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Don't Take VC Funding – It Will Destroy Your Company

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Re: Don't Take VC Funding – It Will Destroy Your Company

#41

Post by constantly »

DeathArrow wrote: post #28

>Maybe it’s the amount of customers a company has, or the speed at which that customer base is growing. Business dudes like to call it traction, but I’m not sure whether they know what they’re really talking about. I’m not even sure if they know what they’re talking about. Regardless, whatever traction may be, the minor problem is that, well, having traction doesn’t magically make your company profitable. People wond…

What about all the VC-funded companies that were never able to find a way to convert users into money? “Always” is a very big stretch here.

Re: Don't Take VC Funding – It Will Destroy Your Company

#42

Post by adventured »

DeathArrow wrote: post #16

>You know, in ancient times, when Peter Drucker, the Master Yoda of business books, was still roaming the planet (alongside dinosaurs, probably) and writing business books, the definition of a successful company actually included the fact that the company was making more money than it was spending - it was profitable. I guess some companies like Yahoo were never profitable but some people got rich buying and selling…

Yahoo isn't a good example. They were able to routinely turn a profit after the dotcom bust. Their business was very similar to Twitter's profitable years in terms of margins (pre Elon; 10-20% operating income margins). Yahoo had a gigantic (at the time), successful ad business and a lot of properties to display the ads on.

As of right now, the single greatest example in modern business history is Uber. Although they continue to trim their operating losses and it appears they may reach sustainability ($14.1b revenue with $8.5b operating loss in 2019; trimmed to a $1.8b operating loss on $31b in revenue the past four quarters). Their history of loss generation is astounding. Upwards of $30 billion in operating losses since 2009. Even in an ideal scenario it'll probably take them 10+ years after they finally reach an operating profit to turn that net positive.

Re: Don't Take VC Funding – It Will Destroy Your Company

#43

Post by cheeseblubber »

The person ultimately responsible for the success of your company is yourself and most likely you'll fail regardless of VCs.

I take issues with some of the second order effects:

1. "Because your goal is to sell the company later, it has to grow."

You don't have to hire just because you take VC money. You should hire at the right rate.

2. "You’ll be spending much of your time on finding the next investors".

If you manage your burn properly you wouldn't have to and you should aim to be default alive. http://www.paulgraham.com/aord.html

3. "You have to focus on large markets with many (or large) customers"

Yes you shouldn't take VC money if you don't want to go big eventually.

4. "Making existing customers happy is less important than acquiring many more new customers"

You have to do both and the goal should be to make existing customers so happy that tell others which will drive growth. If you don't make a product people love you won't win in the long run anyways.

Finally I think a common mistakes for Founders is making their VC's their boss. Although I agree with some of the sentiment of there is some perverse incentives with VCs as a founder you should take ownership of the decisions that impact your company.

Re: Don't Take VC Funding – It Will Destroy Your Company

#44

Post by anonzzzies »

raesene9 wrote: post #32

The article has a lot of interesting points, but seems to miss out on one of the main reasons (IMO) that startups take funding, which is to grow faster than (or as fast as) their competition. Unless you're lucky enough to be in a market segment without competition, you need to keep an eye on what your competitors are up to. If they can expand faster, add features faster and get more customers than you, it damages you…

OR (as you say, but many miss) you do not care about being the market leader. I just want to have a nice company with nice people, no stress and making millions for all to live. I don’t need vc money, stress, be the market leader or ‘be faster than the competition’. A LOT of services or products you can make a long term (decades) money with like this. I don’t need more than 10m euros in my life, nor do my colleagues and our clients are happy. No idea why I want all this misery of competing, stress, exposure, running all the time etc etc.

Re: Don't Take VC Funding – It Will Destroy Your Company

#45

Post by uLogMicheal »

DethNinja wrote: post #14

On the other hand, my first self-funded startup got destroyed by a VC funded venture. They had a worse product but far better marketing and they used every dirty trick in book to tarnish my company’s reputation. There is no way I’ll start another startup unless I receive backing from a huge VC company. Current economic paradigm is more similar to centralised/controlled economies of USSR. Thus if you want to succeed,…

Between the bot farms, members of media in pockets, and inflation; the boat of traction does seem a bit rigged eh?

Probably someone asked long ago "What if traction itself could be a moat?" and the rest is history.

Re: Don't Take VC Funding – It Will Destroy Your Company

#46

Post by metadat »

eastdakota wrote: post #22

You’re so right! It was an absolute disaster for us. Never do it!!!!! Kidding aside, it is true that raising money from VCs puts you on a very defined path with really only three potential outcomes: 1) failure, 2) sell to acquirer, or 3) go public. There are a small handful of exceptions, mostly for companies that throw off massive amounts of cash, but, realistically, those are the outcomes. If you don’t like any of…

Tangential: I'll never forget the story of Lee. One of the few times I've I've shed so many tears over someone I never met.

https://www.wired.com/story/lee-holloway-devastating-decline...

Re: Don't Take VC Funding – It Will Destroy Your Company

#47

Post by surgical_fire »

Capricorn2481 wrote: post #17
echelon wrote: post #12

Earlier quoted context omitted.

This is an unhelpful comment and tone that doesn't add much. Many of us come to HN for the discussion and don't even care for the articles. Threads will often digress into interesting and orthogonal tangents. A better way to respond might be, "your comment is true in some circumstances, but the article states condition X, which makes the advice applicable."

Which is why this place is just Reddit with more flowery language and an illusion of expertise

If I had more upvotes to give you, I would.

I come here because quite often the links posted are useful and interesting.

While the comment section sometimes have meaningful on-topic insights, those are few and far between. Most often are just bad takes and/or things that are unrelated to the content at hand, interwoven with a unique brand of mutual fart sniffing.

Your description does it justice.

Re: Don't Take VC Funding – It Will Destroy Your Company

#48

Post by uLogMicheal »

jorvi wrote: post #31
DethNinja wrote: post #14

On the other hand, my first self-funded startup got destroyed by a VC funded venture. They had a worse product but far better marketing and they used every dirty trick in book to tarnish my company’s reputation. There is no way I’ll start another startup unless I receive backing from a huge VC company. Current economic paradigm is more similar to centralised/controlled economies of USSR. Thus if you want to succeed,…

> central banks I think you mean big banks. Aside from maybe a line of communication due to their financial size, VCs have very little to do with the Fed or ECB.

You missed a step, it goes from the central banks to the LPs to the VCs. The big hedge funds that get all of that low/zero interest money are certainly active in private equity AND forcing their behaviors/policies on companies far and wide.

Re: Don't Take VC Funding – It Will Destroy Your Company

#49

Post by dangus »

I’ve taken a class on new venture funding and what this article misses out on is a discussion of the term sheet.

VC can be a great deal for the company and the founder, or it can be a really bad one. That often depends on what ends up being negotiated into the term sheet that is signed by the VC and founders: what’s the pre-money valuation, what’s the liquidation preference, etc etc.

Basically, this article says “don’t buy a cheeseburger, it’s a bad deal” without having a discussion about how much the cheeseburger cost.

Re: Don't Take VC Funding – It Will Destroy Your Company

#50

Post by adventured »

lloydatkinson wrote: post #13

I can’t imagine the post lasting long here of all places.

The topic of not taking VC is routinely discussed on HN. It's a very popular subject. I've been coming here for ~11-12 years and there has always been a vibrant back and forth, pro / con, discussion on the subject of why or when VC makes sense (or not).
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