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Honest question: if you sell 50%, then why do what the VCs tell you to do? Beyond gaining some sort of reputation for not doing what your investors want, is there anything else?
It’s not worth taking VC if you aren’t going to put it to work. And if you put it to work to any degree, you start growing and accruing costs. You are then in a race against time for the next raise and you are off to the races.
A little frustrated by the ambiguity of the $100M in the post. Is that capital raised, ARR, GMV? Makes a big difference in terms of understanding what kind of business they built.
Almost certainly that was $100M valuation.
But that makes this whole thing pretty circular—they only would have $100MM valuation because they sold a story of growth to investors. Assuming that the round at $100M valuation was during the boom times of 2019-2021, that could have been with as little as $3-5M annual revenue (20-25x multiplier).
Assuming slow or no growth, a company with $3M in revenue would be worth <$15M.
This story is remarkable in one sense: the founder removes all of his own agency from the story. The vast majority of initial financing rounds leave the founders in control of companies these days…
Finally, a VC backed company is always likely to die. If you want to run a nice, small SaaS, don’t take VC. Whether financing comes from a bank loan, an angel, private equity or VC, one job of entrepreneurs is to align incentives with capital sources.
At the point right before taking VC money, what's the safer alternative sources for cash? This is a serious question. The alternative I've seen work is another company in the same field make the investment with an option to further invest or acquire the company later on. Their expectations for growth were a lot more "down to earth".
The problem is those VC firms are much harder to get started with.
After all the whole schtick of the VCs complained about in OP is to fund tons companies and make so much money off the unicorns that it doesn't matter how many fail.
Honestly though there is one upside to VC money: it also caps your losses. Most forms of debt for a small company rely on you being a creditor meaning you can be in the hole if your company fails.
Overall getting money is hard and nuanced which makes sense given there is nearly infinite demand for it.
Lessons learned from that post: (1) "I was told to hire a lot of people. Put fuel on the fire they said. Bring industry experts who can move the needle. All this BS you hear all day. All failed. I hired VPs and bloated my payroll. Ultimately I ended up with a bunch of highly paid employees who don’t know how to do anything but to “build and lead amazing teams.” Imagine you hire someone to scale an area and their solu…
I've worked at a lot of startups. The worst of them were led by people who list things like "organization design" and "build and lead amazing teams" on their LinkedIn.
At the most dysfunctional company, the ex-FAANG CTO would take key job descriptions and add the requirement that they must have FAANG experience. This created a glass ceiling where the early employees, non of whom had FAANG backgrounds, were unable to be promoted. Instead, we got a lot of ex-FAANG VPs and Directors who didn't know how to function at a startup. They were told to lead teams of people who knew the business inside and out (because they built it!) yet they could barely function outside of a big company themselves. Every meeting would be a competition of stories about "At Microsoft we did this..." or "At Facebook we did that..." because playing the FAANG card was the only thing the CTO liked to hear.
The only non-FAANG person who thrived at that company was the single worst leader I've ever reported to. He is a LinkedIn influencer with his own newsletter where he talks about, among other things, his expertise in "Organizational Design". Yet the organization he designed was completely dysfunctional because he ignored how the business worked and instead hired arbitrary numbers of people according to some book he read. Half of the people at that company were 90% idle, while the other half were working 80 hour weeks because the "organizational design" person had strictly assigned responsibilities to arbitrary teams in a way that didn't account for how the business actually worked.
The next line from this post is exactly how he responded to every problem:
> Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution.
He was never accountable for anything because he always had someone under him to blame.
Honest question: if you sell 50%, then why do what the VCs tell you to do? Beyond gaining some sort of reputation for not doing what your investors want, is there anything else?
The actual deals are very complex and the details are hard to understand but it isn't as simple as "here is $10m go make me rich".