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This is one of the reasons I'm kinda ambivalent about taking money. I've been working for startups since the 1990s (and starting companies too). I've seen the

by nirvana 15y ago

This is one of the reasons I'm kinda ambivalent about taking money. I've been working for startups since the 1990s (and starting companies too). I've seen the down years in 1995, 2001-2003, 2008-2009, and I've seen the manias of 1997-2000, 2004-2007, 2010-2012, and it just leaves me really concerned that taking VC money is a whole lot about timing. I want to build a business, not get rich with a stock market (e.g.: selling stock to VCs with perfect timing.) This plus the generally hostile and irrational terms VCs require (liquidation preferences, etc) have had me focusing on making our business profitable from day one. (or at least from day one after the product launches.) On the other hand-- man, it would really be great to have $500k in the bank to hire some people so we could grow really fast. But we're not there yet-- that would be a bad investment because we're still doing customer development, we're still trying to discover our business, so to speak. I feel like, if I go down the path of trying to raise money now, I'll be spending a lot of time doing something that doesn't help us discover that business. But if I don't, who knows what things will be like in a while, if it turns out that we really could use that money. In the end, though, I side on the idea that money can be a nice accelerant, if it is gotten on good terms (terms are more important than valuation) from good people (and how in the hell do you figure out who those people are? I have seen a lot of damage done by investors in my career.) But at the end of the day, if the company is profitable, you can plow %100 of those profits into growth. If the company isn't profitable, the only way to survive is outside investment. I don't want my companies future in the hands of other people, so I'm pursuing a highly profitable business that is super capital efficient and doesn't require outside funding to launch. I strongly recommend others consider this approach as well. Yeah, you might get into YC and then not need this, but if you don't, find a business model that makes you ramen profitable right away.

EricDeb 15y ago
On the flip side, wouldn't one round of "getting rich with a stock market" allow you to totally fund the business you want to on your own terms?
- drumdance 15y ago
  Sure, but it's not either/or. My last company was very profitable but is not going to IPO any time soon or get bought for a crazy valuation. However, I cashed out enough to fund my current company. I don't have millions in the bank, but I have enough to give me a 2 year runway and still live a comfortable lifestyle. "Go for broke" companies usually end up just broke. But if you can build a profitable business that finances future endeavors. Last year I had an epiphany that I'll be working in small tech startups for the rest of my life, and that I will enjoy it very much so long as the bills are paid. If I could repeat the last five years 4-5 more times I'll be very happy, even if not a jillionaire.
buro9 15y ago
That resonates deeply with me, and I've been struggling to put across all of that when all I hear from peers is the intention to flip or IPO and on the importance of grabbing as much money as possible whenever possible. Not to say YC isn't the answer. There's certainly many good reasons to do YC or something similar (the two biggest being the people/network and the atmosphere/environment - from what YC alumni have said), but I would say that unless your business needs the money... try and do without it. I read this last month and it also resonated with me: http://bryce.vc/post/17396972172/rise-of-the-independents http://bryce.vc/post/17396972172/rise-of-the-independents I know what company I run: it's an indie company, currently ramen profitable after a few months full-time and probably with an unconventional path in front of us.
keyle 15y ago
Pretty sure you got a typo in your twitter profile - I think you mean con·ven·ient.
Terretta 15y ago
The downside of nirvana's approach is when you build a solid self-funded business, doubling year over year for half a decade, then VC shows up having decided yours is an underfunded sector. They'll pile hundreds of millions into dozens of "corporate" startups, most of whom hit the ground running after market share through predatory pricing, consequently destroying the sector. Meanwhile, you'll find yourself unable to capture those VC dollars yourself because the VC model needs hockey stick successes to make up for the companies that go bust (recent stat here claimed 9 of 10 tech crunch startups are gone a year later). A startup can promise a hockey stick, but you have a history. Because of your solid 5 years of "just" doubling while remaining cash flow positive in an extraordinarily competitive arena, you're not providing that hockey stick. And when that funding boom happens, and you're faced with multiple hundred million dollar pocket "startup" competitors each with 2 - 3 years of ability to sell at a loss before their inevitable rollup or death, and without deep pockets yourself despite seven figures of revenue, you're in for a few years of serious hurt. You have to execute flawlessly, not a single misstep, just to survive.
- danbmil99 15y ago
  So true. But here's the hat trick: take the money, but keep your innocence. Understand you are in a bubble, and you may be forced to play by the rules of a hot market. But also be aware -- which your newly funded competitors are almost surely not -- that a bubble is in play. Work hard to keep customer loyalty a higher priority than maximizing the next round. Use your market power (meaning the investment market) to go for quality of investors and decency of terms (esp downside logistics); let your puppy competitors take the crazy valuation with draconian preferences. As to the "you have history, I'm investing in the blank slate kids" problem -- again, use the leverage to find the investors who really understand the long term, and who themselves know that this is a frenzy, not a rational market. Those people, if you get them, will not jump ship the second things start to look a bit more realistic. Focus on core competency, customer/employee loyalty, and creating great products and services. TL; DR: Take the money, but don't let it go to your head.
  - Terretta 15y ago
    It may seem noble to self-fund, but I believe your points are right. If you can run the business: take the money, use it for multipliers.

by nirvana 15y ago

EricDeb 15y ago

On the flip side, wouldn't one round of "getting rich with a stock market" allow you to totally fund the business you want to on your own terms?

drumdance 15y ago
Sure, but it's not either/or. My last company was very profitable but is not going to IPO any time soon or get bought for a crazy valuation. However, I cashed out enough to fund my current company. I don't have millions in the bank, but I have enough to give me a 2 year runway and still live a comfortable lifestyle. "Go for broke" companies usually end up just broke. But if you can build a profitable business that finances future endeavors. Last year I had an epiphany that I'll be working in small tech startups for the rest of my life, and that I will enjoy it very much so long as the bills are paid. If I could repeat the last five years 4-5 more times I'll be very happy, even if not a jillionaire.

buro9 15y ago

That resonates deeply with me, and I've been struggling to put across all of that when all I hear from peers is the intention to flip or IPO and on the importance of grabbing as much money as possible whenever possible. Not to say YC isn't the answer. There's certainly many good reasons to do YC or something similar (the two biggest being the people/network and the atmosphere/environment - from what YC alumni have said), but I would say that unless your business needs the money... try and do without it. I read this last month and it also resonated with me: http://bryce.vc/post/17396972172/rise-of-the-independents http://bryce.vc/post/17396972172/rise-of-the-independents I know what company I run: it's an indie company, currently ramen profitable after a few months full-time and probably with an unconventional path in front of us.

keyle 15y ago

Pretty sure you got a typo in your twitter profile - I think you mean con·ven·ient.

Terretta 15y ago

The downside of nirvana's approach is when you build a solid self-funded business, doubling year over year for half a decade, then VC shows up having decided yours is an underfunded sector. They'll pile hundreds of millions into dozens of "corporate" startups, most of whom hit the ground running after market share through predatory pricing, consequently destroying the sector. Meanwhile, you'll find yourself unable to capture those VC dollars yourself because the VC model needs hockey stick successes to make up for the companies that go bust (recent stat here claimed 9 of 10 tech crunch startups are gone a year later). A startup can promise a hockey stick, but you have a history. Because of your solid 5 years of "just" doubling while remaining cash flow positive in an extraordinarily competitive arena, you're not providing that hockey stick. And when that funding boom happens, and you're faced with multiple hundred million dollar pocket "startup" competitors each with 2 - 3 years of ability to sell at a loss before their inevitable rollup or death, and without deep pockets yourself despite seven figures of revenue, you're in for a few years of serious hurt. You have to execute flawlessly, not a single misstep, just to survive.

danbmil99 15y ago
So true. But here's the hat trick: take the money, but keep your innocence. Understand you are in a bubble, and you may be forced to play by the rules of a hot market. But also be aware -- which your newly funded competitors are almost surely not -- that a bubble is in play. Work hard to keep customer loyalty a higher priority than maximizing the next round. Use your market power (meaning the investment market) to go for quality of investors and decency of terms (esp downside logistics); let your puppy competitors take the crazy valuation with draconian preferences. As to the "you have history, I'm investing in the blank slate kids" problem -- again, use the leverage to find the investors who really understand the long term, and who themselves know that this is a frenzy, not a rational market. Those people, if you get them, will not jump ship the second things start to look a bit more realistic. Focus on core competency, customer/employee loyalty, and creating great products and services. TL; DR: Take the money, but don't let it go to your head.
- Terretta 15y ago
  It may seem noble to self-fund, but I believe your points are right. If you can run the business: take the money, use it for multipliers.