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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 wit

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.
  - tptacek 3y ago
    Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth. I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.
    - metadat 3y ago
      Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.
      - tptacek 3y ago
        What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them. But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works. And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well. As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room. I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.
- rattray 3y ago
  Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital. It's not for everyone, but eastdakota is right that it's not for nobody.
  - antupis 3y ago
    It is tool and there is cases where you need to use that and some case where it is just stupid to use it.
  - tptacek 3y ago
    If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.
    - adrianN 3y ago
      It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.
      - DeathArrow 3y ago
        It is my understanding that most VCs expect only one in ten businesses to succeed, but that one is enough to offset the loss and ensure a profit.
      - ymolodtsov 3y ago
        This is correct. For small and medium funds, a single successful portfolio company can return their entire fund with some multiple on top of this. The reason you invest in 30-40 companies instead of one is because you don't know which one it'll be. I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.
    - rattray 3y ago
      The "fairytale" cases (IPO) are quite rare, but acquisition is a little less rare, and help support the portfolio.
- conradfr 3y ago
  Your VC founded business can fail without being an horror story though.
  - eastdakota 3y ago
    Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool. THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome. Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.
    - rtp4me 3y ago
      If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…
    - mwcampbell 3y ago
      One perspective that's missing here is that of the users that are presumably benefitting from the company's product(s). The users would probably prefer that the company keep slogging than that it get acquihired and the "failed" product get killed. I recently read _The One Device_ by Brian Merchant, and I'm reminded of the story, told in that book, about how FingerWorks sold out to Apple. The FingerWorks users got screwed when Apple discontinued FingerWorks product development and put the team to work on developing multitouch for the iPhone instead. Now, the iPhone has several assistive technologies of its own (FingerWorks developed products for people with RSI), but the death of the FingerWorks products was still definitely a loss. So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.
- JumpCrisscross 3y ago
  > What's the ratio, though??? 10/1? 20/1? 50/1? About the same as the ratio of successes to failures in a VC portfolio.
jaboutboul 3y ago
Oh. Hi Matthew!
metadat 3y ago
Tangential: I'll never forget the story of Lee. One of the few times I've I've shed so many tears over someone I never met. https://www.wired.com/story/lee-holloway-devastating-decline-brilliant-young-coder/ https://www.wired.com/story/lee-holloway-devastating-decline...
- Angostura 3y ago
  frontotemporal dementia - horrific.
- jacquesm 3y ago
  Holy crap that's a heavy story.
- toomuchtodo 3y ago
  https://news.ycombinator.com/item?id=22878136 https://news.ycombinator.com/item?id=22878136
- eastdakota 3y ago
  Thank you for posting. We could never have built Cloudflare without Lee. His disease is incredibly tragic and in many ways literally unimaginable. Today he is still alive but has continued to cognitively decline. I am happy that Cloudflare’s success has ensured he has the support he needs. I miss having him as a cofounder and friend every day.
- martin8412 3y ago
  I bawled my eyes out the first time I read it, and it's not any easier this time. I'm happy the success of Cloudflare has allowed him the best available care, even if all his money can't cure him within his own lifetime. It's a horrifying disease.
blibble 3y ago
> You’re so right! It was an absolute disaster for us. Never do it!!!!! has cloudflare ever had a profitable quarter? I could give away my investor's $10 bills all day too
- Kye 3y ago
  On a skim, they seem to be losing money the same way Amazon did. It's marginal, with a purpose, and could be turned around by trying to.
  - tempusalaria 3y ago
    Last quarter they had negative operating margins of over 20%. That’s not really marginal. Considering they already do over $500mln in revenues and are growing mid 30s it’s very possible they never make a profit. A big chunk of software VC success over the past 20 years has been public markets accepting loss making companies and giving them a lot of credit for potential future margins.
  - blibble 3y ago
    if you look at their accounts they spend a vast amount more on sales and marketing than r&d not very amazon like at all
  - hotpotamus 3y ago
    Would any business leader say anything like, "we have no idea if we'll ever be profitable, or what we would need to do to get there?". Everyone made fun of Softbank's presentation on Wework[0], but it just looked to me like a simplified outline of nearly every over-confident business presentation I've seen in my life. [0]https://nymag.com/intelligencer/2019/11/softbanks-insane-presentation-on-how-it-will-fix-wework.html https://nymag.com/intelligencer/2019/11/softbanks-insane-pre...
  - MatthiasPortzel 3y ago
    It's still indicative of VC culture that the CEO calls the company a success after IPO. Rather than, say, after the company is profitable. (I have a couple shares of NET, so I'm optimistic they'll be profitable eventually. But sometimes their path to getting there seems lackadaisical.)
arpowers 3y ago
I'd add a caveat here: you guys were a Harvard founding team w prior experience and connections though... Just like everything else, the real approach to this is nuanced. It's important to highlight that as many fundraisers are operating under misguided thinking on this topic.
Kye 3y ago
The key takeaway for me was to know what you're getting in to. You sound like you do. OP seems to be aiming at people who do not.
onion2k 3y ago
According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deservedly so, but if you're at a point prior to raising 'what if we IPO?' probably isn't a very useful question.
- jacquesm 3y ago
  Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.
  - adventured 3y ago
    Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years. [0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.
    - Joeri 3y ago
      I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.
      - fbdab103 3y ago
        There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.
sumeno 3y ago
That some people win the lottery is not a good argument for playing the lottery
- tptacek 3y ago
  If you feel that way, don't start a product company.
  - mwcampbell 3y ago
    This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?
    - tptacek 3y ago
      You'll still most likely fail! This is a really important part of why the VC math works the way it does. You can de-risk a product company by not trying to shoot for the moon, but it's an incremental derisking.
- eastdakota 3y ago
  The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside. So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started. As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.
mattbuilds 3y ago
I wish we could stay away from generalities. There is no one size fits all answer to questions like "should I take funding?". The answer depends on your goals and where you are competing. If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding. If you want full control over your product or are operating in a niche and think the explosive growth necessary will hinder you, you have different priorities. You might not be trying to make the next "big thing" and in this case probably don't take funding. In fact, you probably don't want VC funding because your goals don't align with theirs. Like most difficult questions, the answer is: it depends.
- Nevermark 3y ago
  Few people are pedantic enough to misinterpret “never” slash “always” premises detrimentally. It is a pervasive rhetorical shortcut. 1. Flatten a proposition to an all or nothing form to simplify communication. 2. The reader steps back into the real multidimensional world with clearer insight into one of its dimensions. Anyone confused by this has deeper problems than VC or not VC questions.
j45 3y ago
There is an option #4 that I’ve been around a few times: build a shark that is doing the acquiring within 5 years. Superior tech, maybe hyper efficient, hyper profitable.
- yowlingcat 3y ago
  This model is interesting, and I've definitely been wondering about this a lot more in the new macroeconomy. Do tell more if you're up for it. From my perspective, it's effectively the PE model except the funding source is the company's own revenue rather than investment capital.
  - deleted 3y ago
    [deleted]
  - j45 3y ago
    I had drafted a reply but would be interested to know what you're looking after - is a story/experience of PE from a technologist on the business side what you're seeking?
- eastdakota 3y ago
  You still eventually need to return money to your private market investors at some point. So that just pushes the outcomes out later. Or, again, in the super rare case that you’re generating so much case that you can pay investors back at a rate of return they’re happy with with dividended cash flows.
  - j45 3y ago
    I meant the ‘super rare’ case. It’s not so rare in some industries like oil and gas, etc where cashflow is the purpose of the work. Add software that does what nothing has before.. and the table turns.
    - eastdakota 3y ago
      Agree.
floomk 3y ago
Man who won lottery recommends it to everyone.
youngtaff 3y ago
Are you profitable yet?
bawolff 3y ago
I don't know what people expect. VC's obviously aren't giving out money from the goodness of their hearts. It is obviously going to come with strings. Maybe those strings line up with what you want anyways, which is great. If they don't, don't take the money.
Qwertious 3y ago
Context: the above commenter founded Cloudflare, which is a huge company now.
noobermin 3y ago
This is a nice wrinkle to the story, but as a reply points out, your story (3) is a hell of an exception, a fairytale if you will. It would be nice if people realise that and have realistic expectations. You shouldn't set people on chasing fairytales without them being aware that's what they are doing.
epolanski 3y ago
> You’re so right! It was an absolute disaster for us. Never do it!!!!! You're still unprofitable after 13 years though, aren't you? Growth is prompted by skyrocketing sales costs. Does any VC funded company ever ends up not losing money?
- spacebanana7 3y ago
  Facebook / Meta
jwr 3y ago
Customers of VC-funded companies take note: none of these outcomes are good for you. When you have a choice between being a long-term customer of a VC-funded company vs a self-funded business, think about long-term incentives and don't follow the rich and shiny. Disclaimer: I run a self-funded SaaS business and sometimes explain why I never wanted VC funding and why a LARGE BUSINESS is not necessarily better for customers.
eikenberry 3y ago
I think it is mostly based on one's POV. From the founders perspective starting a company, raising capitol and eventually taking it public might be taken as a wildly successful path. To an employee all it means it more and more dehumanization, destroying the company as a work place.
no_time 3y ago
With all due respect, your company is probably one of the biggest and most successful mass surveillance operations on earth. I wouldnt lose sleep over these things too if I knew my company would be scooped up by a 3 letter agency if anything were to happen that threatens this flow of data.
jrm4 3y ago
"It is true that playing the lottery doesn't work out for everyone, but it worked really well for us!"
- reducesuffering 3y ago
  It's sad that are multiple retorts about "lottery winners." Apparently, just on HN, we have about 25 lottery winners. Quite the coincidence! (cloudflare, shopify, databricks, coinbase, stripe, openai, freshworks, gitlab, dropbox, hashicorp, amplitude, vercel, plaid, hubspot, quip, notion, twilio, etc)
  - jrm4 3y ago
    Out of....
    - reducesuffering 3y ago
      Certainly not 1 billion, which is what the lottery chances would be to win 25 times. (1 in 42m)
      - graton 3y ago
        I don't understand this logic. The US has the Powerball lottery. So far it has been won 403 times[1] what seems around 20 year time span. With a US population of around 360 million. So not sure why 25 winners would require a population of 1 billion. [1] https://www.powerball.net/winners https://www.powerball.net/winners
        reducesuffering 3y ago
        I was using some state odds. Ok so 1 in 1m for Powerball, yet HN is ~3m, so we have 1 in 100k on HN. Already an order of magnitude difference. Then, of course, not even 1 in 100 here are actually giving a startup a serious go. So comparing successful startups to the lottery is easily 1000x off.
      - 3y ago
valyala 3y ago
It would be great to read in which exact ways did money from VCs help your company to reach the current state?
JodieLeal 3y ago
[dead]
Scottwilliams 3y ago
[flagged]

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.
- tptacek 3y ago
  Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth. I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.
  - metadat 3y ago
    Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.
    - tptacek 3y ago
      What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them. But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works. And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well. As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room. I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.
rattray 3y ago
Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital. It's not for everyone, but eastdakota is right that it's not for nobody.
- antupis 3y ago
  It is tool and there is cases where you need to use that and some case where it is just stupid to use it.
- tptacek 3y ago
  If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.
  - adrianN 3y ago
    It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.
    - DeathArrow 3y ago
      It is my understanding that most VCs expect only one in ten businesses to succeed, but that one is enough to offset the loss and ensure a profit.
    - ymolodtsov 3y ago
      This is correct. For small and medium funds, a single successful portfolio company can return their entire fund with some multiple on top of this. The reason you invest in 30-40 companies instead of one is because you don't know which one it'll be. I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.
  - rattray 3y ago
    The "fairytale" cases (IPO) are quite rare, but acquisition is a little less rare, and help support the portfolio.
conradfr 3y ago
Your VC founded business can fail without being an horror story though.
- eastdakota 3y ago
  Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool. THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome. Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.
  - rtp4me 3y ago
    If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…
  - mwcampbell 3y ago
    One perspective that's missing here is that of the users that are presumably benefitting from the company's product(s). The users would probably prefer that the company keep slogging than that it get acquihired and the "failed" product get killed. I recently read _The One Device_ by Brian Merchant, and I'm reminded of the story, told in that book, about how FingerWorks sold out to Apple. The FingerWorks users got screwed when Apple discontinued FingerWorks product development and put the team to work on developing multitouch for the iPhone instead. Now, the iPhone has several assistive technologies of its own (FingerWorks developed products for people with RSI), but the death of the FingerWorks products was still definitely a loss. So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.
JumpCrisscross 3y ago
> What's the ratio, though??? 10/1? 20/1? 50/1? About the same as the ratio of successes to failures in a VC portfolio.

jaboutboul 3y ago

Oh. Hi Matthew!

metadat 3y ago

Tangential: I'll never forget the story of Lee. One of the few times I've I've shed so many tears over someone I never met. https://www.wired.com/story/lee-holloway-devastating-decline-brilliant-young-coder/ https://www.wired.com/story/lee-holloway-devastating-decline...

Angostura 3y ago
frontotemporal dementia - horrific.
jacquesm 3y ago
Holy crap that's a heavy story.
toomuchtodo 3y ago
https://news.ycombinator.com/item?id=22878136 https://news.ycombinator.com/item?id=22878136
eastdakota 3y ago
Thank you for posting. We could never have built Cloudflare without Lee. His disease is incredibly tragic and in many ways literally unimaginable. Today he is still alive but has continued to cognitively decline. I am happy that Cloudflare’s success has ensured he has the support he needs. I miss having him as a cofounder and friend every day.
martin8412 3y ago
I bawled my eyes out the first time I read it, and it's not any easier this time. I'm happy the success of Cloudflare has allowed him the best available care, even if all his money can't cure him within his own lifetime. It's a horrifying disease.

blibble 3y ago

> You’re so right! It was an absolute disaster for us. Never do it!!!!! has cloudflare ever had a profitable quarter? I could give away my investor's $10 bills all day too

Kye 3y ago
On a skim, they seem to be losing money the same way Amazon did. It's marginal, with a purpose, and could be turned around by trying to.
- tempusalaria 3y ago
  Last quarter they had negative operating margins of over 20%. That’s not really marginal. Considering they already do over $500mln in revenues and are growing mid 30s it’s very possible they never make a profit. A big chunk of software VC success over the past 20 years has been public markets accepting loss making companies and giving them a lot of credit for potential future margins.
- blibble 3y ago
  if you look at their accounts they spend a vast amount more on sales and marketing than r&d not very amazon like at all
- hotpotamus 3y ago
  Would any business leader say anything like, "we have no idea if we'll ever be profitable, or what we would need to do to get there?". Everyone made fun of Softbank's presentation on Wework[0], but it just looked to me like a simplified outline of nearly every over-confident business presentation I've seen in my life. [0]https://nymag.com/intelligencer/2019/11/softbanks-insane-presentation-on-how-it-will-fix-wework.html https://nymag.com/intelligencer/2019/11/softbanks-insane-pre...
- MatthiasPortzel 3y ago
  It's still indicative of VC culture that the CEO calls the company a success after IPO. Rather than, say, after the company is profitable. (I have a couple shares of NET, so I'm optimistic they'll be profitable eventually. But sometimes their path to getting there seems lackadaisical.)

arpowers 3y ago

I'd add a caveat here: you guys were a Harvard founding team w prior experience and connections though... Just like everything else, the real approach to this is nuanced. It's important to highlight that as many fundraisers are operating under misguided thinking on this topic.

Kye 3y ago

The key takeaway for me was to know what you're getting in to. You sound like you do. OP seems to be aiming at people who do not.

onion2k 3y ago

According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deservedly so, but if you're at a point prior to raising 'what if we IPO?' probably isn't a very useful question.

jacquesm 3y ago
Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.
- adventured 3y ago
  Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years. [0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.
  - Joeri 3y ago
    I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.
    - fbdab103 3y ago
      There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.

sumeno 3y ago

That some people win the lottery is not a good argument for playing the lottery

tptacek 3y ago
If you feel that way, don't start a product company.
- mwcampbell 3y ago
  This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?
  - tptacek 3y ago
    You'll still most likely fail! This is a really important part of why the VC math works the way it does. You can de-risk a product company by not trying to shoot for the moon, but it's an incremental derisking.
eastdakota 3y ago
The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside. So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started. As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.

mattbuilds 3y ago

I wish we could stay away from generalities. There is no one size fits all answer to questions like "should I take funding?". The answer depends on your goals and where you are competing. If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding. If you want full control over your product or are operating in a niche and think the explosive growth necessary will hinder you, you have different priorities. You might not be trying to make the next "big thing" and in this case probably don't take funding. In fact, you probably don't want VC funding because your goals don't align with theirs. Like most difficult questions, the answer is: it depends.

Nevermark 3y ago
Few people are pedantic enough to misinterpret “never” slash “always” premises detrimentally. It is a pervasive rhetorical shortcut. 1. Flatten a proposition to an all or nothing form to simplify communication. 2. The reader steps back into the real multidimensional world with clearer insight into one of its dimensions. Anyone confused by this has deeper problems than VC or not VC questions.

j45 3y ago

There is an option #4 that I’ve been around a few times: build a shark that is doing the acquiring within 5 years. Superior tech, maybe hyper efficient, hyper profitable.

yowlingcat 3y ago
This model is interesting, and I've definitely been wondering about this a lot more in the new macroeconomy. Do tell more if you're up for it. From my perspective, it's effectively the PE model except the funding source is the company's own revenue rather than investment capital.
- deleted 3y ago
  [deleted]
- j45 3y ago
  I had drafted a reply but would be interested to know what you're looking after - is a story/experience of PE from a technologist on the business side what you're seeking?
eastdakota 3y ago
You still eventually need to return money to your private market investors at some point. So that just pushes the outcomes out later. Or, again, in the super rare case that you’re generating so much case that you can pay investors back at a rate of return they’re happy with with dividended cash flows.
- j45 3y ago
  I meant the ‘super rare’ case. It’s not so rare in some industries like oil and gas, etc where cashflow is the purpose of the work. Add software that does what nothing has before.. and the table turns.
  - eastdakota 3y ago
    Agree.

floomk 3y ago

Man who won lottery recommends it to everyone.

youngtaff 3y ago

Are you profitable yet?

bawolff 3y ago

I don't know what people expect. VC's obviously aren't giving out money from the goodness of their hearts. It is obviously going to come with strings. Maybe those strings line up with what you want anyways, which is great. If they don't, don't take the money.

Qwertious 3y ago

Context: the above commenter founded Cloudflare, which is a huge company now.

noobermin 3y ago

This is a nice wrinkle to the story, but as a reply points out, your story (3) is a hell of an exception, a fairytale if you will. It would be nice if people realise that and have realistic expectations. You shouldn't set people on chasing fairytales without them being aware that's what they are doing.

epolanski 3y ago

> You’re so right! It was an absolute disaster for us. Never do it!!!!! You're still unprofitable after 13 years though, aren't you? Growth is prompted by skyrocketing sales costs. Does any VC funded company ever ends up not losing money?

spacebanana7 3y ago
Facebook / Meta

jwr 3y ago

Customers of VC-funded companies take note: none of these outcomes are good for you. When you have a choice between being a long-term customer of a VC-funded company vs a self-funded business, think about long-term incentives and don't follow the rich and shiny. Disclaimer: I run a self-funded SaaS business and sometimes explain why I never wanted VC funding and why a LARGE BUSINESS is not necessarily better for customers.

eikenberry 3y ago

I think it is mostly based on one's POV. From the founders perspective starting a company, raising capitol and eventually taking it public might be taken as a wildly successful path. To an employee all it means it more and more dehumanization, destroying the company as a work place.

no_time 3y ago

With all due respect, your company is probably one of the biggest and most successful mass surveillance operations on earth. I wouldnt lose sleep over these things too if I knew my company would be scooped up by a 3 letter agency if anything were to happen that threatens this flow of data.

jrm4 3y ago

"It is true that playing the lottery doesn't work out for everyone, but it worked really well for us!"

reducesuffering 3y ago
It's sad that are multiple retorts about "lottery winners." Apparently, just on HN, we have about 25 lottery winners. Quite the coincidence! (cloudflare, shopify, databricks, coinbase, stripe, openai, freshworks, gitlab, dropbox, hashicorp, amplitude, vercel, plaid, hubspot, quip, notion, twilio, etc)
- jrm4 3y ago
  Out of....
  - reducesuffering 3y ago
    Certainly not 1 billion, which is what the lottery chances would be to win 25 times. (1 in 42m)
    - graton 3y ago
      I don't understand this logic. The US has the Powerball lottery. So far it has been won 403 times[1] what seems around 20 year time span. With a US population of around 360 million. So not sure why 25 winners would require a population of 1 billion. [1] https://www.powerball.net/winners https://www.powerball.net/winners
      - reducesuffering 3y ago
        I was using some state odds. Ok so 1 in 1m for Powerball, yet HN is ~3m, so we have 1 in 100k on HN. Already an order of magnitude difference. Then, of course, not even 1 in 100 here are actually giving a startup a serious go. So comparing successful startups to the lottery is easily 1000x off.
    - 3y ago

valyala 3y ago

It would be great to read in which exact ways did money from VCs help your company to reach the current state?

JodieLeal 3y ago

[dead]

Scottwilliams 3y ago

[flagged]