Don't Take VC Funding – It Will Destroy Your Company • Hacker News Board

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

#191

Post by consilient » Sun, Jul 09, 2023, 4:52 PM UTC

uLogMicheal wrote: post #93

littlestymaar wrote: post #70

Earlier quoted context omitted.

Except you absolutely don't need any connection to the central bank to benefit from their monetary policy.

Want to explain? I doubt bank loans were that much easier for startups in times of low interest and if anything the inflation hurts bootstrappers worse. https://www.politico.com/news/2020/06/07/wall-street-fed-bai... The Fed selected BlackRock to run a groundbreaking program to buy hundreds of billions of dollars in debt from large companies slammed by the coronavirus crisis. Certainly these connections help?

> Want to explain? I doubt bank loans were that much easier for startups in times of low interest

A higher risk free rate means risky investments like VC funds are less attractive.

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

#192

Post by dec0dedab0de » Sun, Jul 09, 2023, 4:53 PM UTC

The first and main takeaway is this: Companies which receive VC funding are not profitable. They would run out of money if they wouldn’t get the VC funding. So the news announcement that your company MagicalUnicorn received VC funding is actually not a message of success, it’s rather a confession of failure.

I remember when a small company I worked for was super excited to announce how much of a loan they got. I took that as a sign to clean up my resume.

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

#193

Post by j45 » Sun, Jul 09, 2023, 4:54 PM UTC

eastdakota wrote: post #163

j45 wrote: post #136

Earlier quoted context omitted.

I meant the ‘super rare’ case. It’s not so rare in some industries like oil and gas, etc where cashflow is the purpose of the work. Add software that does what nothing has before.. and the table turns.

Agree.

The first time I saw how customizable a PE deal was, and how you could limit how much of a company you give away with how little of the PE you end up drawing by becoming profitable, I was surprised why it isn't more common in tech.

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

#194

Post by tptacek » Sun, Jul 09, 2023, 4:54 PM UTC

metadat wrote: post #185

tptacek wrote: post #180

Earlier quoted context omitted.

Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth. I had…

Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!".…

What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them.

But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works.

And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well.

As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room.

I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.

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

#195

Post by rtp4me » Sun, Jul 09, 2023, 4:55 PM UTC

eastdakota wrote: post #158

conradfr wrote: post #120

Earlier quoted context omitted.

Your VC founded business can fail without being an horror story though.

Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad…

If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…

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

#196

Post by briantakita » Sun, Jul 09, 2023, 4:57 PM UTC

harles wrote: post #183

Alex3917 wrote: post #167

Earlier quoted context omitted.

> But no less unusual than building a successful company to begin with. Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app. Which…

> Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Any citation for this? I’m highly skeptical of this claim.

The definition of "success" is different between a bootstrapping business & a VC funded business. A consultant can define success as "making enough money to live off of". A VC funded business has a different definition.

So how would a study be conducted? A survey asking if the business was "successful"?

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

#197

Post by jschveibinz » Sun, Jul 09, 2023, 4:57 PM UTC

Wow, as an investor, I see a lot of misinformation in the article and in the comments.

Investors are experienced business people, and they will help you to know if what you have is ready for prime time. Listen to them.

Investors are business partners: they are not loan officers or casual kickstarters.

And one more thing: the “VC” stereotype being discussed here doesn’t really exist. All investors are unique.

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

#198

Post by jacquesm » Sun, Jul 09, 2023, 4:58 PM UTC

Alex3917 wrote: post #167

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.

> But no less unusual than building a successful company to begin with. Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app. Which…

You're right that in numbers of survivors there bootstrapped ones are going to outnumber the VC ones. But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.

But for any individual founder, if you want to aim for 'successful enough to be relatively wealthy and worry free' then 'bootstrapped' is the way to go. If you aim for an outsize success, wealth for the next N generations and massive impact on the world (for good or for bad) it's going to be very hard to avoid the VC track.

I wrote about this long ago, but it is still quite relevant:

https://jacquesmattheij.com/three-roads-to-the-top-of-the-mo...

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

#199

Post by neilv » Sun, Jul 09, 2023, 4:58 PM UTC

My interpretation of this article: Don't take VC funding! It's the definition of failure! It will have you doing the wrong things for building a business with strong fundamentals! (Except this VC-powered kind of "failure" is a more likely way for the founders to become very wealthy.)

I'm open to criticisms of VC models, but I don't see how this argument is going to dissuade many founders, who are the ostensible audience.

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

#200

Post by rossmohax » Sun, Jul 09, 2023, 4:58 PM UTC

There was a company I can't recall its name, but they took VC funding for one round, retained voting control, built successfull business and then refused to go for another VC round. VC still owns company, but can't exit and founders are happy with the way things are.