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Why I Turned Down $5 Million in VC Funding

groovehq.com

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Re: Why I Turned Down $5 Million in VC Funding

#101

Post by objclxt »

draz wrote: post #26
howeyc wrote: post #19

Probably off-topic, but something I've never understood reading these things: How does this funding actually work? From what little I know (the stock market) you'd sell an equity stake in your company for a certain amount and you have money in your personal bank account. But it sounds to me like all these funds somehow go back into the company?? how?? what am I missing?

I'm not sure I understand the question. What do you mean by "you have money in your personal bank account?" Are you saying that some of the money put in by a VC ends up in your personal bank account? If it does, it's through a salary you withdraw from the company. VCs, or any investor, will want X seats in your board, which will also give them a say about your salary. So if you got $1M in funding, no sane board will…

> You, the founder, keep a % of the company throughout this time, but you'd only see it translate to real money in the case of an acquisition/IPO/sell off

If Evan Spiegel and Bobby Murphy weren't taking $10 million+ off the table during funding rounds they'd probably be far less likely to turn down a $3 billion offer. It is fairly common for founders to trade personal stock for cash during a funding round.

Perhaps you mean during initial funding? It is absolutely possible - and common - for founders to take money of the table during secondary funding rounds.

Re: Why I Turned Down $5 Million in VC Funding

#102

Post by frandroid »

danielweber wrote: post #70

> Importantly, with eight months of runway, Groove didn’t need the money. Geeze, stop right there. If you need the money, IT IS TOO LATE . You get money because you can use it, not because you need it. Sorry if this comes off as a rant. I was at a dysfunctional start-up once and I guess it comes out at odd times.

Also: If you need the money, you're going to get fucked in the negotiation. You should be able to walk away from an investor who talks to you, otherwise they'll use your desperation against you and dilute the hell out of you.

Re: Why I Turned Down $5 Million in VC Funding

#103

Post by paulhauggis »

yesimahuman wrote: post #97
gnaritas wrote: post #92

Earlier quoted context omitted.

Do you happen to have any examples of those kinds of products? I'd love to see what kinds of small SaaS apps are being run by one or two people as a lifestyle type of business.

Well, my company Drifty ( http://drifty.com/ ) was largely that (we are 6 people now), though I don't use the term lifestyle business. Not that I don't think it's cool, but it doesn't fit what I want out of the company (I'm addicted to growth). It's not really about just being a lifestyle business though. The point is that there is so much opportunity out there right now that you can just be a few people, with no out…

I run a B2B business with 2 other people. Our monthly costs are sub-$100/month and we pull in a little over $10K/month in profit.

The business has only been operating for 4 months..and has been profitable from day one.

Although this was successful from day one, it was a result of 2 or 3 pivots over 3 years. All of the failures and successes from those pivots were fine-tuned and put into the current company.

Re: Why I Turned Down $5 Million in VC Funding

#104

Post by loomio »

alexmturnbull wrote: post #7
waterlion wrote: post #4

I just see a HUGE ad asking for my email address and a passive-aggressive "No thanks, I don't want to grow my business", the rest of the page blacked out. I can tell there's content underneath but screw that, I'm not reading it after that.

Sorry about that, should have only popped up if you left the page :( Gonna have to talk to bounceexchnage.com about this... Thanks for the heads up.

On the other hand, you got me to sign up :) But that's because I've seen your previous posts and they've been really influential for our whole startup! Keep 'em coming.

Re: Why I Turned Down $5 Million in VC Funding

#106

Post by spyder »

jes5199 wrote: post #94
alexmturnbull wrote: post #7

Earlier quoted context omitted.

Sorry about that, should have only popped up if you left the page :( Gonna have to talk to bounceexchnage.com about this... Thanks for the heads up.

Thanks for mentioning the name of the service so I can block it on Ghostery.

Hope you didn't copy-paste it from his comment because he mistyped the domain :)

Re: Why I Turned Down $5 Million in VC Funding

#107

Post by michaelt »

frandroid wrote: post #102
danielweber wrote: post #70

> Importantly, with eight months of runway, Groove didn’t need the money. Geeze, stop right there. If you need the money, IT IS TOO LATE . You get money because you can use it, not because you need it. Sorry if this comes off as a rant. I was at a dysfunctional start-up once and I guess it comes out at odd times.

Also: If you need the money, you're going to get fucked in the negotiation. You should be able to walk away from an investor who talks to you, otherwise they'll use your desperation against you and dilute the hell out of you.

There's a distinction between "need the money" as in "cannot achieve the business plan without investment" as compared to "running out of runway can't meet payroll"

For example, if you need $$$ to build a nationwide network of warehouses, or to get your new electric car through safety testing, or as a bond for your new bitcoin bank's banking license, or to order the first batch of widgets from your manufacturer, you "need the money" because you can't achieve your business goals without it, but you aren't in a desperate hurry and you can shop around.

If you need the $$$ to meet payroll and keep the lights on and the rent paid, but your business plan basically calls for you to keep doing what you're doing, you probably don't have a lot of time to shop around for investors.

If you're not in either of those categories raising more capital now is optional, and you've got to consider whether it's worth what you'll have to pay for it.

Re: Why I Turned Down $5 Million in VC Funding

#108

Post by janlukacs »

talkingquickly wrote: post #53
ernestipark wrote: post #38

Well written article. In my brief stint with YC and other startup circles, I think one big takeaway I've had is that most (or at least many) people who want to start a startup or hit it big with a startup actually really want a lifestyle business. Hyper growth isn't the goal of the founders. Their goal is to create a good product that helps people and allows the founders to live comfortably and be happy with their wo…

I wish I could upvote this more than once. What's more because of the focus on hyper growth, I think a lot of people are discouraged from working on valid problems which lack immediate potential for that kind of growth.

Maybe we can all thank WallStreet and their “infectious greed”.

Re: Why I Turned Down $5 Million in VC Funding

#109

Post by janlukacs »

GrinningFool wrote: post #69
ChuckMcM wrote: post #60

During the dot com boom it was a always an issue if your company took too much VC money. Having a fat bank account balance can make you lazy, you can spend on things you don't need (Aeron Chairs for Everyone!) and you don't "sweat the details." but a lot of the things startup teams need to learn how to do are the exact opposite, spend only when necessary, sweat all the details, understand where every dollar of your m…

I really dislike the specific way in which Aeron chairs have come to symbolize all that was bad about the dot-com era. The nature of that chosen symbol speaks volumes about the values our culture holds. Spending a thousand dollars on every employee to keep them comfortable while they sit at their desk and work for your company all day?! The epitome of profligate spending! A shining example of decadence! For shame, fo…

I'm sitting on one and i'll never buy one again. Overpriced crap.

Re: Why I Turned Down $5 Million in VC Funding

#110

Post by GrinningFool »

janlukacs wrote: post #109
GrinningFool wrote: post #69

Earlier quoted context omitted.

I really dislike the specific way in which Aeron chairs have come to symbolize all that was bad about the dot-com era. The nature of that chosen symbol speaks volumes about the values our culture holds. Spending a thousand dollars on every employee to keep them comfortable while they sit at their desk and work for your company all day?! The epitome of profligate spending! A shining example of decadence! For shame, fo…

I'm sitting on one and i'll never buy one again. Overpriced crap.

I got one about a year ago, and am actually pretty happy with it. It's ended the continual parade of mid-range uncomfortable Office Depot chairs through my workspace, at any rate.
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