Sell product, not equity. • Hacker News Board

Re: Sell product, not equity.

#21

Post by mildtrepidation » Mon, Sep 09, 2013, 5:33 PM UTC

Posts like this, which are very common leave me with the impression of a false dichotomy based on a very narrow point of view based on the author's limited experience in a small part of a large field.

I don't mean this as an attack or insult. It just seems to me that people in this sort of situation are very prone to knee-jerk reactions and generalizations that certainly sound good based on their accounts -- and often have some merit -- but that don't quite cover what ought to be the underlying lessons, or take into account larger views that might not fit their argument.

Is it wrong to sell equity? Is it unsustainable, is it fundamentally flawed, is it stupid? No, it's none of these things. It's a specific choice made in specific circumstances that can be good, bad, or (more usually and over the course of time) some combination of degrees between those two virtually worthless extremes.

Is it right to sell products/services? Is it superior, morally, ethically, financially? No. It depends on your business model, your goals, your resources, and a million other things that even themselves vary from situation to situation.

The article isn't bad or wrong. It's just taking a very small view of a very large topic.

Re: Sell product, not equity.

#22

Post by gjmulhol » Mon, Sep 09, 2013, 5:44 PM UTC

philbarr wrote: post #10

gjmulhol wrote: post #7

Earlier quoted context omitted.

They can for a short time. Pitching is a bit of a game, and if and if you are a compelling technical person, you can probably get money a few times from non-savvy investors. The problem is that most founders have this feeling of relief when they take VC money. Really, though, the fuse has been lit and the real pressure has just started. At the same time, it is sometimes easier to sell to VCs than it is to hear from a…

What might be a typical yearly income for someone who did this? Assuming they last a year of course... Is there a "standard" salary that a VC might expect someone to pay themselves?

It is all about negotiation, but there are 2 rules of thumb: 1. Don't break 6 digits, stay below $100k. Anything more is a "good" salary where you might not be hungry enough -- or at least this is the perception. 2. Make sure you pay yourself enough that you can live frugally and not worry about money -- the last thing a VC wants to see is a founder waiting tables at night

Every investment is case-by-case, and the less you can pay yourself, the better. My understanding (and I only have a few datapoints) is that somewhere between $60-90k annually is a fine salary for a founder. There are caveats of course, but I think these are numbers that most VCs would not balk at.

In my experience with VC, though, if you are not the hypothetical scammer we have been talking about here and you have the right investors, it should be a conversation you can have. "You: I think I need $75k a year to be effective, is that ridiculous? VC: No. Sounds good to me. You: Okay!"

Note: this is for founders. It is totally different for employees.

Re: Sell product, not equity.

#23

Post by gjmulhol » Mon, Sep 09, 2013, 5:48 PM UTC

petercooper wrote: post #14

philbarr wrote: post #10

Earlier quoted context omitted.

What might be a typical yearly income for someone who did this? Assuming they last a year of course... Is there a "standard" salary that a VC might expect someone to pay themselves?

There are, but I'm not in the scene enough to give you a number. I just wanted to point out, however, there are plenty of companies that made no/little revenue that sold for millions (or even a billion in Instagram's case). To be fair, Instagram did click with users and wasn't an investor play IMHO, but it's certainly possible to become personally wealthy without ever making serious revenue.

Truth, but they did a good job convincing people of the present value of their current assets (users) and future revenue. In B2C, users are value, even if they are not revenue. It is still a challenge to monetize, but it is easier to think about monetizing users when you have them than when you don't.

Instagram is a bit of a special case, I think. Facebook was about to IPO and had no real mobile presence. The risk that they faced that they might not be able to capture mobile market share was in their S-1 and every 10-K and 10-Q since they went public. Mobile was a big deal, and Mark knew it. If you look at how it went down, it was largely that Mark just went in and bought them, because he knew he needed to. This is not a repeatable business model.

Re: Sell product, not equity.

#24

Post by seiji » Mon, Sep 09, 2013, 6:01 PM UTC

jonmrodriguez wrote: post #11

[deleted] wrote: post #9

[deleted]

> pure "startup" where your real product is more likely to be the company itself What? How do you possibly consider built-to-flip companies to be the "pure" startups? Wikipedia defines a startup as "a company, a partnership or temporary organization designed to search for a repeatable and scalable business model" (emphasis mine) The "pure" startups are companies that will last for decades or more and will actually ch…

Reminder: wikipedia is an authoritative source of nothing. That's a very Blank-ian startup definition. A lot of startups are built to flip from their inception. They just have to make sure their funding doesn't run out before someone offers them $2M per employee (which goes mostly to the founders of course, not to the employees valued at $2M/each).

Re: Sell product, not equity.

#25

Post by philbarr » Mon, Sep 09, 2013, 6:19 PM UTC

gjmulhol wrote: post #23

petercooper wrote: post #14

Earlier quoted context omitted.

There are, but I'm not in the scene enough to give you a number. I just wanted to point out, however, there are plenty of companies that made no/little revenue that sold for millions (or even a billion in Instagram's case). To be fair, Instagram did click with users and wasn't an investor play IMHO, but it's certainly possible to become personally wealthy without ever making serious revenue.

Truth, but they did a good job convincing people of the present value of their current assets (users) and future revenue. In B2C, users are value, even if they are not revenue. It is still a challenge to monetize, but it is easier to think about monetizing users when you have them than when you don't. Instagram is a bit of a special case, I think. Facebook was about to IPO and had no real mobile presence. The risk th…

Forgive my ignorance, I'm assuming S-1 means "series 1" funding round, which would be the first time you ever get funding? But what are 10-K and 10-Q?

Re: Sell product, not equity.

#26

Post by gjmulhol » Mon, Sep 09, 2013, 7:32 PM UTC

philbarr wrote: post #25

gjmulhol wrote: post #23

Earlier quoted context omitted.

Truth, but they did a good job convincing people of the present value of their current assets (users) and future revenue. In B2C, users are value, even if they are not revenue. It is still a challenge to monetize, but it is easier to think about monetizing users when you have them than when you don't. Instagram is a bit of a special case, I think. Facebook was about to IPO and had no real mobile presence. The risk th…

Forgive my ignorance, I'm assuming S-1 means "series 1" funding round, which would be the first time you ever get funding? But what are 10-K and 10-Q?

These are SEC forms. The S-1 is the form that a company files when they are ready to have an IPO. It is several thousand pages long and has everything from several years of financial statements to market analyses by third parties so investors know what they are buying when they invest in the company.

10-K and 10-Q are the annual and quarterly reports that public companies have to file by law with the SEC.

These documents are the baseline of all investment activity. They are not enough for really hardcore investors, but they are a good subset of the material you need to make informed investment decisions.

An aside: Typically equity rounds are referred to as Seed (<1 million), Series A, Series B...etc.

Re: Sell product, not equity.

#27

Post by radiusq » Mon, Sep 09, 2013, 8:45 PM UTC

>I wasn't really running a business--I was trying to prove to some hypothetical future investor that I could run a business. It's the startup equivilant of Neo trying to hit Morpheus in the Matrix.

And this guy is a "venture capitalist"?