31–40 of 73 posts
Generally shouldn’t the motivation to fund the “right” amount be with the VCs? Founders are going to ask for whatever they can right? But VCs don’t seem to be interested in funding less… Whatever magical market forces that might change how funding works, they don’t seem to be at play.
Earlier quoted context omitted.
You mean like Founder’s Syndrome [1]? Yeah, it’s exactly like that… [1] https://en.wikipedia.org/wiki/Founder's_syndrome
Does that happen sometimes? Surely. But more often than not, founder led companies who have personal attachment to the outcomes deliver far better than some self-interested, career stepping-stone, decision-by-committee corporate blob. See Nvidia, Facebook, Stripe, and Tesla compared to Intel, IBM, GM, and PayPal.
We looked at the finances for our company, and the way he laid it out was that we only need a very few number of customers, relative to market size, to be profitable. That's default alive. Ignore growth beyond that number, just get to that number.
Then look at growth past that.
I had modelled growth directly, and because we're in subscription hardware, there is a scaling cost. If you want to add more customers, you have to keep building more hardware, which introduces a cost.
My takeaway when forecasting is figure out your default alive state and how to get there. Once you're there, then you can look at growth.
Another way to look at it is your company is like a person dying in a hospital, and you're the doctor. You're not going to give them a work-out program and tell them to go to crossfit to get big and strong, you're going to figure out how you can keep them alive and get them out of the hospital. Once they are well, then you can get into the strength (building) stuff.
Everyday until you are profitable, your company is dying. So what are you doing to save it?
In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen…
One model that also works before that phase but that's eschewed is consulting in the sector founders want to enter. They'll gain insight into what people say are problems, what problems people pay for, and the wisdom to know the difference.
They'll meet stakeholders between users and economic buyers who might later sign the checks. They'll build a network, gain in expertise and credibility, explore potential beachheads, hear what will be their messaging, and discover rough go-to-market strategies all the while having positive cash flow.
This works in their favor if/when they'll want to raise for they will come in homework in hand and coin in pocket. Even if they jump way past MVP like you pointed out, they'd be ahead of someone who didn't do that. Granted, it's service revenue but with money, like with a few things in life, you tend to get offered more when you're already having some regularly and can walk away.
Short version: "A large, poorly performing fund (1.5x) pays its GPs dramatically more than a smaller, higher performing (4x) fund."
Wouldn't getting 50% on a billion be a harder problem than getting 300% on 100MM.
Seems unlikely. Does whatever you were doing with the 100MM really scale that badly?
I was caught up in the scale mentality and corrected by a friend who is an excellent CFO. We looked at the finances for our company, and the way he laid it out was that we only need a very few number of customers, relative to market size, to be profitable. That's default alive. Ignore growth beyond that number, just get to that number. Then look at growth past that. I had modelled growth directly, and because we're i…
These companies are unprofitable and not default alive, but if you can keep pumping them until they become profitable, they survive.
It's mad that this even needs said. A company's aim should be to be sustainable and profitable, not to be a receptacle for capital. Some companies need external capital to get to that point, particularly hardware or those operating in slow-adopting markets. If you don't need it, don't take it.
A couple of lifetimes ago, a business mentor of mine taught me a truth that has served me very well. There is a correct amount of money for starting a business, and it's probably less than you think it is. Too much money in a startup tends to gum up the works and can kill a business just as dead as not having enough. If you have too much money, you're not only going to blow it on things that don't matter, but when yo…
It's a bit like having your parents paying all your bills. You might never develop the skills and spending habits that befits your real budget.
It's mad that this even needs said. A company's aim should be to be sustainable and profitable, not to be a receptacle for capital. Some companies need external capital to get to that point, particularly hardware or those operating in slow-adopting markets. If you don't need it, don't take it.
Yeah sometimes it becomes clear founders forget the purpose of a company is to make money/turn a profit and not just to repeatedly raise money and be famous. I have worked at a company that forgot this. It feels kind of surreal sometimes.
It feels completely disconnected from reality, a very abstract way of thinking about money and business.
In observing 100s of deals, advisor to dozens of early stage businesses I'd add: So many folk show up asking to raise because they only see how their company can work "at scale". They have forgotten to do things that don't scale. It's like they skip problem-market fit, jump way past MVP (but still call it that) and almost have to raise - then try to force the market to exist. Many (most?) of these companies I've seen…
> Like, do you want a 0.01% chance to raise money or a 2% chance to build a business that keeps you and a few others well paid and perhaps out of the rat-race. Or, you do a raise; it keeps you out of the rat race for a couple years; and you move on when it implodes. The problem VCs are having right now is that people have figured them out. If I have a business which can throw off cash, I don't need VCs unless I have…
It's fun to see articles like this one popping up more frequently now that the market has shifted, which amount to a "back to basics" entrepreneurship push. In contrast, the last ten years saw tons of articles pushing founders to raise as much as possible as fast as possible.
I've been re-reading this for the last 10 minutes and this is not an explanation for why the large fund would perform worse, which is what I was promised.
Is this an incentives argument? The large fund GPs are not incentivized enough because they earn a lot anyway? But their collective performance IS(supposedly, under a meritocracy) the funds returns and they would earn $600 million in carry if they would 4x. This just doesn't explain WHY large funds supposedly do worse than small funds, just that supposedly they do.