Most heavily-VC funded companies die Young, even if they make it to IPO, like SGI (now reconstituted as NVidia). VCs don't care about companies, they want to make a quick buck and get out. Most successful startups are self funded for most of their life, e.g Microsoft, Dell, Google, Amazon.
Startups Rejecting Venture Capital
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Re: Startups Rejecting Venture Capital
#62I agree with the general point of the article that taking VC money leads to a "get rich or die trying" binary mindset which may not be right for all startups. For many startups, it's not necessarily to become a unicorn to be successful, bring riches to their employees, and in general build a better world.
However, there are some points that I don't agree with especially this: "Would Facebook’s leadership have ignored warning signs of Russian election meddling or allowed its platform to incite racial violence if it hadn’t, in its early days, prized moving fast and breaking things? Would Uber have engaged in dubious regulatory and legal strategies if it hadn’t prioritized expansion over all else? "
Of course, this is subject to survivorship bias but I think it's generally agreed that part of the reason Facebook was able to grow so quickly and Uber was able to capture markets and be the market leader were exactly those things: Moving Fast, Breaking Things, and focused on growth above all else. In hindsight, if they hadn't done that, it's possible that we wouldn't care at all what they did because they wouldn't be the giants they are. There are tradeoffs with every strategy and these two unicorns chose the ones that led to their dominance even if it came with some headaches later on.
Re: Startups Rejecting Venture Capital
#63Hard to turn VC money down when it’s practically free.
None of the founders I know that raised seed capital even had a business plan.
Hard to turn down $1,000,000 when all you have to do for it is say yes. Maybe go to a few meetings, make a PowerPoint. I mean really. Some of these investors haven’t even asked for any metrics, a web app was enough. It’s... shocking how cheap VC money is.
Re: Startups Rejecting Venture Capital
#64VCs 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 p…
Best bet is a growth co that offers RSUs over options and a few years away from IPO. They will generally offer you a premium over what you'd make at a similar level in a public co (to make up for the illiquidity of the stock), and if you believe in the growth story it can pay off big time.
Re: Startups Rejecting Venture Capital
#65This 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 s…
I agree with the OP here, and I think it's an interpretation of terms.
If a company is "raising money" that means, in almost all cases, that they are actively soliciting or courting investors. They are doing the "Sand Hill Run" or some other such intense, grueling process which attempts to "pitch" the startup to investors in a gamified way.
I agree with the OP that this is a failure mode because in almost every case I've seen the company can't survive without it in the short-mid term.
If VC are literally hunting you down like Sequoia did with Whatsapp, I wouldn't consider that "Raising Money." They could have done without VC and been perfectly fine - probably better off long term.
Re: Startups Rejecting Venture Capital
#66Vinod 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...
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Re: Startups Rejecting Venture Capital
#67This 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 was the hard won lesson for me over the last few years and I think most VC already know this.
In fact I'm surprised any VC takes any solicitations because IMO even broaching the topic with a VC without them approaching you first is a negative indicator of growth.
Re: Startups Rejecting Venture Capital
#68We've tried going down the VC route but no one's really been interested. So we're pushing on to get customers to help us fund it out.
That’s just the way VC works. HN posters who have never raised a round of financing in their lives love to pontificate about how cheap money is these days and how easy it is to get funded. It does look that way from the outside. However, this is actively harmful to the psychology of struggling founders, because raising money is objectively difficult. The people who don’t treat it as such are in for a world of hurt and / or disappointment in the future.
Get customers. But also, ask founders for advice and seek accelerator programs for mentorship if VC is something you want to pursue. Financing is much more nuanced than HN / movies make it seem. There’s tremendous selection bias around advice because a good proportion of founders who succeed at it are unreasonably lucky. A good chunk more, though, just grinded it the hell out — and those in this category will often just tell you they worked really hard and got lucky.
Be persistent. Build your company. Luck comes to those who position themselves to be lucky.
Re: Startups Rejecting Venture Capital
#69From the investor point of view, there's a clear problem with the VC model as described.
How do you establish that a VC has any skill? If the game is to throw a load of money at different firms, in the hope of getting 99 losers and a massive winner, how do you tell the good ones from the bad ones? Keep in mind there's noise; a guy with alpha might have a bad day before going to meet Uber or Facebook. He then gets 100 losers instead of 99. Or vice versa.
This is called skewness in traditional markets. People can sell options and make money quite often, until they blow up, ie the reverse of what I described above.
There also seems to be opportunity in less-than-insane growth. I've invested in a couple of firms personally, via connections. Small businesses, with a few sticky customers, and decent scale potential (they both sell via the internet) that need a little bit of cash to grow. You can't throw a few million bucks at any one of them, but you can get a reasonable rate of return. I suspect there's opportunities like this everywhere, but the VC theme creates so much attention people forgot there was an investment world before VC was a thing.
Re: Startups Rejecting Venture Capital
#70This 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 s…
> If you're making a play to win in an emerging market against seriously capitalized contenders, you might not fare so well.
Then it's a slightly more contrived case of race to the bottom, usually nobody wins. Except that in the case of race to overfunding, there is a parallel game of last-to-hold-the-bag going on, which some VC can win even on a failing company if they time their entry and exit right.
If "Incrementally building your recurring revenue" is a lifestyle business, then lifestyle business must be a good thing. Acting as the vehicle of valuation inflation games played by VC however, I'm not even sure if that should qualify as business at all (slightly exaggerating, but "theatre troupe" is borderline applicable if earning money, now or in the future, is secondary to presenting a convincing "story" to future investors for the benefit of, and as demanded by, current investors).