>Making existing customers happy is less important than acquiring many more new customers.
As long as your shares are becoming more valuable, what's wrong with that?
Don't Take VC Funding – It Will Destroy Your Company
211–220 of 398 posts
Re: Don't Take VC Funding – It Will Destroy Your Company
#212From what I can tell, the appropriate time to take VC funding is precisely at the exponential growth curve when there is not enough revenue to serve the high rate of new business.
Not coincidentally, this may be when VC money is most interested in the business. Peter Thiel quipped that he knew that Facebook was a good investment because what they needed the cash for was more computers. To use an exceptional case to make a point that is broadly applicable.
For the rare small businesses that ever get to this juncture, what I also notice is that an acquisition tends to come soon after.
Re: Don't Take VC Funding – It Will Destroy Your Company
#213Earlier quoted context omitted.
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.
This model is interesting, and I've definitely been wondering about this a lot more in the new macroeconomy. Do tell more if you're up for it. From my perspective, it's effectively the PE model except the funding source is the company's own revenue rather than investment capital.
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Re: Don't Take VC Funding – It Will Destroy Your Company
#214It seems the author views venture capitalists as a bunch of idiots who are eager to lose money.
And yet, venture capitalists are making money and many founders along with them.
Ok, if your goal is to have a very small business, with just a few employees and a few customers, rule that business how you want and have fun, you can bootstrap your business and keep it small.
But I think the majority of founders would prefer a fast grow and making lots of money relatively fast, followed by starting a new business.
Re: Don't Take VC Funding – It Will Destroy Your Company
#215Earlier quoted context omitted.
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 g…
> But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse. In general, the less money that startups raise, the better their returns: https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f... There are a number of reasons for this, a big one being that marginal revenue is always the least profitable: https://techcrunch.com/2017/10/26/toxic-vc-and-the-marginal-...
This is fully compatible with the OP's point. They mentioned total $. Returns are percentages.
Re: Don't Take VC Funding – It Will Destroy Your Company
#216Re: Don't Take VC Funding – It Will Destroy Your Company
#217Earlier 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…
I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation. It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed t…
IIRC each time you raise a round, your chances of success go down by ~10x. Can't find a good cite offhand though.
Re: Don't Take VC Funding – It Will Destroy Your Company
#218Earlier quoted context omitted.
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…
The cog can be an outcome that is almost as bad the slog. You are overestimating the amount and range of learning that is possible under the vc path outside of the slog (eg the cog). Indeed, you may feel like you are learning quite a bit. But that will generally be lessons that the vc investors want you to learn. Your statements imply that there are lessons to be learned that can only be facilitated by the kind of mo…
What a depressingly nihilistic world view. Certainly if you believe you are beholden to some entity’s rules you must follow then all you can ever learn is what the entity you follow is willing to teach. We took a different path.
We talked to our investors generally four times a year at Board meetings. We had a rule that no sentence we said in those meetings could end with a question mark. We recognized that we were the experts in our business. We used those checkins as opportunities to confirm ourselves that we were making progress. We focused on building great products for our customers and chose the KPIs to report based on measuring that. And we leveraged our success to meet thousands of people we’d never have had access to and try and learn from them all.
One thing that I think is natural if you have professional investors but is important to find way to create even if you’re bootstrapped: the regularly scheduled check-in. The most valuable part of a Board meeting isn’t the meeting itself. It’s the preparation for that meeting which forces you to assess how things are going.
Our trick was to pick 5 KPIs that indicated the true health of the business and track them relentlessly. The first 12 pages of our Board meeting presentation was exactly the same every time other than the numbers being updated. We picked the the metrics. We didn’t ask for our VCs input. But then we relentlessly stuck with them, quarter after quarter. It made preparing for Board meetings easy: just update the stats and prepare to talk about whatever is anomalous (good or bad). And the consistency built confidence from our investors. I remember one saying: “Cloudflare Board meetings are great: I know exactly how things are going by slide 4 of the presentation.”
No VC taught us that. We learned it by being curious, talking to other entrepreneurs, and experimenting ourselves. You can do the same if you’re bootstrapped, you just have to be more self-directed to create some cadence to check in with your business and keep yourself honest.
PS - sadly, there’s no Illuminati running the world either. “Sadly” because it’d certainly be comforting to think someone was in control and it’s scary to meet the people who supposedly are and realize they’re just making it up as they go along too.
Re: Don't Take VC Funding – It Will Destroy Your Company
#219Earlier 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…
Firstly, fan of your company.
Isn't what you described as The Slog essentially just SMEs? That's not so bad. Perpetual meteoric growth for everyone is not healthy on a macro level. Couple of friends of mine are in what you describe as the worst outcome, yet they can buy houses and put their kids through schools (outside the US).
There's a middle layer of B2B that props up the economy in a more fragmented manner, and I don't think they should be dunked on.
Re: Don't Take VC Funding – It Will Destroy Your Company
#220Earlier quoted context omitted.
According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deserved…
90% of all startups fail so the expectation of an IPO when you join a startup is insane.
And yet many of those companies expect their employees to be excited by that prospect.