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Startups Rejecting Venture Capital

nytimes.com

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Re: Startups Rejecting Venture Capital

#81

Post by jonlucc »

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…

Maybe this is hopelessly naive or dumb legally difficult, but I wonder if a VC might have a slight advantage by offering funded companies a portion of the fund itself. They might be more enticing to founders. Of course there's still some severe disadvantage for employees.

I'm thinking about a Planet Money episode that discusses big-time poker folks, and they frequently trade percentages of their winnings such that if enough people do it, the few big winners are evened out over time.

Re: Startups Rejecting Venture Capital

#82

Post by ucosty »

hn_throwaway_99 wrote: post #39
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 p…

We can't all be FAANG employees, and those salaries certainly are not realistic in the UK.

Re: Startups Rejecting Venture Capital

#83

Post by wensing »

tdaltonc wrote: post #75
wensing wrote: post #56

The Babe Ruth effect of VC's needing big hits and the entire industry being a hits-driven business (unicorns, PG's Black Swan Farming, etc.) is a relic of the VC industry being not-long-tail compatible (i.e. offline). This will change, and more money will be made in the fat long tail than the hits. I've been writing at length about this movement ( https://medium.com/swlh/the-new-bootstrappers-how-alternativ... ) and…

Your links don't go anywhere.

Thanks! Fixed, I think ...

Re: Startups Rejecting Venture Capital

#84

Post by jonathanyc »

billconan wrote: post #80
hamandcheese wrote: post #53

Earlier quoted context omitted.

This is assuming one can get hired by a FAANG, which is not true for many.

I’m about to join a startup. I just want to do meaningful work and learn new things. I view it as a learning experience. I am so fed up with corporation life. I don’t see a way out other than joining a startup or starting my own. I don’t want to deal with project managers and fill their spreadsheets anymore. The most valuable thing I have is the remaining time I have in this life. Not the number in my bank account.

> I don’t want to deal with project managers and fill their spreadsheets anymore.

Oh boy are you in for a surprise. Whether a company is a startup or not is almost entirely orthogonal to a culture of “filling out spreadsheets.”

Re: Startups Rejecting Venture Capital

#85

Post by noddy1 »

Moving towards the model where a portion of early VC investment goes straight into the pocket of the founders and early employees, as bird has done.

If I've built a company with an implied valuation of 200 million, why can't I bank a couple of million for a rainy day?

I've heard VC's state with a straight face that this is a misalignment of incentives.. apparently if the founder is financially comfortable they aren't "hungry".. this from a venture capitalist who is guaranteed a juicy carry whatever happens to their fund I find this insulting.

Re: Startups Rejecting Venture Capital

#86

Post by hsk0823 »

simplecomplex wrote: post #63

Hard 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.

VC money is not free, there's a real cost to it, it's written on the term sheet.

VC money is relatively easy money to obtain versus trying to grind for the same amount of capital yourself, but there's certainly a cost to any transaction.

Re: Startups Rejecting Venture Capital

#89

Post by mdorazio »

AndrewKemendo wrote: post #65
ABCLAW wrote: post #29

Earlier quoted context omitted.

>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…

This is pretty narrow thinking. The #1 reason founders should be raising VC money is to grow faster than they possibly could without it. Could Uber have grown organically without raising millions of dollars? Yes, probably. Would they have been outcompeted by competitors with significantly more money to throw at driver and user acquisition? Absolutely.

You have to look at the high-growth startup market as an exercise in game theory rather than as a single-company market. It matters a large amount what other companies could and would do if you don't take funding and grow as quickly as possible.

Re: Startups Rejecting Venture Capital

#90

Post by ti3 »

simplecomplex wrote: post #63

Hard 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.

As a founder attempting to raise pre/seed in 2018, saying yes without much in exchange for funding is how I might have imagined fundraising to be in 2012-2014. Certainly not in 2018 or 2019 without relationships w/ VCs, in my personal experience.

VCs asking for order of magnitude ~$100ks ARR before a seed round in '18 and '19 makes total sense for VCs. Lower risk of failure with revenue as evidence.

If we get to that point of ARR, we are closer to being a free cash flow positive business and will consider forgoing VC altogether.

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