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Raise less, build more

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Re: Raise less, build more

#41

Post by djbusby »

Jugurtha wrote: post #34
djbusby wrote: post #9

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…

> Many (most?) of these companies I've seen could have started with a smaller fit. That could test the market theory for cheap (Lean) - cheap in terms of time and money. If the fit is good one ends up with a small business with medium good margin - and a way better idea of what the scaled up universe looks like. One model that also works before that phase but that's eschewed is consulting in the sector founders want…

Yes, I love this way to start. The practice selling is the biggest benefit IMO. Your other points are solid.

Re: Raise less, build more

#42

Post by e4f543ee »

pedalpete wrote: post #33

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…

I cofounded a robotics startup a decade ago and one point we needed cash to keep going. We received 2 offers:

1. VC offer of a couple million dollars for significant share and crazy expectations about growth and scaling up and short timelines etc.

2. Half a million from a private investor for a reasonable share ask who insisted we just kept doing what we were doing.

We opted for 2 and have been running the company successfully ever since. Slow manageable growth. Moderately profitable-nothing a VC would be happy with but it’s enough for us and our 25 employees. I’m not a multi-millionaire but I’m making decent living and have a great work-life balance.

Looking back this is probably the only way we could’ve made this company work. Attaching an industrial air compressor up to it would’ve blasted it to smithereens.

To each their own, YMMV, different types of companies have different financial needs, etc etc but if I ever did a startup again this is the way I’d choose again! It’s manageable, sane, low pressure, etc.

Re: Raise less, build more

#43

Post by lordofmoria »

One aspect of this that I don’t hear often is that growing more slowly allows you to actually have a chance at testing profitability and making adjustments in business model to achieve profitability as you grow.

People assume that profitability is perfectly predictable in a spreadsheet - anyone who has run a business for any sustained amount of time knows how false that is. Sure, if you run a SaaS, the margins may be so large that you can hand-wave profitability and probably be ok.

But remember, your first super productive workers are not the ones who are are around 5 years later.

Your first smart and capable customers are not your average customer 5 years down the line.

If you are pursuing revenue growth at any cost, you could end up with a lot of revenue and no hope at being profitable.

Spreadsheets and fancy decks can be made to convincingly present whatever story you want to tell, regardless of reality - look at Uber/Lyft. When you look at how the public markets are punishing this now, it seems obvious, but when you’re smaller and gunning for your next round, it’s probably the furthest from your mind.

Re: Raise less, build more

#44

Post by taneq »

nicbou wrote: post #36
pedalpete wrote: post #33

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…

This is how I understand business, being a small scale kind of guy. But how does it align with the prevalent business model of supercharging growth with capital? These companies are unprofitable and not default alive, but if you can keep pumping them until they become profitable, they survive.

It doesn’t, because “venture capital backed hyper growth startup” isn’t a business model, it’s a pyramid scheme. The survival of the business after IPO is irrelevant.

Re: Raise less, build more

#45

Post by pedalpete »

e4f543ee wrote: post #42
pedalpete wrote: post #33

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…

I cofounded a robotics startup a decade ago and one point we needed cash to keep going. We received 2 offers: 1. VC offer of a couple million dollars for significant share and crazy expectations about growth and scaling up and short timelines etc. 2. Half a million from a private investor for a reasonable share ask who insisted we just kept doing what we were doing. We opted for 2 and have been running the company su…

This is great to hear! Congrats.

We're looking at this a bit differently because the scale opportunity is available to us. The market we are in is huge, and growing, and we have a unique take.

But that doesn't mean default profitable should be ignored. It shouldn't be an either or.

I guess I'm likening it to a fire to keep you warm enough to survive in the cold vs a bonfire.

Build the fire to keep you alive, THEN put huge amounts of wood and fuel on it to grow huge.

I feel like the VC model is "we'll get a bunch of stuff that might burn, throw gas on it, light it up, and then see if the stuff we put in will actually burn or not".

We had a VC turn us down, not because he didn't believe in the market or the opportunity, but he didn't believe we could grow fast enough.

Re: Raise less, build more

#46

Post by ytoawwhra92 »

BLanen wrote: post #40

> A large, poorly performing fund (1.5x) pays its GPs dramatically more than a smaller, higher performing (4x) fund. Stunningly, the large fund GPs would earn dramatically more on simple management fees alone (i.e. even if the fund was 0x, the GPs earn $200M). Granted, the $1B fund may have more GPs, but the payout differential is eye opening. I've been re-reading this for the last 10 minutes and this is not an expla…

High return investment opportunities are limited in number and amount of cash which can be deployed into them. As cash under management grows a higher percentage of it gets invested into lower return investment opportunities which are better than risk-free rate, reducing the overall performance of the fund (relative, not absolute).

Hypothetical: consider 100 startups each looking for $10m investment. One will return 10x while the others will return 1.5x. A fund with $50m invests in the 10xer and 4 1.5xers, total return is $160m, or 3.2x. A fund with $1,000m invests in all of them, total return is $1,585m, or 1.52x (the max absolute return). Also an incentive issue; suppose the $1,000m fund missed the 10x and instead only made 99 investments, total return is still $1,495m, or 1.495x - very close to max possible in this scenario.

Not really fair to compare performance between funds with such dramatic differences in cash under management IMO.

Re: Raise less, build more

#47

Post by monissiddiqui »

taneq wrote: post #44
nicbou wrote: post #36

Earlier quoted context omitted.

This is how I understand business, being a small scale kind of guy. But how does it align with the prevalent business model of supercharging growth with capital? These companies are unprofitable and not default alive, but if you can keep pumping them until they become profitable, they survive.

It doesn’t, because “venture capital backed hyper growth startup” isn’t a business model, it’s a pyramid scheme. The survival of the business after IPO is irrelevant.

Increase value for the shareholders taken to it's logical extreme. Just gotta increase the perceived value to the potential bagholders so the current bagholders can wipe themselves clean.

Re: Raise less, build more

#48

Post by kylixz »

e4f543ee wrote: post #42
pedalpete wrote: post #33

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…

I cofounded a robotics startup a decade ago and one point we needed cash to keep going. We received 2 offers: 1. VC offer of a couple million dollars for significant share and crazy expectations about growth and scaling up and short timelines etc. 2. Half a million from a private investor for a reasonable share ask who insisted we just kept doing what we were doing. We opted for 2 and have been running the company su…

I would love to pick your brain if you have some time. Recently founded robotics company trying to navigate predictable success.

Re: Raise less, build more

#49

Post by jongjong »

I launched my new startup as a cryptocurrency which uses profits to buy-back (and burn) tokens. That way everyone in the community has an incentive to drive profitability as it directly determines the market price of tokens. If people don't like where things are going, they can just dump the token, nobody is locked in for any period of time, everyone can see how the tokens are allocated and all individual trades are public (though pseudo-anonymous) on our community DEX. I launched it last week and raised about $1000. One entire THOUSAND dollars! Anyway in spite of all the psyops and gov officials conspiring against this asset class, I find this model far superior than the contrived VC model which makes all participants feel like they're playing a very long game of musical chairs on a global scale... No thank you. Not that I could even get my foot in the door in the first place. That model is not just flawed, it's literally impossible.

Unfortunately I can't promote it to US citizens due to regulatory environment so I can't discuss it here.

Re: Raise less, build more

#50

Post by j0hnyl »

e4f543ee wrote: post #42
pedalpete wrote: post #33

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…

I cofounded a robotics startup a decade ago and one point we needed cash to keep going. We received 2 offers: 1. VC offer of a couple million dollars for significant share and crazy expectations about growth and scaling up and short timelines etc. 2. Half a million from a private investor for a reasonable share ask who insisted we just kept doing what we were doing. We opted for 2 and have been running the company su…

I work for a company with founders that have a similar philosophy, I'm paid reasonably and really like my job, but one thing that bugs me is that I don't see a path towards making more money in the long run. My equity will likely be forever worthless, or a small windfall in the longshot event of an exit. I wonder if there's a path as an early employee that gets me further ahead than a nice job with decent work life balance.
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