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Why 99.997% Of Entrepreneurs May Want To Postpone Or Avoid VC

60 points by daegloe 13y ago

drinkzima 13y ago
TLDR: Lots of businesses don't succeed in venture and if you are of the 1-2% of businesses that receives funding and doesn't succeed than you should have postponed/avoided VC. Bad logic and even worse advice.
- kemiller 13y ago
  Only 1-2% of businesses that receive VC are failures? Are you sure that's what you mean?
  - danoprey 13y ago
    I think he means if you are in the 1-2% of businesses that receive VC funding and after receiving funding you go on to fail...
  - deleted 13y ago
    [deleted]
  - deleted 13y ago
    [deleted]
  - drinkzima 13y ago
    My fault, numbers backwards, 1-2% should be 98-99%.
Qantourisc 13y ago
VC == venture capitals
kevinpet 13y ago
Right then. I'll just go and build a business without any capital. Maybe my fairy godmother will just handle salaries and expenses. What's the alternative? Funding solves the problem of "entrepreneur needs money to build business". You can't just dump on VC without offering some alternative way to solve that problem. It's possible that bootstrapping is best, but he doesn't even bother to make that argument.
- markokrajnc 13y ago
  After seed capital and before 1st round of VC you will already make some sales. Maybe there is a way to increase sales and cover the salaries and expenses from the sales... If you can do this, this may be better than taking the VC...
onion2k 13y ago
Successfully raising capital is pretty much always seen as a win - a group of professionals have examined you, your team, and your idea and decided that it's worthwhile risking a sum of money backing you. That gives you a runway to build a userbase without needing to worry about being profitable. In some cases it means you can actually build something that you couldn't build without the money. Capital certainly gives you time to focus and build faster. The problem though, is that capital is also a shield against the reality of building a _business_. It saves you from talking to potential customers for a while. You can kid yourself that you're "working on the product", doing the fun stuff like writing code instead of the hard stuff like selling. Many, many tech entrepreneurs conflate "building a product" and "building a business". Making the most amazing product in the world is pointless if you can't market it. If you bootstrap or borrow then you have no choice but to get out there and find real, paying customers because otherwise you're screwed so much earlier. That changes your focus in a very good way. It surprises me that investors put money into teams of hugely technical people who can't sell the amazing tech they can build and yet don't insist that they expand the team to bring in people who _can_ sell right at the start. It's often almost an afterthought, something that can happen later once the product is "finished". Raising capital _never_ means you won't need to do sales and marketing. Every successful business has to. The earlier the sales team is in place and having input into the business the better.
- random42 13y ago
  > It surprises me is that investors put money into teams of hugely technical people who can't sell the amazing tech they can build and yet don't insist that they expand the team to bring in people who _can_ sell right at the start. It's often almost an afterthought, something that can happen later once the product is "finished". I disagree. - Selling from start is difficult (even for good sales people). There isn't any thing to sale at the beginning. - Building from start is essential. - Resources are finite for a startup. Good people (Sales, tech both) costs decent amount (equity or $$$) VC expect founder(s)/CEO to take care of early stage of sales/marketing/advertising etc. till the time scaling on these operations is required. To me it makes sense to avoid (expensive) hiring unless absolutely required, especially in the early days of a startup.
jmathai 13y ago
From reading the article I don't imagine that the author has started or has the desire to start a company. > If you have a guarantee that you will become a home run... That right there sums it up. On a side note, I think there's a huge gap between a VC company and a bootstrapped company. I believe most entrepreneurs, including those who get VC money, aren't looking to hit eBay sized home runs. I think many just want to build a successful business. Their options? Bootstrap or raise VC. Raising VC sounds like an easier road and has all the glitz and glamour. As a result, many entrepreneurs go that route, few get it and most abandon their idea altogether. Now the entrepreneur is stuck in an odd position of having to pitch and behave as if they're "changing the world". There's no solution to the problem as far as I know but it's really a lose lose situation. It's too bad because there's a lot of value that disappears in the process because no financing model exists/works for the moderately successful startup.
- girvo 13y ago
  > It's too bad because there's a lot of value that > disappears in the process because no financing model > exists/works for the moderately successful startup. I disagree: I think Angel funding, coupled with a "bootstrap-hustle-your-arse-off" plan can mean that moderate success makes everyone involved a decent chunk of change. While some people use "Lifestyle business" derogatorily, personally it's exactly what I'm aiming for with my new business. A few mil in revenue each year, costs and personnel low, and I'll be a happy camper, working on what I want to work on :)
  - jmathai 13y ago
    I agree with you but it's difficult to sell that type of business to angels from my experience. No exit. No money.
ktd 13y ago
Where does this "you only get one great idea" meme come from? Generating "great ideas" is a skill, and one that can be trained just like any other.
- Anonymous238 13y ago
  I agree it's a skill, and hopefully over time you have a better understanding of what ideas are more likely to succeed. However, I don't think anyone out there can guarantee a great idea. How many times has Google failed again and again? Zynga is worth billions, and yet they're going to struggle to create another Farmville and they'll have difficulties staying relevant in the coming years. You can put the smartest minds on earth in a room for years with an unlimited budget, and they can't promise to deliver the next Facebook. So, when you have that great idea, and you see it starting to grow, you better take good care of it. They don't come easy for anyone. That's part of the skill though, recognizing the good from the bad, and knowing when to jump ship, and most importantly, when to try again.
- logn 13y ago
  Yes, this is what bothered me most about the article. I see ideas just like jokes that a comedian or writer comes up with. Writers will all tell you they keep a notebook of ideas, meaning they're constantly capturing every moment they think they can fit in a standup routine or movie or whatever. I do the same as a computer programmer. Every time I think of an idea for an app or business, I note it, and in doing so I've developed essentially a background process in my brain that's always seeing if my sensory inputs have any good business ideas. I have a long list now and when I want to make something I literally just sort the list. And much like a comedian, I have no problem telling people my ideas, because I have so many of them I'm at the point it's depressing to think that I'll never live long enough to build them all.
- deleted 13y ago
  [deleted]
diziet 13y ago
There is an interesting dynamic going on with YC/Angelpad/other incubators or startups 'in the know' that makes some of these things not apply. The kind of founders that are building tech companies are technically capable and they do not need to hire anyone nor need much capital other than initial living expenses. So there isn't as much pressure to raise money as others might expect -- there aren't salaries to pay, and your mindset is different with regard to expenses and things you're willing to try to do to get users. When we'd started Sensor Tower, we moved to the San Mateo and worked day and night to build out the product, living for cheap on Barilla spaghetti. My co-founder promised to do 20 pushups per each paying customer, our first trial sign up was followed by a hectic phone call "omg!" and literal hopping in the air in excitement. A couple of months later, our attitude slowly changed, and after raising we didn't even bask at Safeway delivery or buying a couch. We still sleep on mattresses without frames, though. Another thing about raising money is in most cases, when you do it right, you're not giving away your company to the VCs -- you're giving something like 10% away. That, at least, is the advantage of going through YC/Angelpad/etc, you aren't a typical startup when raising, you have the option to draw on the alumni and connections, etc.
deleted 13y ago
[deleted]

60 points by daegloe 13y ago

TLDR: Lots of businesses don't succeed in venture and if you are of the 1-2% of businesses that receives funding and doesn't succeed than you should have postponed/avoided VC. Bad logic and even worse advice.

kemiller 13y ago
Only 1-2% of businesses that receive VC are failures? Are you sure that's what you mean?
- danoprey 13y ago
  I think he means if you are in the 1-2% of businesses that receive VC funding and after receiving funding you go on to fail...
- deleted 13y ago
  [deleted]
- deleted 13y ago
  [deleted]
- drinkzima 13y ago
  My fault, numbers backwards, 1-2% should be 98-99%.

Qantourisc 13y ago

VC == venture capitals

kevinpet 13y ago

Right then. I'll just go and build a business without any capital. Maybe my fairy godmother will just handle salaries and expenses. What's the alternative? Funding solves the problem of "entrepreneur needs money to build business". You can't just dump on VC without offering some alternative way to solve that problem. It's possible that bootstrapping is best, but he doesn't even bother to make that argument.

markokrajnc 13y ago
After seed capital and before 1st round of VC you will already make some sales. Maybe there is a way to increase sales and cover the salaries and expenses from the sales... If you can do this, this may be better than taking the VC...

onion2k 13y ago

Successfully raising capital is pretty much always seen as a win - a group of professionals have examined you, your team, and your idea and decided that it's worthwhile risking a sum of money backing you. That gives you a runway to build a userbase without needing to worry about being profitable. In some cases it means you can actually build something that you couldn't build without the money. Capital certainly gives you time to focus and build faster. The problem though, is that capital is also a shield against the reality of building a _business_. It saves you from talking to potential customers for a while. You can kid yourself that you're "working on the product", doing the fun stuff like writing code instead of the hard stuff like selling. Many, many tech entrepreneurs conflate "building a product" and "building a business". Making the most amazing product in the world is pointless if you can't market it. If you bootstrap or borrow then you have no choice but to get out there and find real, paying customers because otherwise you're screwed so much earlier. That changes your focus in a very good way. It surprises me that investors put money into teams of hugely technical people who can't sell the amazing tech they can build and yet don't insist that they expand the team to bring in people who _can_ sell right at the start. It's often almost an afterthought, something that can happen later once the product is "finished". Raising capital _never_ means you won't need to do sales and marketing. Every successful business has to. The earlier the sales team is in place and having input into the business the better.

random42 13y ago
> It surprises me is that investors put money into teams of hugely technical people who can't sell the amazing tech they can build and yet don't insist that they expand the team to bring in people who _can_ sell right at the start. It's often almost an afterthought, something that can happen later once the product is "finished". I disagree. - Selling from start is difficult (even for good sales people). There isn't any thing to sale at the beginning. - Building from start is essential. - Resources are finite for a startup. Good people (Sales, tech both) costs decent amount (equity or $$$) VC expect founder(s)/CEO to take care of early stage of sales/marketing/advertising etc. till the time scaling on these operations is required. To me it makes sense to avoid (expensive) hiring unless absolutely required, especially in the early days of a startup.

jmathai 13y ago

From reading the article I don't imagine that the author has started or has the desire to start a company. > If you have a guarantee that you will become a home run... That right there sums it up. On a side note, I think there's a huge gap between a VC company and a bootstrapped company. I believe most entrepreneurs, including those who get VC money, aren't looking to hit eBay sized home runs. I think many just want to build a successful business. Their options? Bootstrap or raise VC. Raising VC sounds like an easier road and has all the glitz and glamour. As a result, many entrepreneurs go that route, few get it and most abandon their idea altogether. Now the entrepreneur is stuck in an odd position of having to pitch and behave as if they're "changing the world". There's no solution to the problem as far as I know but it's really a lose lose situation. It's too bad because there's a lot of value that disappears in the process because no financing model exists/works for the moderately successful startup.

girvo 13y ago
> It's too bad because there's a lot of value that > disappears in the process because no financing model > exists/works for the moderately successful startup. I disagree: I think Angel funding, coupled with a "bootstrap-hustle-your-arse-off" plan can mean that moderate success makes everyone involved a decent chunk of change. While some people use "Lifestyle business" derogatorily, personally it's exactly what I'm aiming for with my new business. A few mil in revenue each year, costs and personnel low, and I'll be a happy camper, working on what I want to work on :)
- jmathai 13y ago
  I agree with you but it's difficult to sell that type of business to angels from my experience. No exit. No money.

ktd 13y ago

Where does this "you only get one great idea" meme come from? Generating "great ideas" is a skill, and one that can be trained just like any other.

Anonymous238 13y ago
I agree it's a skill, and hopefully over time you have a better understanding of what ideas are more likely to succeed. However, I don't think anyone out there can guarantee a great idea. How many times has Google failed again and again? Zynga is worth billions, and yet they're going to struggle to create another Farmville and they'll have difficulties staying relevant in the coming years. You can put the smartest minds on earth in a room for years with an unlimited budget, and they can't promise to deliver the next Facebook. So, when you have that great idea, and you see it starting to grow, you better take good care of it. They don't come easy for anyone. That's part of the skill though, recognizing the good from the bad, and knowing when to jump ship, and most importantly, when to try again.
logn 13y ago
Yes, this is what bothered me most about the article. I see ideas just like jokes that a comedian or writer comes up with. Writers will all tell you they keep a notebook of ideas, meaning they're constantly capturing every moment they think they can fit in a standup routine or movie or whatever. I do the same as a computer programmer. Every time I think of an idea for an app or business, I note it, and in doing so I've developed essentially a background process in my brain that's always seeing if my sensory inputs have any good business ideas. I have a long list now and when I want to make something I literally just sort the list. And much like a comedian, I have no problem telling people my ideas, because I have so many of them I'm at the point it's depressing to think that I'll never live long enough to build them all.
deleted 13y ago
[deleted]

diziet 13y ago

There is an interesting dynamic going on with YC/Angelpad/other incubators or startups 'in the know' that makes some of these things not apply. The kind of founders that are building tech companies are technically capable and they do not need to hire anyone nor need much capital other than initial living expenses. So there isn't as much pressure to raise money as others might expect -- there aren't salaries to pay, and your mindset is different with regard to expenses and things you're willing to try to do to get users. When we'd started Sensor Tower, we moved to the San Mateo and worked day and night to build out the product, living for cheap on Barilla spaghetti. My co-founder promised to do 20 pushups per each paying customer, our first trial sign up was followed by a hectic phone call "omg!" and literal hopping in the air in excitement. A couple of months later, our attitude slowly changed, and after raising we didn't even bask at Safeway delivery or buying a couch. We still sleep on mattresses without frames, though. Another thing about raising money is in most cases, when you do it right, you're not giving away your company to the VCs -- you're giving something like 10% away. That, at least, is the advantage of going through YC/Angelpad/etc, you aren't a typical startup when raising, you have the option to draw on the alumni and connections, etc.

deleted 13y ago

[deleted]