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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

#231

Post by marcosdumay »

jacquesm wrote: post #74
onion2k wrote: post #68

Earlier 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…

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

Sure, most initiatives fail. But successful ones are not so rare that you don't expect to see one.

If you go all the way until you realistically start a company, you are more likely to succeed than to fail.

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

#232

Post by bawolff »

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…

Most businesses fail.

My intuition is that rate of failure in software, where its much more winner take all, would be higher than brick and motor businesses, which constantly fail.

So really, this doesn't seem surprising.

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

#233

Post by tptacek »

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.

Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc.

So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.

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

#234

Post by Nevermark »

mattbuilds wrote: post #83
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…

I wish we could stay away from generalities. There is no one size fits all answer to questions like "should I take funding?". The answer depends on your goals and where you are competing. If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding. If you want full control over your product or are o…

Few people are pedantic enough to misinterpret “never” slash “always” premises detrimentally.

It is a pervasive rhetorical shortcut.

1. Flatten a proposition to an all or nothing form to simplify communication.

2. The reader steps back into the real multidimensional world with clearer insight into one of its dimensions.

Anyone confused by this has deeper problems than VC or not VC questions.

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

#236

Post by hinkley »

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

Reversion to the mean is vastly overlooked in this Bayesian world.

If I do something dangerous and win, then a roomful of people copying me have lower odds than I did, not better.

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

#237

Post by bawolff »

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…

I don't know what people expect. VC's obviously aren't giving out money from the goodness of their hearts. It is obviously going to come with strings.

Maybe those strings line up with what you want anyways, which is great. If they don't, don't take the money.

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

#238

Post by hinkley »

eastdakota wrote: post #121
sumeno wrote: post #75

Earlier quoted context omitted.

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 inves…

> 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.

If you’re learning as much at terrible companies as at good ones, then you’ve had rotten luck. A lot of what I’ve learned at rotten companies is how not to do things, and how important mental health is to physical health. There’s much more negative space than positive space, so you have to learn hundreds of ways not to do something for every handful of ways that actually are sustainable.

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

#239

Post by j45 »

yowlingcat wrote: post #131
j45 wrote: post #84

Earlier 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.

I had drafted a reply but would be interested to know what you're looking after - is a story/experience of PE from a technologist on the business side what you're seeking?

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

#240

Post by eastdakota »

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.)

I don’t think IPO was success. It was just another fundraising event. Another step in the journey. And, per this discussion, the end of our VC journey and beginning of our public company journey.

“Profitability” is a funny term on Hacker News. Think most people here aren’t accountants so they think of profitability as: do you have more cash in the bank at the end of the period than you did at the beginning. That’s “free cash flow profitable.” By that measure, we’ve been profitable the last ~12 months and have said we expect to be so every year going forward. We’ve had non-GAAP operating profits even longer. So next up is GAAP profitability, which I am confident we’re on a path to. We want to emulate Microsoft’s accounting financials, not Salesforce’s.

Even that won’t be “success.” Just another step in the journey. Success to me is living up to our mission of helping build a better Internet. Don’t get me wrong, financing and accounting milestones are all critical to us doing that. If we were burning through cash it would be hard for us to fulfill our mission. But I show up to work every day because I see the positive impact our team is making toward a more secure, more reliable, faster, more private, and more efficient Internet for everyone. Only steps toward that represent success to me.

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