Startups Rejecting Venture Capital • Hacker News Board

Re: Startups Rejecting Venture Capital

#31

Post by trjordan » Fri, Jan 11, 2019, 4:50 PM UTC

I get the disdain for VCs -- it's a specific model with a specific set of failure modes. So that's fair.

What I don't understand is this dislike for investing ahead of growth or success. Why is the expectation that everything can be done bootstrapped or constantly profitable?

Companies take investment. If you're building a product that will be valuable for a long time, there will always be a period at the beginning where the entity requires somebody to put their investment into it. If the idea is small enough that one or two rich dudes with Google money can do forgo their salaries, that's great. But even a team of five for 18 months is a significant investment, and somebody needs to pony up. Should startups only consist of rich people who can afford to roll the dice?

Instead of fully rejecting the model, I believe that companies should take VC money with a finite plan towards profitability. If you take $2mil in seed money and hire a team of 8, get to $2m / year in revenue. If you want to take another bite at the apple, there will be VCs who fund you at that point. If not, you're not dead.

Real progress takes real investment. Ignoring that fact ignores a wild world of interesting, viable companies.

Re: Startups Rejecting Venture Capital

#32

Post by nabla9 » Fri, Jan 11, 2019, 4:50 PM UTC

All new companies are not startups. Startups need to have scalable business model.

Not all new companies with a scalable business model have the skills or risk taking ability to be a startup that actually scales.

Calling every new company that sells products in the internet a startup waters down the meaning of startup. Gradually growing and maybe becoming mid-sized business may be the best option for most. Gambling to become a very rich or starting from scratch again is low probability game. You can do it only few times and only small percentage can succeed.

Re: Startups Rejecting Venture Capital

#33

Post by ergothus » Fri, Jan 11, 2019, 4:50 PM UTC

As an outsider, I find myself disappointed everytime a company goes public, and VCs seem to be (1) a stepping stone to that and (2) motivated by the same concerns.

As a consumer, I find that the shareholders never have my interests at heart, not even indirectly (everyone wants to make money, but a private company seems more likely to decide they make money by actually providing me value). This feels like a massive failure on either (1) my understanding or (2) the market as a whole.

Am I wrong about VCs being the same basic issue, only with fewer players?

Re: Startups Rejecting Venture Capital

#34

Post by sonnyblarney » Fri, Jan 11, 2019, 4:52 PM UTC

diego wrote: post #10

One thing that not many people talk about: there's an oversupply of VC funds spawned by the technological waves of the 90s (internet), 2000s (mobile) and everything in between. Today there isn't a clear wave, yet those funds need to deploy capital. Now there are too many funds pursuing not enough VC-worthy opportunities. The VC bubble will pop sooner or later.

'Oversupply' could simply be communicated in a different supply/demand equilibrium.

Cheap capital is probably not such a bad thing for Entrepreneurs. More bad companies get funded, but that's not so bad. More good companies that wouldn't have seen the light of day will also get funded.

There's only a 'bubble' if there can be a significant correction. If the US economy goes into heavy recession, then maybe there will be a steep pullback in VC. But otherwise, VC as an asset class may just not get the returns of yesteryear, which is fine.

Re: Startups Rejecting Venture Capital

#35

Post by eis » Fri, Jan 11, 2019, 4:53 PM UTC

chosenbreed37 wrote: post #24

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 worth…

Not worthless but the deal they get is usually a lot worse than the deal a VC gets.

Are they getting paid enough to account for the risk? A VC will make more money and have less risk (overall). An employee will most likely make not much more than working for an established company and have a high chance of losing his job within a few years.

Re: Startups Rejecting Venture Capital

#36

Post by sonnyblarney » Fri, Jan 11, 2019, 4:53 PM UTC

tozeur wrote: post #15

Vinod Khosla recently stated that 90% of VCs add no value, 70% add negative value[1]. [1] https://blog.ycombinator.com/vinod-khosla-on-how-to-build-th...

He said that in the context of adding value on boards, i.e. providing strategic direction.

The fundamental impetus of VC's, i.e. 'capital' is generally a good thing for Entrepreneurs.

Re: Startups Rejecting Venture Capital

#37

Post by amelius » Fri, Jan 11, 2019, 4:54 PM UTC

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…

What exactly does "cut-throat" behavior entail in this case?

Re: Startups Rejecting Venture Capital

#38

Post by jchrisa » Fri, Jan 11, 2019, 4:55 PM UTC

trjordan wrote: post #31

I get the disdain for VCs -- it's a specific model with a specific set of failure modes. So that's fair. What I don't understand is this dislike for investing ahead of growth or success. Why is the expectation that everything can be done bootstrapped or constantly profitable? Companies take investment. If you're building a product that will be valuable for a long time, there will always be a period at the beginning w…

Free healthcare, free college, and a UBI would go a long way toward making starting a company realistic for more people.

Re: Startups Rejecting Venture Capital

#39

Post by hn_throwaway_99 » Fri, Jan 11, 2019, 4:56 PM UTC

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 think your point about employees is especially true, particularly since the large tech companies pay disproportionately so much more. If you are a senior-level software engineer, even if the startup is successful in the "unicorn" range, for most people that means an equity payout on the couple hundred K to the $1 million range for all but the very largest successes. Not bad at all, but when the FAANGS are already paying in the 250-500k range, going to a startup is you are not an exec or founder is almost always a poor financial decision. And remember, the vast majority of startups still fail outright.

Re: Startups Rejecting Venture Capital

#40

Post by nathan_long » Fri, Jan 11, 2019, 4:57 PM UTC

fs111 wrote: post #25

NickBusey wrote: post #4

Earlier quoted context omitted.

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.

Business partners are not family, sure.

On the other hand, you could easily argue that almost everything is "just business". The doctor is there to treat you, not care about you, your boss is there to extract labor from you, not care about you, your child's teacher is there to impart knowledge, not care about her.

Such black-and-white separation of concerns doesn't really fit well with being human, IMO. In most of these cases we want something less than intimacy but more than indifference.