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> Companies are at their most vulnerable just before a new financing, when cash is short and all hands are required on deck to get the next round closed. I thi

> Companies are at their most vulnerable just before a new financing, when cash is short and all hands are required on deck to get the next round closed. I think it would be more accurate to write "Companies are at their most vulnerable when cash is short and they're not generating enough of it to support their operations and growth." When you play Build A Business With Someone Else's Money and your execution (or lack thereof) leaves you in position where you need more money from Someone Else, you can lament the fact that Someone Else has significantly more leverage than you or you can acknowledge that this was a possible outcome of the risk you decided to take.

crashdev 13y ago
In my experience the startup community (both founders + funders) is heavily skewed toward people who believe that creating value takes time and teamwork, and that any premature + asymmetric effort to capture value is just counterproductive. Very few really big companies in tech have been built by bootstrapping -- it offers the illusion of control, but typically at the expense of impact.
- rabbitonrails 13y ago
  What is a "premature + asymmetric effort to capture value" and how is it "counterproductive", and to whom, and how does it relate to bootstrapping at the expense of the "time and teamwork" towards which the rest of the "startup community" is "heavily skewed"?
  - webwright 13y ago
    I can't quite tell if you're being snarky/obtuse, but I'll assume you're not. I believe he means that if you need to make a profit to survive, it'll inhibit growth, impact, and market share. Example: Say Amazon was bootstrapped. They couldn't have run profit-free for years like they did. The result of bootstrapping Amazon? Higher prices. Slow hiring. No marketing. Little-to-no cash for R&D. Maybe company-death because they couldn't afford to wait for the market to catch up with their vision. Or maybe a faster-moving competitor now has room to move in and take the leadership role. Do you think Amazon made the wrong choice to raise money, assuming Bezos' wish was a combination of impact-on-the-world and wealth?
- 7Figures2Commas 13y ago
  I won't suggest that asymmetric effort to capture value might not be counterproductive in some instances, but let's not suggest that founders view their interactions with professional investors through rose-colored glasses either. As for bootstrapping: sadly, lots of young and inexperienced entrepreneurs underestimate how much money they'll need to execute. That's not a control issue; that's a starting-a-business-when-you-have-no-business-starting-a-business issue. Finally, the word "big" is too subjective to have any real meaning here. If you told a group of first-time entrepreneurs that they could own 100% of a highly-profitable multi-million dollar a year business, most would probably tell you that's "big enough." And even though many of them fly under the radar, there are a countless number of those businesses in and out of the tech world.
- jmduke 13y ago
  Would you call say Microsoft and Apple were built through bootstrapping? (I am not trying to be snarky. What's your definition of bootstrapping?)
  - webwright 13y ago
    Apple was not bootstrapped. Don Valentine (Sequoia), Arthur Rock (Venrock) were VCs to put money into Apple after angel investment from Markkula in 77. David Morgenthaler was also an early investor. It's not entirely clear to me how Microsoft was financed, but there was absolutely outside financing (August Capital: http://en.wikipedia.org/wiki/David_Marquardt http://en.wikipedia.org/wiki/David_Marquardt ). Also, Bill Gates was born pretty rich. "His father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates's maternal grandfather was JW Maxwell, a national bank president." (from https://en.wikipedia.org/wiki/Bill_Gates https://en.wikipedia.org/wiki/Bill_Gates). I'd wager his folks were angel investors in one form or another.
- shin_lao 13y ago
  A successful business does everything it can to make money as soon as it can. It can take investments because bootstrapping doesn't make sense in many situation (growth would be too slow), but saying premature + asymmetric effort to capture value is just counterproductive is actually exactly the opposite of what works. A business needs to make money as soon as it can. It's how it survives. Facebook and Twitter are exceptions.
kevinpet 13y ago
If you've committed to an ideological position that bootstrapping is the only valid way to start a business, you have nothing useful to offer on the topic of how to raise money well and what to look out for. It's the same way that an anarchist cannot make sensible statements on tax policy. "Taxation is theft" isn't an argument for or against eliminating the mortgage interest deduction, it's just an irrelevant distraction.
- shin_lao 13y ago
  There's a slider between 100% bootstrapped and 100% invested, and using that slider is what gives you leverage in tough times.
  - ryanbrunner 13y ago
    In practice there's often not. Perhaps early on, but heavily VC funded start-ups are likely going to have a board that's somewhat hostile to slow, careful growth with a focus on profitability.
    - shin_lao 13y ago
      Probably a reason why VC funded companies have a higher probability of failing...
- ronaldx 13y ago
  An anarchist could have a novel and useful insight into taxation, despite the straw man you set up. It's common that deciding to reject the status quo requires strong and considered reasoning.
- 7Figures2Commas 13y ago
  I fail to see how you could read my comment and draw the conclusion that I am committed to an ideological position that bootstrapping is the only valid way to start a business because I implied no such thing. Many businesses require capital, and it's worth noting that equity isn't the only means by which it can be raised. This said, money isn't free (except in certain financial centers of course) and the people and institutions providing it generally aren't doing so out of the goodness of their hearts. My comment simply points that out. Want something useful? How's this: it's easier to raise capital on reasonable/favorable terms when you don't need it. In other words, put yourself in a position where you're raising capital to grow, make bigger investments earlier, etc., not to make next month's payroll. I always figured this was common sense, but in Silicon Valley, more than a few people seem to believe that the way to build a business is to return to the funding trough every time you've exhausted your last round of funding.

crashdev 13y ago

In my experience the startup community (both founders + funders) is heavily skewed toward people who believe that creating value takes time and teamwork, and that any premature + asymmetric effort to capture value is just counterproductive. Very few really big companies in tech have been built by bootstrapping -- it offers the illusion of control, but typically at the expense of impact.

rabbitonrails 13y ago
What is a "premature + asymmetric effort to capture value" and how is it "counterproductive", and to whom, and how does it relate to bootstrapping at the expense of the "time and teamwork" towards which the rest of the "startup community" is "heavily skewed"?
- webwright 13y ago
  I can't quite tell if you're being snarky/obtuse, but I'll assume you're not. I believe he means that if you need to make a profit to survive, it'll inhibit growth, impact, and market share. Example: Say Amazon was bootstrapped. They couldn't have run profit-free for years like they did. The result of bootstrapping Amazon? Higher prices. Slow hiring. No marketing. Little-to-no cash for R&D. Maybe company-death because they couldn't afford to wait for the market to catch up with their vision. Or maybe a faster-moving competitor now has room to move in and take the leadership role. Do you think Amazon made the wrong choice to raise money, assuming Bezos' wish was a combination of impact-on-the-world and wealth?
7Figures2Commas 13y ago
I won't suggest that asymmetric effort to capture value might not be counterproductive in some instances, but let's not suggest that founders view their interactions with professional investors through rose-colored glasses either. As for bootstrapping: sadly, lots of young and inexperienced entrepreneurs underestimate how much money they'll need to execute. That's not a control issue; that's a starting-a-business-when-you-have-no-business-starting-a-business issue. Finally, the word "big" is too subjective to have any real meaning here. If you told a group of first-time entrepreneurs that they could own 100% of a highly-profitable multi-million dollar a year business, most would probably tell you that's "big enough." And even though many of them fly under the radar, there are a countless number of those businesses in and out of the tech world.
jmduke 13y ago
Would you call say Microsoft and Apple were built through bootstrapping? (I am not trying to be snarky. What's your definition of bootstrapping?)
- webwright 13y ago
  Apple was not bootstrapped. Don Valentine (Sequoia), Arthur Rock (Venrock) were VCs to put money into Apple after angel investment from Markkula in 77. David Morgenthaler was also an early investor. It's not entirely clear to me how Microsoft was financed, but there was absolutely outside financing (August Capital: http://en.wikipedia.org/wiki/David_Marquardt http://en.wikipedia.org/wiki/David_Marquardt ). Also, Bill Gates was born pretty rich. "His father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates's maternal grandfather was JW Maxwell, a national bank president." (from https://en.wikipedia.org/wiki/Bill_Gates https://en.wikipedia.org/wiki/Bill_Gates). I'd wager his folks were angel investors in one form or another.
shin_lao 13y ago
A successful business does everything it can to make money as soon as it can. It can take investments because bootstrapping doesn't make sense in many situation (growth would be too slow), but saying premature + asymmetric effort to capture value is just counterproductive is actually exactly the opposite of what works. A business needs to make money as soon as it can. It's how it survives. Facebook and Twitter are exceptions.

kevinpet 13y ago

If you've committed to an ideological position that bootstrapping is the only valid way to start a business, you have nothing useful to offer on the topic of how to raise money well and what to look out for. It's the same way that an anarchist cannot make sensible statements on tax policy. "Taxation is theft" isn't an argument for or against eliminating the mortgage interest deduction, it's just an irrelevant distraction.

shin_lao 13y ago
There's a slider between 100% bootstrapped and 100% invested, and using that slider is what gives you leverage in tough times.
- ryanbrunner 13y ago
  In practice there's often not. Perhaps early on, but heavily VC funded start-ups are likely going to have a board that's somewhat hostile to slow, careful growth with a focus on profitability.
  - shin_lao 13y ago
    Probably a reason why VC funded companies have a higher probability of failing...
ronaldx 13y ago
An anarchist could have a novel and useful insight into taxation, despite the straw man you set up. It's common that deciding to reject the status quo requires strong and considered reasoning.
7Figures2Commas 13y ago
I fail to see how you could read my comment and draw the conclusion that I am committed to an ideological position that bootstrapping is the only valid way to start a business because I implied no such thing. Many businesses require capital, and it's worth noting that equity isn't the only means by which it can be raised. This said, money isn't free (except in certain financial centers of course) and the people and institutions providing it generally aren't doing so out of the goodness of their hearts. My comment simply points that out. Want something useful? How's this: it's easier to raise capital on reasonable/favorable terms when you don't need it. In other words, put yourself in a position where you're raising capital to grow, make bigger investments earlier, etc., not to make next month's payroll. I always figured this was common sense, but in Silicon Valley, more than a few people seem to believe that the way to build a business is to return to the funding trough every time you've exhausted your last round of funding.