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Startups Rejecting Venture Capital

nytimes.com

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Re: Startups Rejecting Venture Capital

#21

Post by orev »

peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

Time is money — which means you can buy time (i.e. shorter development cycles) with money. Sure, you can putter along with something and possibly make it big eventually, but having money allows you to accelerate that process dramatically. Being a first mover can mean the difference between dominating a market and being completely shut out of it.

Re: Startups Rejecting Venture Capital

#22

Post by mlthoughts2018 »

eis wrote: post #8

VCs win if enough of their bets make it big enough to offset the ones that go under. Naturally the big hits are few and the ones that fail are numerous. That means the big hits need to be huge and the failures need to have a certain cap. The latter also means you can't run a company for 10 years in slowmo until they get profitable. And the big hits need to be huge which means they need to take over a nice chunk of a…

Additionally, the particular mix of attributes you bring up (few and far between options for huge near-term growth) heavily incentivizes exploiting weaknesses in laws and/or outright violation of laws, because one of the only formulaic ways to displace entrenched incumbent businesses is to look at where they are forced to operate inefficiently due to obeying laws and then undercut them by operating more efficiently and skirting / violating those laws.

If you take a premise that society is better off most of the time if the business is less efficient but the law is obeyed, then it makes the whole concept of modern VC-backed startup businesses generally a destructive endeavor on society.

Obviously not in every individual case, but overall and pretty consistently in the largest growth start-ups.

Re: Startups Rejecting Venture Capital

#23

Post by chosenbreed37 »

peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

> You don't build great things by raising money, you build great things by building them.

Maybe not...but you might latest hardware, fancy offices, etc without risking a dime. Not a bad proposition :-)

Re: Startups Rejecting Venture Capital

#24

Post by chosenbreed37 »

eis wrote: post #8

VCs win if enough of their bets make it big enough to offset the ones that go under. Naturally the big hits are few and the ones that fail are numerous. That means the big hits need to be huge and the failures need to have a certain cap. The latter also means you can't run a company for 10 years in slowmo until they get profitable. And the big hits need to be huge which means they need to take over a nice chunk of a…

> What does that mean for founders? It means that you are putting all your eggs into one basket.

> What does that mean for startup employees? Well, they got the worst of all worlds. High risk and little to no upside. Their eggs are also in one basket as they work for only one company AND they don't have the huge upsides that VCs and founders have

Presumably both of them get paid for their efforts...not entirely worthless

Re: Startups Rejecting Venture Capital

#25

Post by fs111 »

NickBusey wrote: post #4
nullcipher wrote: post #3

Earlier quoted context omitted.

Can you elaborate?

I think TFA did a better job with that than I ever could. Regardless, my short summary is that VCs, in my experience, are the worst of people who don't give a shit about you or your team, and just want to see more and more money. I don't want to deal with or be involved with people like that. Edit: Also I should note, many of our VCs pitched themselves as 'angel' and 'impact' investors. So, while I didn't expect them…

Why would they care about you or your team? It is an investment, not a social service.

Re: Startups Rejecting Venture Capital

#26

Post by geofft »

chosenbreed37 wrote: post #23
peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

> You don't build great things by raising money, you build great things by building them. Maybe not...but you might latest hardware, fancy offices, etc without risking a dime. Not a bad proposition :-)

You're risking much more than a dime, though, aren't you?

Re: Startups Rejecting Venture Capital

#27

Post by IMTDb »

eis wrote: post #8

VCs win if enough of their bets make it big enough to offset the ones that go under. Naturally the big hits are few and the ones that fail are numerous. That means the big hits need to be huge and the failures need to have a certain cap. The latter also means you can't run a company for 10 years in slowmo until they get profitable. And the big hits need to be huge which means they need to take over a nice chunk of a…

I agree with your statement, but only if you consider that employees have a significant downside of working at a startup that goes under.

Usually they are able to jump ship sooner than the founder and don't loose any personal investment in the process they get more responsibilities and more independence which in turn can get them to higher salaries faster.

Employees at startup usually get paid a bit less than "market rate" but enjoy a work environment they consider to be more exciting / enriching / challenging. There are people that dislike the startup environment, or that don't think it's worth the pay cut compared to GAFAN or other BigCo - and that's OK - but for many it's not as bad as you frame it.

Re: Startups Rejecting Venture Capital

#28

Post by balls187 »

peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

This seems like a very narrow minded view point.

Whether or not founders find it a badge of honor to raise money has no real bearing on the fact that businesses require capital.

Re: Startups Rejecting Venture Capital

#29

Post by ABCLAW »

peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

>Raising money is a failure mode.

If you're trying to build a lifestyle business, yes. That's correct. Incrementally building your recurring revenue is rewarding and doesn't require outside investment and comes with no strings, which keeps the cognitive and administrative overhead of the enterprise low.

If you're making a play to win in an emerging market against seriously capitalized contenders, you might not fare so well.

In software, most of the product development is fairly bespoke, but in many other industries you require access to capital assets to do anything. Having a portfolio of well placed leases is critical for a retail play. Having capital or leverageable equity is essential for an industry consolidation play. One wouldn't pretend that the founder of a junior mining company 'lacks skills' for issuing a raise on public markets to develop a mining site.

By extension, where the value add in an enterprise is not generated from the value of a software product, but by the integration of tech with some other vertical, obtaining serious cash infusions may be the only way for the business plan to succeed.

Re: Startups Rejecting Venture Capital

#30

Post by sonnyblarney »

peterlk wrote: post #18

This might be an unpopular opinion, but my view of VC money has changed significantly in the last couple years. Raising money is a failure mode. If you are raising money it is because you failed at something and you need the money to catch yourself. This is more true for software companies than, say hardware companies, but I think is still generally true. For example, if you are raising because you need to hire peopl…

No, financing is an important part of any business operation, and very few business that we know would have been successful without it.

Of course companies can raise too much, and consider 'a raise' as some kind of material win, and derive too much identity from it ... but that doesn't mean it's bad.

A decent round from a good fund is the a really great positive signal, perhaps the most positive.

Just because software doesn't have working capital or capex requirements, doesn't mean those costs are magic. People's time is money.

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