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

They’re looking for a 10+% return on the entire portfolio.

1) Raise $1-2 million (ideally from multiple small investors rather than 1 big investor, many smaller investors increases your control since every investor alone is too small to make serious demands about how you should run your business)

2) use the $1-2 mill to find product market fit and (more importantly) achieve profitability (or be cash flow neutral) within 12-18 months. If you can’t reach profitability, close your doors and start another company with a new idea rather than raising a 2nd VC round (fail fast)

3) reinvest new sales into growth, and don’t raise another round of capital even if people are offering you lots of money

Some advantages:

- Fail fast. It’s better to be resource constrained in the early days so that you don’t spend many years chasing an idea “just because you can afford to” when it’s destined to fail

- It lowers the valuation where selling your company will be a profitable transaction for founders & employees. If you raise $2m you can sell for $8m and make a good return for founders/employees, whereas if you raise $20 million you’ll never be able to sell your company for less than $20m, and you now need to sell for $25m+ in order to see any meaningful as a founder

- Without huge investors, you have a lot of latitude to operate your business however you want. When you raise $20m+, you basically become an employee of your investors

- You typically retain full board control if only raising $1-2 million, this amount is low enough that the VCs probably won’t even need or want a board seat

Disadvantages:

- You’ll get less support from your investors because they invested less. The less money VCs invest, the less attention they give you. This can be a downside if you actively want VC help (which personally I find overrated, very few VCs actually add value beyond the money invested, most VCs have never actually run a company and have only watched from the sidelines)

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TLDR: raising low single digit millions in seed money to get going in the beginning is rarely a bad idea. Raising too much money too soon (especially before reaching PMF/profitability) severely limits options for a future exit and potentially creates difficult dynamics with VCs to deal with, if you accept a lot of money from a VC most will want you to do whatever necessary for them to get their money back.

VC isn’t bad, there’s a time and place for VC. But it’s 100% a game.

You must know the rules of the game before playing.

If a company has a vision fulfilling every request outside of the vision could be considered a distraction. The VC has legitimate concerns outside of the scope of the company vision.

Apple is one of the few modern companies that I can think of where the VC money was useful.

If anyone can remember google before going public and after going public might mourn the old google.

Imagine if google wasn't romanced by Wall Street but followed their own path like craigslist.org. I believe that google would have been much more collaborative. I can't see where going public helped google be good at internet search.