Dilution • Hacker News Board

Re: Dilution

#121

Post by sokoloff » Thu, Mar 02, 2017, 11:09 AM UTC

tbrowbdidnso wrote: post #93

tyre wrote: post #38

Earlier quoted context omitted.

I agree. Ironically, this was the advice we got while going through YC (yours, not Sam's.) Specifically: don't worry about valuation because success is binary. You either make enough money that you don't care too much about percentage or you make zero dollars in which case you don't care about percentage. The idea of constraints helping to focus a team sounds true, as long as people have enough to not worry about mon…

I will never take startup advice from investors. They care about your company and their money, not you. Of course they're going to tell you not to worry about giving more of the company away, they don't care who owns it. More money flying around is almost invariably a good thing for early investors. You don't really need advice about funding from anyone, just look at some successful companies and see what they did. F…

> You don't really need advice about funding from anyone, just look at some successful companies and see what they did. Funding is one of the few aspects where you can mimic your startup idols because it's public info.

Survivorship bias, anyone? You can look backwards at all the success stories. That tells less than 1% of the story, though. What about all the failed companies that did the same thing as the successes? What about all the factors that were irrelevant to success, yet apparent in the success stories?

> The fact is, all the biggest unicorns had enough promise and brains behind them to retain majority ownership

Isn't that pretty close to saying, "All the successful unicorns had apparent qualities of successful unicorns along the way"? How do I become tall? Ensure the top of your head is far away from your feet.

Re: Dilution

#122

Post by pc86 » Thu, Mar 02, 2017, 2:16 PM UTC

yosefk wrote: post #41

birken wrote: post #7

> Remember that raising money is not success. Raising huge amounts of money early on is very rarely how companies win (though it is sometimes how companies lose) I honestly think one of the reasons the company I worked for was successful was our inability to raise money while we were young, which forced a real discipline and creativity for how to do more with less. It also made us skeptical of investors and ensured w…

Counterpoint: if you're running out of money, the next investor you try to raise from is going to be tough to negotiate with. If you have years of runway left, you're in control when talking to investors, when you have 6 months, they're in control. Another point is that when everything comes down crashing, as it did in 2008, and you can't raise money anywhere nor, in many cases, make a profit in the near future since…

If you're hemorrhaging money, they're going to be in control regardless of your actual burn rate. Even with years a runway if you're losing money month over month and your runway only gets you 90% to profitability, it doesn't matter if that 90% happens in 2 months or 2 years, it's still going to happen without cash or a change at the company.

Re: Dilution

#123

Post by posterboy » Thu, Mar 02, 2017, 2:31 PM UTC

yosefk wrote: post #52

marcofloriano wrote: post #46

Earlier quoted context omitted.

I like your idea (actually i practice it), but your investors aren't putting a lot of money in your hands so you keep it at the bank to them, right? They could do that for themselves. By experience you don't need years on cash to survive in the long run, discipline and a business that makes sense is way more powerful. But off course, months of runaway is necessary. More than that is luxury.

Investors put money in the craziest places, surely there's a public story stock right now that you think is inflated beyond belief and yet it trades at the price it does. It follows that investors will do crazier things than give you money to keep in the bank if you persuade them. You tell them point blank, "we're hoping to make it big this year, but we aren't taking any risks and we're gonna keep enough cash in the…

>you're missing a chance to buy a stock that's gonna shoot up 10x and here's why

that's not a positive pitch. The message sticks, whether you try to negate it or not, if resonating with expectation.

Re: Dilution

#124

Post by scott00 » Thu, Mar 02, 2017, 3:20 PM UTC

aianus wrote: post #86

lpolovets wrote: post #61

Earlier quoted context omitted.

1) There are some new funds popping up, like indie.vc, which don't subscribe to the "Uber or bust" model. Some accelerators, like 500 Startups, are also in that camp. 2) If you can bootstrap to enough revenue, you can try bank loans or things like http://www.saas-capital.com/ 3) Unfortunately, the numbers don't work out for VCs if your goal isn't "$1b+ or bust." Almost all companies will exit for much, much less than…

I don't understand 3) From the VC's point of view how is a 5% chance of a $200m exit different from a 1% chance of a $1b exit? (etc.)

Assuming that those numbers are known precisely, the 5%/$200M is clearly the better option. But in practice it's basically impossible to distinguish a 1% success rate business from a 5% success rate business. On the other hand, it's pretty doable to estimate best-case outcomes based on the size of the market being addressed and some assumptions about margins and market share derived from the business model.

Re: Dilution

#125

Post by marktangotango » Thu, Mar 02, 2017, 3:43 PM UTC

neom wrote: post #109

neom wrote: post #39

Money is simply wind in the sails.

The fact that I got voted down on this just goes to show the level of ability to understand reality HN has. HN is a bubble.

I didn't down vote, but your comment was banal and didn't add anything to the discussion. HN aspires to a higher level of discourse, as you probably know. Just glanced at your profile, you probably have a lot of insight that everyone would find interesting!

Re: Dilution

#126

Post by yosefk » Thu, Mar 02, 2017, 4:15 PM UTC

pc86 wrote: post #122

yosefk wrote: post #41

Earlier quoted context omitted.

Counterpoint: if you're running out of money, the next investor you try to raise from is going to be tough to negotiate with. If you have years of runway left, you're in control when talking to investors, when you have 6 months, they're in control. Another point is that when everything comes down crashing, as it did in 2008, and you can't raise money anywhere nor, in many cases, make a profit in the near future since…

If you're hemorrhaging money, they're going to be in control regardless of your actual burn rate. Even with years a runway if you're losing money month over month and your runway only gets you 90% to profitability, it doesn't matter if that 90% happens in 2 months or 2 years, it's still going to happen without cash or a change at the company.

> it doesn't matter if that 90% happens in 2 months or 2 years.

It does. If you must sell your house this week you'll get a lower price than if you can afford to wait for a year for the most eager buyer who's in love with the place. The effect is more pronounced with selling stock in a private company which is much, much harder to price than a house.

> it's still going to happen without cash or a change at the company.

It depends on why you lose money. If you lose money because you acquire many users and lose money on every user, you need to "change" the company in the sense of finding a way to make money on every user, enough to cover your more or less fixed expenses and then some. If you lose money because you're building a product and haven't reached mass production either because it takes a lot of time to ramp up production or because it takes time for demand to show up, say for regulatory reasons, then the "change" is simply getting to mass production. In the latter case, having more money is (in a way) getting you closer to that welcome "change" than in the former.