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Their view is so biased by being VCs. They really believe they are there to help founders. And they do! At least for first-time founders. But they are completel

by danjl 3y ago

Their view is so biased by being VCs. They really believe they are there to help founders. And they do! At least for first-time founders. But they are completely unaware of the damage caused by VCs and have no understanding of WHY many experienced founders prefer bootstrapping. Once you take investment, your goal shifts ever so slightly from "making a great product" to "getting the next round of investment". Your target customer shifts from your product's customers to your investors. The real question is not whether a lawn maintenance company or restaurant wants VC investment. The change that is happening now is that SaaS, mobile app and other "traditionally VC-funded" companies are finally realizing that VC funding is not a good model for building a long-term viable business.

dang 3y ago
> your goal shifts ever so slightly from "making a great product" to "getting the next round of investment" FWIW, at the last YC event I intended, the partners were talking about how it's their job to get founders to stop thinking that way, and to think instead about making a great product, as you say.
- hobofan 3y ago
  I think YC can say/do that, as with the YC stamp of approval you are already on the A-tier track of VCs. So for their portfolio companies having a shoddy product will be the main reason of not getting follow up funding. Meanwhile, if you started out with a "lesser tier" accelerator/incubator, you'll have to prove that you have a good product _plus_ you have to fight an uphill battle and convince A tier VCs to even take a look at you.
  - jedberg 3y ago
    You'd be surprised at how hard it is for YC companies to get follow up investment, even with the YC stamp. I think YC tells that to their startups because they believe it. YC has always been about elevating founders and making "start my own business" a viable alternative to "get a high paying job". And from day one their motto was "make something people want". And when you exit they give you a shirt that says, "I made something people want". They've always been product over everything else.
  - pcthrowaway 3y ago
    Even YC VCs don't understand that founders who take investment still have to shift their goal from "making a great product" to "exponentially growing their product" which in most cases is at odds with just "making a great product" YC doesn't invest in companies who aren't aspiring for valuations in the 8 or 9 figures (even if mid/high 7 figures would still be profitable). In the recent thread "Ask HN: Those making $500/month on side projects in 2024 – Show and tell" a user posted https://convertcase.net https://convertcase.net which is making $20K/month[1]. A traditional VC would never touch that, and if the user had sought VC investment, there would need to be plans for user sign-up, a SaaS dashboard where users can manage their projects and the different kinds of entities they would need to convert, integration with CI.. who knows what else. At that point they'd be building a completely different business, and would no longer be able to build the sustainable version that might not ever get $50,000,000 valuation. And that business would likely require them to hire more people and raise more funding [1]: https://news.ycombinator.com/item?id=39119230 https://news.ycombinator.com/item?id=39119230
    - robocat 3y ago
      > YC doesn't invest in companies who aren't aspiring for valuations in the 7 or 8 figures False. YC even has a non-profit track: https://www.ycombinator.com/blog/what-y-combinator-looks-for-in-nonprofits/ https://www.ycombinator.com/blog/what-y-combinator-looks-for... But yes, YC is VC and YC wants to create unicorns and has little interest in small businesses or bootstrapping. Joining YC is giving yourself a median outcome of failure - $0 for your common shares is the expected outcome (albeit likely true for bootstrapping founders too?). VC incentives and rules mean that VC virtually always takes more than 50% ownership over multiple rounds. So even if founders backed a winning business, founders will usually have lost control. VC will often kick founders out (it's allowed in the contracts and is part of the game).
    - tptacek 3y ago
      My sense of it is that YC feels its strength is in having and growing a huge luck surface area, because their dollars are worth more to founders so they get to make lots of bets, and they have a systematized process that meets founders where they are and can do a lot with super-motivated teams that want an intensive engagement while not getting in the way of teams that are more fire-and-forget. Which is to say: their investing is interesting but it doesn't have that much to do with long-term investing in startups. If you need plural millions to reach orbit, you're going to need to pitch a 9-figure company, because big-ticket investors have portfolio math that only works for those kinds of companies. So, to me it doesn't make too much sense to talk about what a "traditional" VC will or won't touch. For most YC success stories, both kinds of VC are involved.
- pmontra 3y ago
  Maybe the goals of founders and of VCs are sometimes misaligned. If founders start with the idea of working super hard for a few years (counted on the fingers of one or at most two hands), get an exit and retire, then why build a product that outlasts the end of venture capital? They could just try the VC roulette pivot after pivot and hopefully win an exit. This is not necessarily what happens in reality, hence some VC's focus on solid products, but it's a tempting, possibly naive, idea.
- sanderjd 3y ago
  Sure, but the road to hell is paved with good intentions overwhelmed by the reality of incentive structures. This is like the venture capitalism version of "real communism has never been tried". Both of these things are true: founders (and leaders of VC-funded businesses in general) have an incentive to focus on investment rounds and runway, and VCs have an incentive to tell them not to do that. I think this mismatch is fundamentally due to the asymmetrical cost of failure. For VCs, it's a bummer if the goals of the current round are not met, leading to the company folding or an acquisition on disappointing terms, but it's arguably even worse for the company to sputter along, barely staying afloat from round to round, but never really catching fire, because they have to keep funds tied up in it, without ever getting the return multiple they're looking for. But the people who actually work at the company have a much more concentrated investment in it simply staying alive, even at the price of short-termism. It's just fundamentally different risk profiles! Maybe VCs should gift founders enough wealth up-front to be financially independent. This would go a long way to align their risk profile :)
- splitstud 3y ago
  [dead]
- vinnyvichy 3y ago
  Problem is, by that point YC have already filtered out the founder who is naturally inclined towards product over ponzi. Yes, it's still not entirely a gamble but remember that a person who has enough self-awareness of her product potential will still prefer to bootstrap over getting into YC, so one might suspect that's not inherently a low bar. (Or else the partners would not have such a distracting job in the first place) What should YC do then? I'd say, demonstrate to a producteer how willing and able YC are to help her explore side markets, a bit like HN's commitment to curiosity :)
  - dang 3y ago
    I'm a bit confused - YC doesn't filter out founders, it champions them. That's been the underlying principle the entire time. But perhaps I misunderstood you?
    - vinnyvichy 3y ago
      I meant that a founder who is already confident of her product or her ability to grow her business without the YC cachet, or, more substantially, a founder who is already acutely aware of the dangers of premature (fundability) optimization, would naturally not feel the need to apply to YC. If she does not apply, then by virtue of YC's positioning, she has been filtered out in favour of founders who prioritize looking impressive.
      - dang 3y ago
        I don't think that logic quite works. YC funds quite a few amazing repeat founders. Having been around a lot of the batches, I don't think the majority prioritize "looking impressive". It's true that such types exist, and that they try to get into YC, but YC's application and interview process is designed to filter them out. If they get in anyhow, that's considered a failure on YC's part. But you're right in the sense that some first-time founders who want to build a great product can be lacking in confidence, or aren't clear on some of the steps they need to take, and those are areas where YC can help a lot. For seasoned repeat founders, those presumably aren't the urgent issue anymore.
synergy20 3y ago
There are something in the middle called crowdfunding though, and private angel funds.
dustingetz 3y ago
A bootstrapper's primary goal is to survive another year and will do anything to survive, including accept any investment offered. Beggars do not turn down money. In a way, "bootstrapper" is a euphamism for "can't raise yet". (I initially wrote "unable to raise", but that's an unfair frame, because raising is 98% networking and has very little to do with "ability". Capital flows through trust networks.)
- AnotherGoodName 3y ago
  This is an odd view as a bootstrapped founder because i simply never needed funding apart from a small amount for business registration and initial hardware purchases but that's 1000's. I was working another job while bootstrapping so wasn't going to starve no matter what. We ended up with a product clients were knocking on the door for (remote telemetry for railways/mines/environmental monitoring). The business has huge recurring revenue to this day and we decided to talk to VCs after making it. They had nothing to offer us and the amount they were willing to give made no sense and was in the realm of giving them money (imagine valueing a company at half of its annual earnings). I'm very very negative on VC to this day except if you have a capital+time intensive barrier to break (most companies don't have this). 'You can't do it without our guidance' they'll say but the honest truth is they don't have much to offer apart from the money. VCs are not altruistic. They do the maths and figure out how to get returns regardless of how it will impact your stake. You'd be an absolute fool to take VC money without asking if it's actually a long term positive for you. There's always a better deal and giving them a significant share of your company on extremely generous terms for the promise of 'guidance' is going to be foolish IMHO. Bootstrapping is not some desperate scramble for money. The whole idea is to run the first phase off a shoestring so it has no real risks (apart from your own time and effort).
  - dustingetz 3y ago
    In what decade was this? Stories like this seem super rare from where I'm standing - boots on ground in 2024. I meet maybe two dozen founders per year - can't think of a single actual bootstrapper who doesn't feel like they need capital to compete. (There's something wrong with the economy right now ...)
metacritic12 3y ago
Yup, VCs are desperate for founders to create VC-backable businesses. This video argues that if you want to be a trillion dollar company, you need VC funding. But they don't emphasize aiming to be a trillion dollar company has a tiny (<1%) chance of succeeding, requiring certain lifestyles (investment chasing). It's not for people looking to build fun products, live a relatively wealthy (but not outrageous) lifestyle, etc. It is literally for founders who want to go the biggest or go home. Think carefully if that is you.
- paulddraper 3y ago
  More like a ~billion dollar company. The # of unicorn technology companies without venture funding is very small.
  - metacritic12 3y ago
    Fair -- to get to a billion dollar founder valuation, you need a VC, and even with a VC, the chances are less than 1 in 100.
    - deleted 3y ago
      [deleted]
paulddraper 3y ago
> VC funding is not a good model for building a long-term viable business VC funding a good model for rapid growth. It may or may not bring "long-term viability," happiness, or weight loss. Those are mostly independent considerations.
erikerikson 3y ago
The video seemed pretty straightforward that the VCs are there to take advantage of the founders need for more capital than they have access to in order to cross a funding gap of high initial costs. "We give you money, you give us much more back" My father in law had an agriculture business (pollen). They had customers and a product but they needed a three month loan to pay laborers to harvest the product so that they could use it for customers and then invoice and collect. The labor was well paid due to urgency dynamics, the farms they serviced had yields paying more (or avoid loss greater) than the cost of services, and there was profit left over for the banker's share plus his own business. As a side effect the food supply was both more stable and abundant. Without the capital less excess (or greater losses) would have existed. This is effectively what VCs are hoping to find except at a far higher level of scale.

by danjl 3y ago

dang 3y ago

> your goal shifts ever so slightly from "making a great product" to "getting the next round of investment" FWIW, at the last YC event I intended, the partners were talking about how it's their job to get founders to stop thinking that way, and to think instead about making a great product, as you say.

hobofan 3y ago
I think YC can say/do that, as with the YC stamp of approval you are already on the A-tier track of VCs. So for their portfolio companies having a shoddy product will be the main reason of not getting follow up funding. Meanwhile, if you started out with a "lesser tier" accelerator/incubator, you'll have to prove that you have a good product _plus_ you have to fight an uphill battle and convince A tier VCs to even take a look at you.
- jedberg 3y ago
  You'd be surprised at how hard it is for YC companies to get follow up investment, even with the YC stamp. I think YC tells that to their startups because they believe it. YC has always been about elevating founders and making "start my own business" a viable alternative to "get a high paying job". And from day one their motto was "make something people want". And when you exit they give you a shirt that says, "I made something people want". They've always been product over everything else.
- pcthrowaway 3y ago
  Even YC VCs don't understand that founders who take investment still have to shift their goal from "making a great product" to "exponentially growing their product" which in most cases is at odds with just "making a great product" YC doesn't invest in companies who aren't aspiring for valuations in the 8 or 9 figures (even if mid/high 7 figures would still be profitable). In the recent thread "Ask HN: Those making $500/month on side projects in 2024 – Show and tell" a user posted https://convertcase.net https://convertcase.net which is making $20K/month[1]. A traditional VC would never touch that, and if the user had sought VC investment, there would need to be plans for user sign-up, a SaaS dashboard where users can manage their projects and the different kinds of entities they would need to convert, integration with CI.. who knows what else. At that point they'd be building a completely different business, and would no longer be able to build the sustainable version that might not ever get $50,000,000 valuation. And that business would likely require them to hire more people and raise more funding [1]: https://news.ycombinator.com/item?id=39119230 https://news.ycombinator.com/item?id=39119230
  - robocat 3y ago
    > YC doesn't invest in companies who aren't aspiring for valuations in the 7 or 8 figures False. YC even has a non-profit track: https://www.ycombinator.com/blog/what-y-combinator-looks-for-in-nonprofits/ https://www.ycombinator.com/blog/what-y-combinator-looks-for... But yes, YC is VC and YC wants to create unicorns and has little interest in small businesses or bootstrapping. Joining YC is giving yourself a median outcome of failure - $0 for your common shares is the expected outcome (albeit likely true for bootstrapping founders too?). VC incentives and rules mean that VC virtually always takes more than 50% ownership over multiple rounds. So even if founders backed a winning business, founders will usually have lost control. VC will often kick founders out (it's allowed in the contracts and is part of the game).
  - tptacek 3y ago
    My sense of it is that YC feels its strength is in having and growing a huge luck surface area, because their dollars are worth more to founders so they get to make lots of bets, and they have a systematized process that meets founders where they are and can do a lot with super-motivated teams that want an intensive engagement while not getting in the way of teams that are more fire-and-forget. Which is to say: their investing is interesting but it doesn't have that much to do with long-term investing in startups. If you need plural millions to reach orbit, you're going to need to pitch a 9-figure company, because big-ticket investors have portfolio math that only works for those kinds of companies. So, to me it doesn't make too much sense to talk about what a "traditional" VC will or won't touch. For most YC success stories, both kinds of VC are involved.
pmontra 3y ago
Maybe the goals of founders and of VCs are sometimes misaligned. If founders start with the idea of working super hard for a few years (counted on the fingers of one or at most two hands), get an exit and retire, then why build a product that outlasts the end of venture capital? They could just try the VC roulette pivot after pivot and hopefully win an exit. This is not necessarily what happens in reality, hence some VC's focus on solid products, but it's a tempting, possibly naive, idea.
sanderjd 3y ago
Sure, but the road to hell is paved with good intentions overwhelmed by the reality of incentive structures. This is like the venture capitalism version of "real communism has never been tried". Both of these things are true: founders (and leaders of VC-funded businesses in general) have an incentive to focus on investment rounds and runway, and VCs have an incentive to tell them not to do that. I think this mismatch is fundamentally due to the asymmetrical cost of failure. For VCs, it's a bummer if the goals of the current round are not met, leading to the company folding or an acquisition on disappointing terms, but it's arguably even worse for the company to sputter along, barely staying afloat from round to round, but never really catching fire, because they have to keep funds tied up in it, without ever getting the return multiple they're looking for. But the people who actually work at the company have a much more concentrated investment in it simply staying alive, even at the price of short-termism. It's just fundamentally different risk profiles! Maybe VCs should gift founders enough wealth up-front to be financially independent. This would go a long way to align their risk profile :)
splitstud 3y ago
[dead]
vinnyvichy 3y ago
Problem is, by that point YC have already filtered out the founder who is naturally inclined towards product over ponzi. Yes, it's still not entirely a gamble but remember that a person who has enough self-awareness of her product potential will still prefer to bootstrap over getting into YC, so one might suspect that's not inherently a low bar. (Or else the partners would not have such a distracting job in the first place) What should YC do then? I'd say, demonstrate to a producteer how willing and able YC are to help her explore side markets, a bit like HN's commitment to curiosity :)
- dang 3y ago
  I'm a bit confused - YC doesn't filter out founders, it champions them. That's been the underlying principle the entire time. But perhaps I misunderstood you?
  - vinnyvichy 3y ago
    I meant that a founder who is already confident of her product or her ability to grow her business without the YC cachet, or, more substantially, a founder who is already acutely aware of the dangers of premature (fundability) optimization, would naturally not feel the need to apply to YC. If she does not apply, then by virtue of YC's positioning, she has been filtered out in favour of founders who prioritize looking impressive.
    - dang 3y ago
      I don't think that logic quite works. YC funds quite a few amazing repeat founders. Having been around a lot of the batches, I don't think the majority prioritize "looking impressive". It's true that such types exist, and that they try to get into YC, but YC's application and interview process is designed to filter them out. If they get in anyhow, that's considered a failure on YC's part. But you're right in the sense that some first-time founders who want to build a great product can be lacking in confidence, or aren't clear on some of the steps they need to take, and those are areas where YC can help a lot. For seasoned repeat founders, those presumably aren't the urgent issue anymore.

synergy20 3y ago

There are something in the middle called crowdfunding though, and private angel funds.

dustingetz 3y ago

A bootstrapper's primary goal is to survive another year and will do anything to survive, including accept any investment offered. Beggars do not turn down money. In a way, "bootstrapper" is a euphamism for "can't raise yet". (I initially wrote "unable to raise", but that's an unfair frame, because raising is 98% networking and has very little to do with "ability". Capital flows through trust networks.)

AnotherGoodName 3y ago
This is an odd view as a bootstrapped founder because i simply never needed funding apart from a small amount for business registration and initial hardware purchases but that's 1000's. I was working another job while bootstrapping so wasn't going to starve no matter what. We ended up with a product clients were knocking on the door for (remote telemetry for railways/mines/environmental monitoring). The business has huge recurring revenue to this day and we decided to talk to VCs after making it. They had nothing to offer us and the amount they were willing to give made no sense and was in the realm of giving them money (imagine valueing a company at half of its annual earnings). I'm very very negative on VC to this day except if you have a capital+time intensive barrier to break (most companies don't have this). 'You can't do it without our guidance' they'll say but the honest truth is they don't have much to offer apart from the money. VCs are not altruistic. They do the maths and figure out how to get returns regardless of how it will impact your stake. You'd be an absolute fool to take VC money without asking if it's actually a long term positive for you. There's always a better deal and giving them a significant share of your company on extremely generous terms for the promise of 'guidance' is going to be foolish IMHO. Bootstrapping is not some desperate scramble for money. The whole idea is to run the first phase off a shoestring so it has no real risks (apart from your own time and effort).
- dustingetz 3y ago
  In what decade was this? Stories like this seem super rare from where I'm standing - boots on ground in 2024. I meet maybe two dozen founders per year - can't think of a single actual bootstrapper who doesn't feel like they need capital to compete. (There's something wrong with the economy right now ...)

metacritic12 3y ago

Yup, VCs are desperate for founders to create VC-backable businesses. This video argues that if you want to be a trillion dollar company, you need VC funding. But they don't emphasize aiming to be a trillion dollar company has a tiny (<1%) chance of succeeding, requiring certain lifestyles (investment chasing). It's not for people looking to build fun products, live a relatively wealthy (but not outrageous) lifestyle, etc. It is literally for founders who want to go the biggest or go home. Think carefully if that is you.

paulddraper 3y ago
More like a ~billion dollar company. The # of unicorn technology companies without venture funding is very small.
- metacritic12 3y ago
  Fair -- to get to a billion dollar founder valuation, you need a VC, and even with a VC, the chances are less than 1 in 100.
  - deleted 3y ago
    [deleted]

paulddraper 3y ago

> VC funding is not a good model for building a long-term viable business VC funding a good model for rapid growth. It may or may not bring "long-term viability," happiness, or weight loss. Those are mostly independent considerations.

erikerikson 3y ago

The video seemed pretty straightforward that the VCs are there to take advantage of the founders need for more capital than they have access to in order to cross a funding gap of high initial costs. "We give you money, you give us much more back" My father in law had an agriculture business (pollen). They had customers and a product but they needed a three month loan to pay laborers to harvest the product so that they could use it for customers and then invoice and collect. The labor was well paid due to urgency dynamics, the farms they serviced had yields paying more (or avoid loss greater) than the cost of services, and there was profit left over for the banker's share plus his own business. As a side effect the food supply was both more stable and abundant. Without the capital less excess (or greater losses) would have existed. This is effectively what VCs are hoping to find except at a far higher level of scale.