We need a middle class for startups • Hacker News Board

Re: We need a middle class for startups

#41

Post by thanedar » Tue, May 10, 2022, 3:32 PM UTC

jrochkind1 wrote: post #23

I don't think it's an issue of making middle-sized businesses "cool", I think it's an issue of capital, right? The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths. Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the ce…

The capital for Mittelstands is in mid market PE funds.

Making it "cool" means getting founders who'd otherwise take VC to target PE.

It also means convincing these PEs to invest earlier.

Thanks for the feedback. I'll try to center this more in my post.

Re: We need a middle class for startups

#42

Post by avgcorrection » Tue, May 10, 2022, 3:32 PM UTC

thanedar wrote: post #24

roflyear wrote: post #3

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor (this story is in the post). We would've been better off raising less money and going for profitability earlier. Labdoor made it to the middle class the hard way, and I'm trying to help others avoid some of my pain.

> I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor

Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.

Re: We need a middle class for startups

#43

Post by DoubleDerper » Tue, May 10, 2022, 3:33 PM UTC

xmaayy wrote: post #35

chadash wrote: post #19

Earlier quoted context omitted.

There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business". I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipm…

I think what you just described is called "A Business"

Seems more like a lucrative "job" than a "business"

Re: We need a middle class for startups

#44

Post by di4na » Tue, May 10, 2022, 3:33 PM UTC

As someone that has been working hard in this domain, there is one major problem to this in software.

Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.

You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.

There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.

I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.

There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.

But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.

Whoever find out how to provide them this will unleash massive growth on the world.

I advice to look at what calm fund is doing. https://calmfund.com/

The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.

Re: We need a middle class for startups

#45

Post by bradleybuda » Tue, May 10, 2022, 3:33 PM UTC

Businesses that are shooting for the "middle class" (say, less than $50M in earnings at their peak) are of course possible and healthy and good for the economy. What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is. To use the article's definitions:

* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!

* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.

If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:

* Less availability of capital

* More dilution

* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management

* Long and protracted due diligence processes before the check even lands

All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.

Re: We need a middle class for startups

#46

Post by thanedar » Tue, May 10, 2022, 3:34 PM UTC

andrewedstrom wrote: post #13

Powerful message, but what is going on with the formatting of this post? Why are lines highlighted with two different colors?

I use my own "outline" style to make my posts easier to read fast.

The brighter highlights are intended to be the most important points.

Is that confusing? I can change the shade of the lighter highlights.

Re: We need a middle class for startups

#47

Post by Bubble_Pop_22 » Tue, May 10, 2022, 3:34 PM UTC

Microsoft should be the example to follow for any new business.

They never raised money, never talked to VCs or consultants.

They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.

They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.

Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely

Re: We need a middle class for startups

#48

Post by di4na » Tue, May 10, 2022, 3:35 PM UTC

user_7832 wrote: post #15

While some comments here are criticizing the author, I'd like to add that what the author says matches with my (extremely) limited experience. The most "glamorous" are YC-type funds, while others seem to be built with money more locally pooled from friends/family/banks. There are a few entrepreneurship centres and startups, but these unsurprisingly aren't as famous as funds with billions of dollars. I wonder if there…

Please yes. As a founder aiming for the kind of outcome described above, finding the original 500k of funding is the hardest part right now. No idea who to ask or what they expect.

Re: We need a middle class for startups

#49

Post by TuringNYC » Tue, May 10, 2022, 3:36 PM UTC

di4na wrote: post #44

As someone that has been working hard in this domain, there is one major problem to this in software. Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money. You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago…

>> Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.

For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)

Re: We need a middle class for startups

#50

Post by di4na » Tue, May 10, 2022, 3:36 PM UTC

thanedar wrote: post #41

jrochkind1 wrote: post #23

I don't think it's an issue of making middle-sized businesses "cool", I think it's an issue of capital, right? The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths. Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the ce…

The capital for Mittelstands is in mid market PE funds. Making it "cool" means getting founders who'd otherwise take VC to target PE. It also means convincing these PEs to invest earlier. Thanks for the feedback. I'll try to center this more in my post.

As a founder aiming at these, finding them and convincing them is a pita