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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

#221

Post by [deleted] »

jacquesm wrote: post #198
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…

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…

[deleted]

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

#222

Post by jefftk »

onion2k wrote: post #68
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…

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…

Many startups raise multiple rounds, so I think you're double counting? Don't you need to either divide 16,464 by the typical number of funding rounds or only count, say, series As?

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

#223

Post by santoshalper »

briantakita wrote: post #196
harles wrote: post #183

Earlier quoted context omitted.

> 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"?

Actually, that's not a bad idea. Surveying founders at 5, 10, and 15 years after founding whether they were happy with the outcome could be enlightening. A little bit like the 7-up documentary series. It would be very interesting to see which path tends to provide the best outcomes according to the founders.

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

#224

Post by hinkley »

MatthiasPortzel wrote: post #179
Kye wrote: post #65

Earlier quoted context omitted.

On a skim, they seem to be losing money the same way Amazon did. It's marginal, with a purpose, and could be turned around by trying to.

It's still indicative of VC culture that the CEO calls the company a success after IPO. Rather than, say, after the company is profitable. (I have a couple shares of NET, so I'm optimistic they'll be profitable eventually. But sometimes their path to getting there seems lackadaisical.)

And now I have Simon Sinek in my head talking about finite versus infinite games.

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

#225

Post by uLogMicheal »

littlestymaar wrote: post #177
uLogMicheal wrote: post #93

Earlier quoted context omitted.

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?

> I doubt bank loans were that much easier for startups in times of low interest Low interest rates doesn't mean loans are “easier” (this is going to depend on the risk policy of the specific bank, and is mostly unrelated to the interest rate), but it lowered the interest rate you'd pay for every loan no matter who you are (I personally bought a house with a .7% interest fixed mortgage in 2019, I didn't have to perso…

You're arguing with economics here...

https://news.stanford.edu/2022/09/06/what-causes-inflation/

Inflation rises when the Federal Reserve sets too low of an interest rate or when the growth of money supply increases too rapidly – as we are seeing now, says Stanford economist John Taylor.

I never said you needed central bank connections to get a home loan. To get infinite runway on unsecured risk is a very different area of privilege than secured home loans.

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

#226

Post by jacquesm »

Alex3917 wrote: post #217
tptacek wrote: post #172

Earlier quoted context omitted.

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.

Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.

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

#227

Post by uLogMicheal »

consilient wrote: post #191
uLogMicheal wrote: post #93

Earlier quoted context omitted.

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.

but VC investment was at a high while interest rates were low, and we now see a contraction in venture investment now that interest rates are rising?

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

#228

Post by dostick »

People running startups shouldn't be so proud of raising capital; it's silly child's play. Instead, you should focus on your craft and your product.

The entire concept of corporations and shareholder capitalism is what is wrong with human civilization. It destroys the environment and reduces harmony in society.

And mindlessly taking in capital, whether VC-funded or not, creates overhead and bloat, along with so-called "bullshit jobs." You still have the same number of productive developers, for example, as you had in the early garage startup phase. Only now, a bureaucratic machine is created around them, making things even slower and less effective than before.

Every product that transitions from a startup to a bloated corporation produces a less useful product now. Look at Slack, Figma, Notion— they are all stagnating.

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

#229

Post by aidanlister »

dec0dedab0de wrote: post #192

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…

Contrarians are so funny, everything is a hammer.

A bunch of very smart bankers have spent an enormous amount of time doing due diligence on the company you work for and they think that the risk is low and repay-ability is high … but the contrarian always knows better. To them this is a sign that the end is nigh, and they rejoice in the feeling of their beautiful superiority.

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

#230

Post by eastdakota »

dumpster_fire wrote: post #219
eastdakota wrote: post #158

Earlier 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…

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…

It’s fine if that’s your expectation. It’s fine if you’re bootstrapping and comfortable with your level of success. It’s hard if you thought you were building a rocket ship, raised money selling the vision of the rocket ship, and benchmark your success versus others who built rocket ships.
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