term. Which is a distraction. If the company is doing everything else suggested and the VC pounds on this issue. I would think the ideal time frame for the use of VC funds is probably about 2 years. If the company can't make productive use of the funds and return it in 2 years the timing of the funding is bad. If funding is needed for some large capital expenditure that will depreciate over decades should have existing revenue support. I think Wall Street has created a different industry that is a business model of its own fantasy.
• DeathArrow 3y ago
  >You’re no longer building your company the way you like it. You’re building your and the VCs company so that they can sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re building to sell. What's wrong in building to sell?
• cj 3y ago
  My favorite model is “seed-strapped” (a play on bootstrapped). 1) Raise $1-2 million (ideally from multiple small investors rather than 1 big investor, many smaller investors increases your control since every investor alone is too small to make serious demands about how you should run your business) 2) use the $1-2 mill to find product market fit and (more importantly) achieve profitability (or be cash flow neutral) within 12-18 months. If you can’t reach profitability, close your doors and start another company with a new idea rather than raising a 2nd VC round (fail fast) 3) reinvest new sales into growth, and don’t raise another round of capital even if people are offering you lots of money Some advantages: - Fail fast. It’s better to be resource constrained in the early days so that you don’t spend many years chasing an idea “just because you can afford to” when it’s destined to fail - It lowers the valuation where selling your company will be a profitable transaction for founders & employees. If you raise $2m you can sell for $8m and make a good return for founders/employees, whereas if you raise $20 million you’ll never be able to sell your company for less than $20m, and you now need to sell for $25m+ in order to see any meaningful as a founder - Without huge investors, you have a lot of latitude to operate your business however you want. When you raise $20m+, you basically become an employee of your investors - You typically retain full board control if only raising $1-2 million, this amount is low enough that the VCs probably won’t even need or want a board seat Disadvantages: - You’ll get less support from your investors because they invested less. The less money VCs invest, the less attention they give you. This can be a downside if you actively want VC help (which personally I find overrated, very few VCs actually add value beyond the money invested, most VCs have never actually run a company and have only watched from the sidelines) — TLDR: raising low single digit millions in seed money to get going in the beginning is rarely a bad idea. Raising too much money too soon (especially before reaching PMF/profitability) severely limits options for a future exit and potentially creates difficult dynamics with VCs to deal with, if you accept a lot of money from a VC most will want you to do whatever necessary for them to get their money back. VC isn’t bad, there’s a time and place for VC. But it’s 100% a game. You must know the rules of the game before playing.
  • smallerfish 3y ago
    Aren't VCs less likely to want to invest if they get wind that you're going to go this path?
• Waterluvian 3y ago
  There’s many reasons to start a company, ranging from “money money money!” to “this is my passion and it brings me joy.” Figure out what matters to you and act accordingly. And you can’t decide “money and passion” because, in my opinion, they’re at odds with each other and is usually just a self-lie. Like always, no post has a one-size-fits all answer. Well, except for this comment. ;)
• mannyv 3y ago
  There are lifestyle businesses, and there are scale businesses. The author is conflating the two. The fact is, getting customers is the hardest part of any business. Unless you're capital-intensive, that VC money is going into customer acquisition.
• jll29 3y ago
  This article has a point, warning of some dangers of taking risk capital, but it is too biased against it: better, more balanced advice would be to say: there are use cases for risk capital, but there are also many use cases where bootstrapping or debt capital (taking a loan, borrowing money) is the right financing approach instead. It all depends on how capital intensive your business is, and how fast you want or must grow to become how large.
• DeathArrow 3y ago
  >If you had any romanticized notion of building the company of your dreams with your employees becoming your best friends or family, well, now’s the time to let go of those ideas I think most people start a business to make money, not to gain friends or enlarge their families. If your objective is to gaing friends or enlarge your family, there might be better means to accomplish that than starting a business.
• mrg3_2013 3y ago
  I love this post! Mainly because it resonates with me 100% and aligned with my thinking, as I go build my startup.
• tptacek 3y ago
  I didn't like most of this post but did feel like the "Second Order Effects", for the most part, ring true. The only thing I can comment on here with any authority is the consult-to-product model, which I've attempted a bunch of times. It is drastically harder than this post makes it seem to pivot from a viable consulting business to a product; it's notoriously difficult, consultancies are constantly trying to do it (it's the dream!), and very few of them succeed. That's not to say you shouldn't do a consulting company! They can be great. If you are comfortable with the idea of settling into a long-term consultancy if the product doesn't work out, it's a good way to hedge. Most products fail too! But consultancies (as opposed to products bootstrapped by consultancies) are probably a lot safer to build.
• redbell 3y ago
  Definitely, one of the most interesting reads so far, and without a doubt, the best piece on "The other side of VC funding" > "Company MagicalUnicorn has still not figured out how to perform food delivery in a profitable way. They’re going to run out of money soon. But to buy themselves more time, they sold parts of the company for 10m € to the VC investor DudeFund." I never thought of this alternative opinion like that when reading about a startup raising more money!
• breadwinner 3y ago
  Similar advice from Mark Cuban: "If you think that raising capital is the best way to get your business off the ground, you’re wrong, according to Mark Cuban. You should actually do the complete opposite, the billionaire entrepreneur said during a panel at SXSW last month, and opt to start a business “with as little money as possible.” https://www.cnbc.com/2023/04/09/mark-cuban-best-way-to-start-a-business-is-with-little-to-no-money.html https://www.cnbc.com/2023/04/09/mark-cuban-best-way-to-start...
• stcroixx 3y ago
  We took one round 20 years ago a none since, still private. Then again, we’ve been profitable every year.
• stanleydrew 3y ago
  Selling part of your company to venture capitalists is a status symbol, and lots of people will chase the status symbol even when it's not required and they don't have a plan for how to spend the money should they get it.
• XCabbage 3y ago
  > VC Funding Means You Will Sell Your Company > Remember when I wrote earlier that the VC dudes definition of “making everyone happy” after investing in your company doesn’t mean making it profitable? So now you might ask: Okay, so what do my VC investors want? ... They want to make a lot more money. > ... > Now, all of this might be none of your business, you might think. But it is! Because now the inevitable consequence, once you’ve taken VC funding, is that the objective of your company has changed: You’re no longer building your company the way you like it. You’re building your and the VCs company so that they can sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re building to sell. Why? Why do you have to respect the VCs' desires? Why can't you take VC funding, then use it to build a company that yields modest returns and live a comfortable life running it (and paying modest dividends to the VCs that over a few years return their investment)? Doing so would (I presume) not constitute any kind of breach of fiduciary duty, so what right can the VCs possibly have to enforce their preference for a more aggressive strategy? People commenting on startups often imply - like in the quote above - that VC investors ultimately control any business they invest in, and not the founding CEO, even when that founding CEO holds the majority of the voting stock. This strikes me as bullshit. At least, nobody ever spells out the mechanism of control, and their inability to do so makes me think they don't know what they're talking about. If I'm right that the narrative of VC control is bullshit, then what's the alternative explanation for why CEOs so often choose to pursue aggressive growth and sell their "babies"? Simple: the CEOs themselves want big money. It's not that the evil VCs are forcing the CEOs to do something they'd rather not do. It's that the VCs and CEOs are aligned in their objectives in the first place.
  • jaysinn_420 3y ago
    Because as part of the VC investment, they are also taking positions on the board of your company. Maybe enough of a position that they can oust you if you don't do as they "suggest". Also, one round of funding is rarely the end of it, and if you are demonstrating that you are not playing their game and trying to become a Unicorn, then you will not get a second round of funding. Why do you think VC control is bullshit?
    • 3y ago
• 23B1 3y ago
  Learn to manage up young bucks. It's the only way you can prevent these VCs from taking your lunch money. Get an informal advisory board if this is your first rodeo.
• franciscop 3y ago
  > "The first and main takeaway is this: Companies which receive VC funding are not profitable." This is patently untrue and deceiving by the author, doubtlessly set to tell a narrative. Sure, some companies that receive VC funding are not profitable, maybe even most, but a sizable portion of the companies that receive VC funding ARE profitable. Denying this is deceiving the readers. In fact, the easiest way to receive VC funding is being profitable!
  • tempusalaria 3y ago
    The majority of public VC backed companies are not profitable and those are the best of the group. Must be 90+% of VC backed companies are unprofitable, and that’s ignoring all the ones that just shut cause they can’t make money
    • franciscop 3y ago
      Yes, but the author is making a strong claim that is untrue, that "Companies which receive VC funding are not profitable", specially since from VC economics THOSE VC-backed companies that are profitable are the quintessential part of the equation! BTW that's not even entering on the fact that "profitable" is not even clearly a financial goal for large companies: on one end Amazon has been "unprofitable" for a decade or so but that's BS ofc. On the other end WeWork was unprofitable as well but was highly valued, and that was BS ofc (being highly valued).
• arnaudsm 3y ago
  With the end of free money (higher interest rates), I wonder if bootstrapped startups could have their revenge over VC-funded ones. Nothing beats the feedback loop of profitability.
• Eumenes 3y ago
  One annoyance I have with VC funded startups is how they all try and use the same playbook. Founders are generally inexperienced. Likely good ICs, very good talkers, but not capable of holistically building a company from the ground up. They hire the same roles, in the same order. So many small startups will have over embellished leaders, who are 'head of' or 'director of' something, with 1-2 or sometime zero direct reports. You'll hear how "We NEED a" head of UX, data, support, etc. These types don't want to do the IC work, but want to be 'early stage'. Those people come in, buy the same crap SaaS tools and institute the same culture as the previous place. Maybe this is changing with money tightening up, but it can be off-putting. When considering a new job, I look at who works there, and if its a small company, with inflated titles and people with short tenure everywhere, its a pass.
  • dinvlad 3y ago
    Or it may also happen the opposite way, when CEOs try to achieve too much with too little all in the name of staying “lean” so they could stay afloat, and working their early employees into the ground until they’re dead and fresh meat replaces them.
• renegade-otter 3y ago
  Depends on your goals. Some people want to take the risk on an off-chance the startup goes supernova, and some are just tired of working for the man. Every time you take someone's money - you get a new boss.
• luispa 3y ago
  I worked for a US startup that received VC founding, and I left after a year that happened. 6 months after I left the company almost disolved. Just think it twice before you accept this kind of responsibility.
• shaimagz 3y ago
  Same here, VC was horrible
• seraphsf 3y ago
  A fun puzzle: if today you take $10m of VC funding at a $20m post-money valuation (ie you sold 50% your company), how much will you get if you sell the company for $20m tomorrow? Answer: typically, you’ll walk away with $5m (25%) or less. VC funds usually have a 1x preference, which means the get their $10m back (plus interest), and THEN they split the remaining proceeds with you 50-50%. So if you take VC money, you might have to double your valuation just to keep your take-home value the same. VC makes sense if you can grow fast and very large. But assuming you have scenarios to grow slower or to a smaller size, those scenarios often turn into bad ones if you’ve taken VC funding.
  • sfink 3y ago
    Good point. > VC makes sense if you can grow fast and very large. I could also argue that such companies are often a blight on the ecosystem. They're an invasive weed that outcompetes a rich variety of smaller companies, sucking the resources required to sustain such companies without doing nearly as much to enrich the environment. And then they tend to die off (perhaps through acquisition and having their product cancelled/absorbed into the larger company's), leaving customers high and dry. If they hadn't been there, some of the smaller companies would have still been around.
• chasing 3y ago
  Venture capital is a tool. Understand it and then decide whether it’s appropriate for your company. “Don’t hire employees. They will destroy your company.” They will! If you hire a bunch of people just because it sounds cool and you think it’ll magically make you rich.
• mugivarra69 3y ago
  u need to have vc money and their involvement. i rather take 50m with same valuation outcome if the guy gives me hands than 150m from some rando dumper of funds with demands/takeover ideas
• dang 3y ago
  A title like this is probably the only thing that could get an HN thread to fill up with substantive, thoughtful comments defending venture capital. The contrarian dynamic strikes again!
• yowlingcat 3y ago
  I think this is a really poorly written blog post. Not because it was written in a thoughtless manner -- on the contrary, it was written in a very thoughtful manner! But it's not written by an expert. It was written by someone who has never raised VC themselves and doesn't have personal experience with it. And it shows. The reality about raising VC versus not raising VC is never "yes or no" it's "on what terms." During the heady days of 2021, those terms were incredible for founders -- favorable multiples, lax governance, clean sheets, no loss of control. You'd have to be an idiot, or an incapable fundraiser, to not to take that deal because it was free money. And the reason why that money was free was because we were in a ZIRP environment where debt was extremely cheap as well; just not as cheap and unencumbered by equity for many companies. Today, the situation is more varied. If the terms of the deal are not particularly founder favorable, you won't take it unless you really need it. That doesn't say anything about whether you should or should not take VC -- just that the cost of capital has changed. To the author, all I will say is this -- be wary that a VC funded competitor doesn't look at your business model, say "that's a nice business you got there, shame if anything happened to it" and raised a ton of VC to build a competitor, out-execute you at lower margins and take a ton of territory from you, and effectively eat your lunch. There are long-term strategic costs to bootstrapping. There are costs to everything in business.
• EGreg 3y ago
  This is like if David Heinemeier Hansson took drugs and gave a speech. I like DHH, and his and his cofounder’s opinionated approach to, well, everything. Ruby on Rails was opinionated. Their company stood for building products you charge for and never taking VC. (I think Atlassian and JetBrains toom that even further.) Until today, we never took VC. The way I live my personal life I have never attracted gold-diggers and I guess the same thing applied here… both my largest companies are a open source platforms, each builds an alternative to Big Tech, and I even extol the virtues of Utility Tokens and Web3 smart contracts in the face of massive opposition here on HN which has mostly ever seen Shareholder Capitalism. They haven’t really understood how taking VC or going public creates a parasitic class — equity investors — who every earnings call expect profits and rents to be extracted from all sides of the market. I think a word got pioneered recently by Cory Doctorow — enshittification — to describe what happens in Shareholder Capitalism, whether a company ends up being run by a benevolent dictator (Zuck, who isolated himself from ever being removed, or Elon, who straight up bought Twitter together with a group of friendly sovereign wealth funds) or bought out (FogBugz, Reddit) or acqui-hired and turned into a money-making machine (WhatsApp, Instagram, Oculus) while its founders leave in disgust after their golden handcuffs are off. I recommend everyone TRY to start a project funded by sales of a utility tokens, similar to FileCoin or Ether. Even better if your project already works (IPFS, Ethereum, BitTorrent) by the time you introduce the utility coin. The reason I prefer this is the same reason funding DisneyWorld through Disney Dollars are better than Disney Inc. shares. It’s “stakeholder capitalism.” The people using the network own the network. The incentives are aligned and there is no parasitic class. Well — here is an important caveat. Do this only if you are building a PLATFORM, like The Web, because it can benefit the world more by being permissionless and open (and not fake-open like OpenAI). Tim Berners-Lee on why the Web stayed open and permissionless: https://m.youtube.com/watch?v=QXmEcku6Udk https://m.youtube.com/watch?v=QXmEcku6Udk
• dustingetz 3y ago
  Companies are valued by their future cashflows, not their present
  • youngtaff 3y ago
    Yeh, well that worked well for Uber…
• api 3y ago
  VCs are not all created equal. Some are better than others. Some like to stick to a company’s vision unless things are clearly not working while others don’t care and will make you flail around. Some understand and specialize in a given market and others just throw spaghetti at the wall. Some are decent people and some are assholes. Terms matter a lot too. If you raise a ton or raise on a super high multiple you will have to show cocaine growth to make that make sense. If you raise sanely the expectations are going to be more sane. (Lots of companies raised overstuffed rounds in 2021 to 2022 at batshit multiples. Expect some carnage soon.) That being said it does put you on a certain track. If you don’t have something that can show VC scale growth, you shouldn’t take VC money. As with all other things know what you are getting into. Right now I would consider VC for B2B but not B2C. There are no VC scale B2C business models right now that do not involve exploiting people. B2B can be done in much more above board ways because businesses will just pay for things directly. You will have to build a sales org though.
• exabrial 3y ago
  Apologies and I don’t mean this as a snarky question, but I have been asked to be a part of a lot of start ups, because you know “I can write an app”. All of the offers have just had equity is compensation. I’ve dodged the many of bullet, but I definitely would’ve taken cold hard cash. My advice to a lot of them was "Get funding, I'll come work on the idea". How does HN propose they do that instead?
• seydor 3y ago
  VC bubble was a side effect of 0% rates and free money for 15+ years, no? High interest rates are making that impossible for the foreseeable future. I think nntaleb puts it right about this new era where "it doesn't rain money anymore" for revenue-less companies and real estate https://www.youtube.com/watch?v=fhuSM8JTSpU https://www.youtube.com/watch?v=fhuSM8JTSpU I think the biggest stain that was left from this era is that it mixed the millionaires made from cash flow with the millionaires made from empty valuations, and now the two are inseparable
• JumpCrisscross 3y ago
  The term “VC” has been colloquially generalised to the point of uselessness. I’ve seen straight-faced professionals use it to describe angels, growth investors in public companies and lenders. Broad rule of thumb in finance is to understand how the people giving you money make money. Traditional VC is high-risk / high-reward. If that’s not your strategy, don’t take VC. OP seems to be describing small businesses. These frequently do need to raise capital to get going, and they do it through banks and the SBA. (That market entirely dwarfs traditional VC.)
• linusg789 3y ago
  I don't think the existence VCs are bad, but I do know many people that are taking VC money either shouldn't be or don't know what they are putting themselves into.
• hdivider 3y ago
  Good article and topic. What's missing though is so critical for our time: R&D. Yes -- it's usually wise to act like investors don't exist. But are you going to look at the world and go "oh, what we REALLY need is another SaaS company!" The most pressing problems today require hardware, software (incl. data science), and a research component. How to fund it, if not with investors? (They don't fund R&D anyway.) Take a dual-use approach. Bootstrap with government R&D contracts -- and in parallel, commercialize it, so that you don't get stuck in gov too much of course. And/or license technology from federal labs or agencies. E.g. go to Lawrence Livermore National Lab, or Lawrence Berkeley, or Los Alamos, or the many agencies, NASA, NSF, DoE, DoD (which is colossal) and connect with tech transfer folks. They have advanced technology sitting on shelves, waiting for capable entrepreneurs to come and pick it up. Same for many academic institutions. This is how we get true technology companies like Qualcomm, and many, many smaller but by no means less significant companies. Make not just "what people want" but also what is technologically needed in this partly fallen world today.
• DeathArrow 3y ago
  >You have to focus on large markets with many (or large) customers. I see nothing wrong with that.
• dec0dedab0de 3y ago
  The first and main takeaway is this: Companies which receive VC funding are not profitable. They would run out of money if they wouldn’t get the VC funding. So the news announcement that your company MagicalUnicorn received VC funding is actually not a message of success, it’s rather a confession of failure. I remember when a small company I worked for was super excited to announce how much of a loan they got. I took that as a sign to clean up my resume.
  • aidanlister 3y ago
    Contrarians are so funny, everything is a hammer. A bunch of very smart bankers have spent an enormous amount of time doing due diligence on the company you work for and they think that the risk is low and repay-ability is high … but the contrarian always knows better. To them this is a sign that the end is nigh, and they rejoice in the feeling of their beautiful superiority.
    • dec0dedab0de 3y ago
      The company was sold in less than a year, everyone laid off 6 months after that, and the equipment was all shut down within 3 years of that announcement. But your right, I'm sure the 5 shareholders and the bankers did fine for themselves.
• jschveibinz 3y ago
  Wow, as an investor, I see a lot of misinformation in the article and in the comments. Investors are experienced business people, and they will help you to know if what you have is ready for prime time. Listen to them. Investors are business partners: they are not loan officers or casual kickstarters. And one more thing: the “VC” stereotype being discussed here doesn’t really exist. All investors are unique.
• neilv 3y ago
  My interpretation of this article: Don't take VC funding! It's the definition of failure! It will have you doing the wrong things for building a business with strong fundamentals! (Except this VC-powered kind of "failure" is a more likely way for the founders to become very wealthy.) I'm open to criticisms of VC models, but I don't see how this argument is going to dissuade many founders, who are the ostensible audience.
• rossmohax 3y ago
  There was a company I can't recall its name, but they took VC funding for one round, retained voting control, built successfull business and then refused to go for another VC round. VC still owns company, but can't exit and founders are happy with the way things are.
• DeathArrow 3y ago
  Looking at the author's bussineses website, here's a sales pitch for potential new employee: >OpenRegulatory is different. It's 100% boostrapped. Ironically, having no investors (and less money) opens up interesting opportunities: We can serve customers who don't have a lot of money, like, Healthcare startups. And we can build software which only solves a tiny problem, and solves it well. While eating your own dog food has a certain face value, future employees most likely won't be pure idealists who will take a lower pay out of the satisfaction that their work helped others who "don't have a lot of money".
  • sfink 3y ago
    > future employees most likely won't be pure idealists who will take a lower pay out of the satisfaction that their work helped others If you rewrite that to "a much smaller percentage of prospective future employees won't be pure idealists..." then I would agree. But it's about the pool being smaller, and in fact small enough that you risk not being able to find anybody, but the fact that 95% of people are not going to be adequately motivated by helping underserved people does not mean that the remaining 5% won't be. Existence proof: I am working for substantially less salary than I could get elsewhere. I can prove it, I've been offered the higher salary at a FAANG and turned it down twice. It's financially irrational. I don't think it's wrong for people to work for directly ad-funded Big Tech. Or even for me. I'm not ecstatically happy in my current position. If I were younger I might make a different choice. But I care enough about working for a mission-driven organization that I basically have no intention of leaving as long as the organization doesn't lose my trust about being mission driven. (There's often a gap between stated positions and reality, and I try to watch closely to monitor how big that gap is.) And I think I'm far from being the only one in this position. I'm also aware that it's a privilege to even have the option. I grew up poor. Now I have a spouse and kids and live in an insanely high CoL area that we mostly don't get much from, but our past work was enough to make us financially comfortable. (Actually, I suspect it probably has more to do with the extremely unfair macroeconomic situation that has inflated our real estate and other investments, but whatever.) When I go to feed the worms, I won't be leaving my kids with as much financial security as I could have, but I hope to leave them with better respect for my values than I would have otherwise. That said, "mission-driven" doesn't actually mean that much. Any mission is going to have unintended consequences, and it's pretty dispiriting what people are actually using my mission-driven labor for. There's no easy way to sort companies into "good" vs "bad". It's often not even a meaningful distinction at a whole-company level. But there are still large differences if you pay attention.
• AlbertCory 3y ago
  > you’ll also have the non-obvious effect that you hire people who are not perfect fits for your team. That's only if "you" are not a smart manager. You hire some 'B' players, and they in turn hire 'C' players. An 'A' player will hire other 'A' players. The article assumes that your business is already there and running. Many VC-funded startups only really get started when they have enough backing to do it. Hiring really good engineers and marketers takes some money (although less than it did back in the day). He's right, though, that bootstrapping is cool and worth trying. It forces you to think about profitability right from the start, instead of all those BS metrics he decries.
  • rightbyte 3y ago
    > You hire some 'B' players, and they in turn hire 'C' players. An 'A' player will hire other 'A' players. I have never seen this effect in practice. I believe it is a trope.
    • AlbertCory 3y ago
      I've seen it in real life. Don't ask for a citation, though.
• DeathArrow 3y ago
  >Making existing customers happy is less important than acquiring many more new customers. As long as your shares are becoming more valuable, what's wrong with that?
  • sfink 3y ago
    It's not whether it's "wrong" or not, it's just a question of whether it aligns with your goals. If your goal is to maximize the amount of money you make from a venture, there's nothing wrong with it. There's everything right with it, that's why it's done that way. If your goal is to produce value in the world over a long term, then there's a lot wrong with it. Optimizing for actual value delivered is disincentivized.
• DeathArrow 3y ago
  It seems the author views venture capitalists as a bunch of idiots who are eager to lose money. And yet, venture capitalists are making money and many founders along with them. Ok, if your goal is to have a very small business, with just a few employees and a few customers, rule that business how you want and have fun, you can bootstrap your business and keep it small. But I think the majority of founders would prefer a fast grow and making lots of money relatively fast, followed by starting a new business.
  • t43562 3y ago
    I think it suggests that their interests are not your interests and success for them doesn't mean success for you. Their approach helps to give them one big success occasionally to pay for the things that fail but that's no use if you are one of the failures. So they are not carefully trying to grow each company - they are adding lots of fertiliser and seeing what survives. In fact they make success harder for you by the things they force you to do. This is fine for them because one company will grow big but not fine for you unless you are that one company.
• mrangle 3y ago
  From what I can tell, the appropriate time to take VC funding is precisely at the exponential growth curve when there is not enough revenue to serve the high rate of new business. Not coincidentally, this may be when VC money is most interested in the business. Peter Thiel quipped that he knew that Facebook was a good investment because what they needed the cash for was more computers. To use an exceptional case to make a point that is broadly applicable. For the rare small businesses that ever get to this juncture, what I also notice is that an acquisition tends to come soon after.
• dostick 3y ago
  People running startups shouldn't be so proud of raising capital; it's silly child's play. Instead, you should focus on your craft and your product. The entire concept of corporations and shareholder capitalism is what is wrong with human civilization. It destroys the environment and reduces harmony in society. And mindlessly taking in capital, whether VC-funded or not, creates overhead and bloat, along with so-called "bullshit jobs." You still have the same number of productive developers, for example, as you had in the early garage startup phase. Only now, a bureaucratic machine is created around them, making things even slower and less effective than before. Every product that transitions from a startup to a bloated corporation produces a less useful product now. Look at Slack, Figma, Notion— they are all stagnating.
  • esafak 3y ago
    > Look at Slack, Figma, Notion—they are all stagnating. We should commend companies that resist artificially expanding the scope of their products. Sometimes a product is done. I recall Antoine de Saint-Exupéry's aphorism that "perfection is finally attained not when there is no longer anything to add, but when there is no longer anything to take away". All your examples are of single-product companies. They should expand their product portfolio instead.
• ripvanwinkle 3y ago
  That statement needs qualifiers. Most companies that need infra to serve customers need money to build that before they can start investing with money they make. Hard to see how Google or Amazon could have come about without VC funding
  • esafak 3y ago
    Hardware is cheap. The engineers are more expensive.
• dijit 3y ago
  I'll take another position; since it might be keen to understand a little more from a different perspective. I am a person who is a non-founder startup CTO; my company does not have any venture capital funding and we have enough capital to go to market. However, certain institutions (especially US ones) give great discounts, insider incentives (such as early access to features or access to people) and so on to venture backed startups. I have even been explicitly told this by AWS and Google; I am basically invisible to them except for the fact I have previously worked with a small handful of people coming from a large organisation. I have to use personal contacts which wouldn't be necessary if I was venture backed. VC's also seem to open doors into other companies that they are invested in, which can be hugely beneficial. Even companies that invest egregiously in everything, like Tencent, can't command such door-openings. So, if you absolutely need some doors to open, VCs can be a good way to go, but it's very much a "selling your soul to the devil" type deal.
  • sdenton4 3y ago
    Would it be possible to take ~$100k of VC funding to get the 'VC-funded' benefits without actually giving up any real control of the company?
    • dijit 3y ago
      Yes, in fact I think this is probably the best way. I think it might be an issue that people shoot themselves in the foot by going for insane valuations to get more money for less equity- I think if you’re honest about your valuation then theoretically this system can work.
    • esafak 3y ago
      You'd go to an angel.
• avereveard 3y ago
  > Companies which receive VC funding are not profitable. This is absolutely false. Company may be at a stage where they are profitable, but lack the capital to establish themselves as undisputed market leader before competition catch up. Banks only allow you to leverage so far, thus VC makes the most sense for truly scaling globally. I'll skip all the other things in the article, but there are plenty truism like this to watch out. Also it tries so hard to not be just an opinion piece, drawing for own experience, but sample size and none of the other details are never mentioned again.
• vonnik 3y ago
  Like much advice that is supposed to apply universally, this is false. There are some kinds of startups so capital intensive that they came only built with massive external funding, notably hardware and biotech (and probably most deep tech). In addition, products that face very slow sales cycles selling into enterprise or government can benefit from the time that external funding buys you. What’s true is this: if you yourself are a builder and can run a very capital efficient software business in an industry you know well where you will not get lost in the idea maze, then you may not need VC funding. In most cases, you will still need external capital from your savings, day job or friends/family.
• throw_edda21db 3y ago
  If you sell, say, 10-20% of your company to VCs, how can they force you to behave differently? Why can't you move on as if you were bootstrapped, while using the cash for whatever your company needs at the time (hiring, marketing, etc.).
  • zdbrandon 3y ago
    You sell 10-20% 4, 5, or sometimes more times in an effort to increase the size of the pie while your share of the pie decreases.
• a-dub 3y ago
  i think this would be much better written if it compared and contrasted the pros and cons of building a fun and sustainable small business vs. taking investor funds with the hopes of doing something more ambitious.
• renewiltord 3y ago
  VC funding is so you can accelerate your test for the thesis you started the company with. The ideal state is you rapidly discover fit. The second most ideal state is you rapidly fail. The worst state is you spend years on a thesis that doesn't have legs. VC funding moves the decision point earlier in either direction because you won't be capital constrained. That's it. You can never make more time for yourself. That's the lesson.
• kozikow 3y ago
  If your competitors are VC funded you are going to have very hard time competing unless you are already very established. You can have smarter founders or whatever, but VC company can hire very smart people as well. With how ubiqutous VC funding became in recent years, only small market niches are "viable" for non-VC funded startups. VCs will often still fund small market niches if they believe they can expand easily.
• sebastianconcpt 3y ago
  TL;DR: to maximize the population with the best survivability rate, walk the bootstrapped path, not VC's path.
• tux 3y ago
  Great article written with humor I love it. Thank you for writing it.
• limandoc 3y ago
  This is a great example of "pick the right apple". Many VCs and investors can be control freaks, however if your company is profitable enough then you can demand whatever you want from investors. Just as I would not suggest to start a relationship before healing, same principle applies here: don't ask for money while a company is on low (financial) morale. But once the company is (financially) confident - all VCs and investors will come along. And that's when you can set a tone. For example by not giving up baord seats and restricting what investor can do. Simply offer them 10x return + dividents and nothing more. This capital will be enough to further boost your company.
• juancn 3y ago
  Yes, mostly... sometimes a profitable company needs to grow faster than it can organically to capture enough of the market and you need outside investment. Maybe taking debt is the right idea, sometimes it's not. It's not common and it's a great place to be in (it's easier to price your company, and to bargain).
• OOPMan 3y ago
  Right on the money
• ouraf 3y ago
  there's a modicum of irony in posting this on an Ycombinator-enabled site. But at least they give enough leeway to keep this post here, so that's a good thing
• bowenjin 3y ago
  How do VCs gain some much influence? Can't founders just ignore them since they have a minority stake?
• bowenjin 3y ago
  How do VCs gain so much influence? Can't founders just ignore them because they have a minority stake?
• ymolodtsov 3y ago
  VC-funded companies are unprofitable by design. You build something very novel and then you spend a lot of time figuring out how it should work and growing it. Amazon, Google, Microsoft – all raised venture funding because that's what they were doing. Still, many of those companies try to become cashflow positive (especially right now). Which means they earn more than they spent, but they invest a lot in their expansion (and as soon as they stop it they could show instant profit). Ultimately, a very small share of companies ever raise VC funding. It's completely OK to bootstrap your project, focus on the revenue and profitability from day one. But it's also difficult, especially you're building some kind of a SaaS product in a competitive space. Not everyone can be Basecamp (which started a long time ago and built an enormous marketing operation to get "free" leads).
• cx42net 3y ago
  I so much agree with this article! I always had the same thinking about investment, Mostly the part where you don't control your company (or control it way less). And I would have kept it the same until we discussed with my co-founder about https://getfernand.com https://getfernand.com The reason that makes us consider VC funding would be for the network and the exposure. It would help us get in touch with other (big) founders with a broad reach and help us grow more. That would be a legitimate reason for us to get a (small) round. (We are already profitable so we don't need the money for the money. But we need to find a VC firm that is not too manipulative in its investments. That might be the tricker part).
  • DeathArrow 3y ago
    Aren't there better strategies for PR and publicity than VC financing?
    • cx42net 3y ago
      We're definitely thinking of anything that could help. It's also common that funded companies appear more serious and long-term oriented, which can help. (It goes along with what is written in the article, as the "successful unicorn raises money" while it might no be the case, but the reality vs what people believe is often different). Since, for us, it wouldn't be because we aren't profitable and desperately need money, having VC money could help, or not ... :D
• abranti 3y ago
  We needs stats on the success rate of VC-backed vs Bootstrapped!
• majani 3y ago
  This is very US-centric advice. Outside the US, getting VC funding results in a stark difference in quality of life for founders
• bionsystem 3y ago
  I think it's factually false that lottery winner end up mostly broke and miserable. Patrick Boyle (youtube) analyzed some of the research on the topic which seem to mostly say the opposite (I didn't double check any of his work).
• einpoklum 3y ago
  > In your restaurant, would it make sense for your chef to spend their first six months on building a stove? No, that doesn’t make a lot of sense - your chef should instead be preparing food and supervising other people in the kitchen. Buy the stove, don’t build it yourself. By that logic - why even have staff in the first place? Pay for a catering service, don't make the food yourself. > This may sound obvious. Yet, at VC-backed software startups, I see software engineers spending months on building “internal tooling” without shipping an actual product. That may or may not make sense; but more importantly - it's independent of whether or not there's VC money. In fact, VC's may want to supervise you to make sure you're only working on getting something to market.