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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

#121

Post by eastdakota »

sumeno wrote: post #75
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…

That some people win the lottery is not a good argument for playing the lottery

The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside.

So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started.

As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.

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

#122

Post by tiborsaas »

anonzzzies wrote: post #64
sf4lifer wrote: post #23

Only take rocket fuel (VC funding) if you've got a rocket (PMF in a massive TAM with net revenue retention) If you don't have a rocket, the rocket fuel will be wasted and disappointing in any other vehicle. Ideally you bootstrap until it's clear. But if you start the company with VC funding, you should know the expectation. If you truly have a rocket the economics of VC funding is favorable for everyone.

How do you know if you have a Rocket? Many (most?) VC funded companies are just appearance, no substance and it’s all very apparent. All the new AI ‘products’ for instance. So those are clearly not rockets, just blah and hype. Maybe we had rockets before, but I don’t want to lie and cheat like some of our vc invested companies did (most are gone). Never were rockets, just hype, Twitter presence and faking all around.

You have a reassuring proof that you have product market fit.

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

#123

Post by floomk »

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…

Man who won lottery recommends it to everyone.

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

#124

Post by peter422 »

tptacek wrote: post #102
version_five wrote: post #27

I recognize there must be good VCs around, but so much of what you see looks really like a kid's game to me. So many douchy people with the same cliche advice acting like they're visionaries. And a certain kind of "lifestyle" "founder" fawning all over them. Starting a company has been commoditized and turned into an internship for smart kids. I know it's not all like this but for anyone seriously interested in doing…

It's an availability bias. You're noticing the worst founders and VCs, because the worst of them work to be noticed (some good ones, too, but all the worst ones). But as long as you understand the modality, it's also fallacious to write off a whole financing model just because its douchiest practitioners rub you the wrong way. Remember Sturgeon's Law!

I remember when "silicon valley" came out, and after watching a few episodes I thought it was so stupid and unrealistic... This isn't how startups operated.

Then I talked with other people in the startup world who said it was a perfect match.

That's when I realized that I just worked at competent places.

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

#125

Post by toomuchtodo »

metadat wrote: post #46
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...

https://news.ycombinator.com/item?id=22878136

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

#126

Post by Eumenes »

One annoyance I have with VC funded startups is how they all try and use the same playbook. Founders are generally inexperienced. Likely good ICs, very good talkers, but not capable of holistically building a company from the ground up. They hire the same roles, in the same order. So many small startups will have over embellished leaders, who are 'head of' or 'director of' something, with 1-2 or sometime zero direct reports. You'll hear how "We NEED a" head of UX, data, support, etc. These types don't want to do the IC work, but want to be 'early stage'. Those people come in, buy the same crap SaaS tools and institute the same culture as the previous place. Maybe this is changing with money tightening up, but it can be off-putting. When considering a new job, I look at who works there, and if its a small company, with inflated titles and people with short tenure everywhere, its a pass.

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

#127

Post by Joeri »

adventured wrote: post #109
jacquesm wrote: post #74

Earlier quoted context omitted.

Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.

Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all busin…

I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.

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

#128

Post by mwcampbell »

tptacek wrote: post #112
sumeno wrote: post #75

Earlier quoted context omitted.

That some people win the lottery is not a good argument for playing the lottery

If you feel that way, don't start a product company.

This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?

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

#129

Post by yowlingcat »

tptacek wrote: post #102
version_five wrote: post #27

I recognize there must be good VCs around, but so much of what you see looks really like a kid's game to me. So many douchy people with the same cliche advice acting like they're visionaries. And a certain kind of "lifestyle" "founder" fawning all over them. Starting a company has been commoditized and turned into an internship for smart kids. I know it's not all like this but for anyone seriously interested in doing…

It's an availability bias. You're noticing the worst founders and VCs, because the worst of them work to be noticed (some good ones, too, but all the worst ones). But as long as you understand the modality, it's also fallacious to write off a whole financing model just because its douchiest practitioners rub you the wrong way. Remember Sturgeon's Law!

Absolutely. The successful sleepers that are founders and VCs are sleepers very deliberately. They don't want the notoriety. They're already well-known enough by the people that matter, the outcomes they've generated. They are already freed by the wealth they've generated. What does notoriety do but subtract from that?

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

#130

Post by eastdakota »

j45 wrote: post #84
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…

There is an option #4 that I’ve been around a few times: build a shark that is doing the acquiring within 5 years. Superior tech, maybe hyper efficient, hyper profitable.

You still eventually need to return money to your private market investors at some point. So that just pushes the outcomes out later. Or, again, in the super rare case that you’re generating so much case that you can pay investors back at a rate of return they’re happy with with dividended cash flows.
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