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We need a middle class for startups

neilthanedar.com

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Re: We need a middle class for startups

#231

Post by [deleted] »

fxtentacle wrote: post #223
cseleborg wrote: post #188

Earlier quoted context omitted.

> they give you a loan Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.

In Germany, there's the option to have the government secure your loan towards the investment bank. For the founder, that means you get capital into your new company and only the company is legally liable for it, but not you personally.

[deleted]

Re: We need a middle class for startups

#232

Post by spitfire »

thanedar wrote: post #17
clean_send wrote: post #2

I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.

I'm trying to split SMB into two categories. Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential. You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).

> You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).

Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.

Re: We need a middle class for startups

#233

Post by robbie-c »

Uptrenda wrote: post #230

I get the sentiment but how exactly is raising literal millions in funds 'middle class' in startups? If I had a million dollars I could put together a team of founders who needed about 20k per year each to survive and we wouldn't need to raise until shit was actually finished with substantial revenue. Granted, this assumes you're not in Le Bay (I know) and your expenses are very low (like owning your house) but in my…

Just a bit more info on free services - when we were starting out AWS were offering $10k credits a year for 2 years or $100k credits for one year. I believe we got access to this through one of our investors, but most VCs and incubator programs will be able to do this.

Re: We need a middle class for startups

#234

Post by quickthrower2 »

rglullis wrote: post #72
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…

Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"? Seriously, please get out of the SV bubble.

Lifestyle business doesn't mean what you think it means. Supports a persons or family lifestyle (i.e. you need a place to live, food, essentials, and could be more than just that...), rather than being for investors to make equity growth.

Re: We need a middle class for startups

#235

Post by bredren »

I don't see discussion of the conclusion, which seems to be creation of a "studio" that repeatedly aims to create Mittelstands.

I have seen this idea before, but am not aware of that many successful outcomes. IIRC, the idea of placing multiple bets made it challenging to focus.

Re: We need a middle class for startups

#236

Post by czbond »

TuringNYC wrote: post #179
czbond wrote: post #106

Earlier quoted context omitted.

No founders are paying themselves $250k/each/yr until MANY rounds of funding in. If you get seed/angel funding, you'd be paying yourself like $40k in the U.S. if at all. Founders take a lot of risk too, not just "play with funding money earning a job salary"

My post noted that founders working for themselves are essentially contributing the equivalent to hiring someone at $250k/yr.

I like your concept - few come to the realization that you do. I come to a different conclusion. I believe founders can make good progress using their income to replace themselves the first months (eg: outsource as much as they can) rather than to initially work full time..

Re: We need a middle class for startups

#237

Post by ttymck »

snarf21 wrote: post #71
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…

There is a simple solution. It also give middle class an actual shot at an exit even without hitting a unicorn. This is for the groups that went to state schools not the Ivys. Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find…

> They go find a problem and start finding customers

This is easier said than done, no?

Re: We need a middle class for startups

#238

Post by conductr »

techsin101 wrote: post #228

with devs salaries in 200k+ range is regular startup even possible now?

There's plenty of decent <$15/hour devs up for grabs if you look for them. If you're more interested in building a cool company culture with a fancy office in an expensive city or just trying to do incredibly difficult things that require top of top devs then maybe just re-evaluate if that's the right business for you in this moment with attainable resources

Re: We need a middle class for startups

#239

Post by tptacek »

I'm having a hard time understanding how you could do a funding mechanism for "mid-market" startups.

Contra the subtext of this post, it is not in fact low-risk to take a company from 0 to $5-10MM annual revenue. Companies that do this quickly tend do it with substantial funding, which is predicated on them aiming for much, much higher revenue and valuation numbers. Companies that don't take funding that eventually hit those numbers run for a long time before they get there. And those kinds of companies fail all the time; failure is their default mode.

As I understand it, a basic fact of life for venture funding is that the winners have to pay for the winners. Do the math with a portfolio of 10 companies taking $1 each to see what the winners have to make just to break even at various hit rates.

Further, targeting "mid-market" startups with growth targets low enough to somehow derisk them would also drastically reduce the amount of funding you could provide. You can't give $10MM to a company that's going to grow slowly and organically from low-7-figures; that company has such a low valuation that $10MM would buy too much of it. My first impression is that you'd be able to do something early-stage-YC-ish, giving a single founder ramen wages for a year or two, and not much more than that. But you'd have to take a huge chunk of equity to do that, so it'd be a terrible deal for the founder.

This model would make sense if there was a reliable path to get to $5MM/yr, such that you could build a portfolio of a bunch of companies taking that path with a very high hit rate. But there isn't? You are very likely to fail trying to start a company like that. Worse: the resources you'll need to operate a company doing $5MM/yr will rapidly outstrip any amount of funding a VC could provide. The VC-funded companies doing $5MM/yr got that money because they promised they'd soon be doing $500MM/yr.

What am I missing? Obviously, I'm not a golfer.

Re: We need a middle class for startups

#240

Post by rglullis »

quickthrower2 wrote: post #234
rglullis wrote: post #72

Earlier quoted context omitted.

Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"? Seriously, please get out of the SV bubble.

Lifestyle business doesn't mean what you think it means. Supports a persons or family lifestyle (i.e. you need a place to live, food, essentials, and could be more than just that...), rather than being for investors to make equity growth.

That definition is still horrible. Plenty of investors interested in buying equity in a franchise or retail shops. What that has to do with "lifestyle"?
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