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Startups Rejecting Venture Capital

nytimes.com

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Re: Startups Rejecting Venture Capital

#151

Post by hsk0823 »

keithwhor wrote: post #68
tixocloud wrote: post #13

We'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 an…

For those on the outside, especially outside the tech scene all together, looking in, a multi million dollar series A for a company of under 10 employees looks like easy money, compared to say someone trying to run their mom and pop retail shop. Of course most people forget that this money isn't free, there's cost and expectations around how that money will be used.

Re: Startups Rejecting Venture Capital

#152

Post by hn_throwaway_99 »

megaman8 wrote: post #116
dunpeal wrote: post #72

Earlier quoted context omitted.

Precisely. A senior engineer can certainly hope to make $400k or more per year for good performance. Not just in FAANG either - plenty of other profitable businesses are competing for the same grade of talent and thus pay in the same range. Only a handful of almost surefire unicorns can reasonably come anywhere near matching that, and that only in the eventuality that they don't pull a Zenefits and leave you hundreds…

> "hope to make 400k" Even with 10-20 years of experience in the bay area at small, medium, large size software companies, I've never ever made anything close to that amount.

What was your equity compensation at these companies? Given that many (most?) companies refresh equity grants, it's very possible that after a full vesting period (usually 4 years) that you would then have multiple RSU grants vesting every year. With ~150k annually in RSUs, 150-200k base salary and 15-25% bonus is how lots and lots of people attain compensation this high.

Re: Startups Rejecting Venture Capital

#153

Post by avi990 »

venture capital should be minimal in initial rounds. Nowadays most of the startups know their potential, good or bad. They understand how their competitors are making and how much their startup will be worth. So, I see the point why they are rejecting the VC funds. Most startups nowadays are looking for buy outs or acquisitions on different terms

Re: Startups Rejecting Venture Capital

#154

Post by john_moscow »

lpolovets wrote: post #49

Caveat: I'm a VC, so I definitely have a horse in this race. A few misc comments: - VC is not for every company. Most VCs will be the first to tell you that: if you're not trying to build for a specific type/size of outcome, then VC funding is going to suck for you, and it's going to suck for the VC. It's not at all in a VC's best interest to invest in a company that has no desire to fit the VC model. - I think the V…

>I think the VC model itself is a great development from the last century. The fact that someone can raise millions (more than most people earn in a lifetime!) with an idea enables a lot of innovation that would be hard to nurture otherwise.

I think this has actually backfired. Because with sufficient number fudging you can raise more that you would ever earn, we have a whole generation of companies that are built to look great on paper, and actually identifying and solving business pains in a profitable way is becoming a lost art. Once the gravy train of investment cash accumulated in the previous economic cycles stops, we might be in for a very painful correction.

Re: Startups Rejecting Venture Capital

#156

Post by icedchai »

headmelted wrote: post #114
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…

To your point, a lot of the traditional appeal that working at a startup has for engineers has been the options. When you take that (significant) compensation away it should make the job much less appealing. I think a lot of younger ( by which I mean years of experience in the industry rather than age ) talent has forgotten or is not aware that this is why a startup job became the "done thing". For many, they'd be be…

The truth is that "significant" compensation is often worth little or nothing, and always has been. For every guy who makes $400K off his FAANG options or RSUs, there's at least 100 who made nothing off of their early stage stock options.

Re: Startups Rejecting Venture Capital

#157

Post by ThomPete »

As someone who helped design than a 100 startups in various capacities and has been heavily involved with the whole VC scene one of the things that I kept seeing was the misalignment between the founders and the VC's type of skin in the game.

A founder for most startups is either trying to find product/market fit or raising money. Many VC/Angels are great for the operational/financial side of the advice but at least in my experience when it came to finding a proper market for your company their advice often sounded right but wasn't possible to implement for various reasons as it was very generalized.

One of the primary and perfectly reasonable reasons is that VC's are thinking about an entire portfolio of companies and doesn't have the same kind of skin in the game as the founder which mean they will think differently and less contextual about the companies.

There is definitely an argument to be made for the fact that it's not the VC's job to care about the specific company more than they need to and there are plenty of VC's out there who are perfectly able to care properly but it's also a very exaggerated market and let's be frank not everyone who has money to invest have a lot of experience in "the work".

After I left Square in 2017, I wanted to find a way to help both with getting much faster to product market fit but at the same time also having the opportunity to provide capital alongside which I believe will align my interest with the founders much more.

So I ended up deciding to set up a creative venture studio which so far has been a great decision as it allows me both do my own and invest either capital or sweat equity in other companies AND I get to meet some really amazing people from around the world.

Re: Startups Rejecting Venture Capital

#158

Post by rchaud »

oAlbe wrote: post #137
dunpeal wrote: post #72

Earlier quoted context omitted.

Precisely. A senior engineer can certainly hope to make $400k or more per year for good performance. Not just in FAANG either - plenty of other profitable businesses are competing for the same grade of talent and thus pay in the same range. Only a handful of almost surefire unicorns can reasonably come anywhere near matching that, and that only in the eventuality that they don't pull a Zenefits and leave you hundreds…

Pardon the ignorance, what does it mean to "pull a Zenefits"?

Zenefits was a highly touted workplace benefits startup that got into huge trouble when a Buzzfeed investigation (of all things), found that one of its execs had gamed a state insurance agent exam (I think that's what it was), so their staff could essentially cheat and obtain certifications faster.

The exec in charge was fired, and a lot of their key staff had already jumped ship by then.

Re: Startups Rejecting Venture Capital

#159

Post by tylertringas »

If you find these critiques of VC are resonating but also feel like a bit of capital, a mentorship group, and shared resources would help you build a sustainable profitable business, then I'd love any questions or comments on our Shared Earnings Agreement structure: https://earnestcapital.com/shared-earnings-agreement/

Re: Startups Rejecting Venture Capital

#160

Post by dunpeal »

eanzenberg wrote: post #146
dunpeal wrote: post #106

Earlier quoted context omitted.

It's not true for almost anyone. Conversely, if you can get hired to a unicorn in a position that's senior enough to have any hope of coming anywhere near top tech pay, then you are likely talented enough to work at top tech instead.

Not necessarily, as talents at that level which are valued in top tech may be different than talents at that level that are valued at growing startups. There a variety of companies that pay top dollar for talent, straddling early stage startups all the way through established companies. That doesn't mean it's easy to get those jobs. It does mean that you should apply your talents where it fits. BTW, you don't need to…

> Not necessarily, as talents at that level which are valued in top tech may be different than talents at that level that are valued at growing startups.

I worked at both. Talent overlap is quite high, far higher than is commonly assumed.

> There a variety of companies that pay top dollar for talent, straddling early stage startups all the way through established companies.

I worked in startups for many years, and most of my friends still in the field are either founders or C-level execs. They are fully aware of the top compensation for top engineers in startups presently. Startups don't match top tech comp currently. Unless you factor in the options as a sure thing, and the startup ends up exiting at unicorn levels.

> Many people put 0 value on startup equity. Those people decrease their lifetime EV through misconceptions of statistics.

This is a reflection of how many people have spent precious years of their career working for startups, and generally seeing 0 return on these options.

It's also a reflection of the perceived lack of control over this sort of deferred compensation, and various nasty dynamics that often snatch value away from rank-and-file employees, even at the last minute or past it. See the LinkedIn exit and their infamous clawback policy.

Startup options have earned this reputation for 0 value over a decade of overhype and underperformance. Far too many talented people were promised the sky and ended up with nothing after years of hard work.

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