Good lecture: Important content, well organized,
clear.
But, but, but: It looks like there is a kind of a
bus or bandwagon, and after this lecture I'm
thinking of either not getting on or just jumping
off before going too far.
Sure, YMMV.
More generally, I'm concluding that for information
technology start-ups, Silicon Valley equity funding
is on a long walk on a short pier, about to go the
way of the Dodo bird.
E.g., the lecture told me that the Silicon Valley
way is awash in onerous, nearly intolerable, often
seriously dysfunctional, financial, legal,
organizational, etc. overhead that is unnecessary
and should be dumped into SF Bay and forgotten
about.
Instead, with some irony, I remember the advice of
Ron Conway in Lecture 9
http://startupclass.samaltman.com/courses/lec09/
in praise of bootstrapping.
My view: Be a solo, technical founder. Plan the
start-up; get a computer; write the software; own
100% of the business; organize as a Sub-chapter S or
LLC; get users/customers and revenue; do not accept
equity funding; grow the business; smile all the way
to the bank; and totally just f'get about VC,
liquidation preferences, pro-rata rights, vesting,
reporting to a board of directors, a Delaware
corporation, etc.
Vesting: That's where a solo founder who owns
100% of a business -- and it's got to be a pretty
good business before it qualifies for VC equity
funding, e.g., see (5) below -- has the business
take an equity check and suddenly owns 0% of the
business, to start to get back some ownership gets a
four year vesting schedule with a one year
cliff, takes on a lot of expensive, onerous
overhead, and reports to a BoD with people with a
fiduciary responsibility to (themselves and) their
limited partners, that can fire the founder for any
reason or no reason (thus costing the founder his
unvested stock -- do that in the first year and the
founder gave his business away to the investors for
a small salary for a few months and $0.00) who are
non-technical and the founder would not want to hire
in the business, who do not write code, who commonly
claim they have "deep domain knowledge" (an
outrageous belly laugh) and, really, do not
understand the business. Total bummer.
To me, if a well qualified technical founder
believes that he needs co-founders and/or equity
funding, then, instead, he should think of a better
business idea that doesn't need those and that he
can do as a solo founder.
Some really good news: The US is just awash, border
to border, crossroads, villages, ..., to the biggest
cities with successful businesses 100% owned by solo
founders. Indeed, from all I've seen, it is mostly
just such founders who own houses, vacation
houses, super-cars, boats, and jewelry worth $1+
million each and pay full tuition for K-12 private
schools and Ivy League colleges. E.g., own 10 fast
food restaurants, several new car dealerships, a
good independent insurance agency, be a successful
dentist, have a good construction firm of larger
buildings, own and rent real estate, etc.
Further, actually can do fairly well in coin
laundries, pizza shops, Chinese carry outs,
landscaping, ..., even just grass mowing and snow
plowing.
And of course these solo founder Main Street, USA
businesses nearly never have VC or even equity
funding.
Even better news: What can be done in principle,
and sometimes in practice, with a computer that
costs $2000- and an Internet connection with upload
speed of 25 Mbps is just staggering, nearly beyond
belief. E.g., there was the Canadian romantic
matchmaking start-up Plenty of Fish, long just one
guy, two old Dell servers, ads just from Google, and
$10 million in annual revenue.
Five points:
(1) For more, a big lesson of the Altman course, YC,
and VC is that there is a big risk of disaster from
co-founder disputes but also a big theme of don't be
a solo founder. Maybe there are some good reasons
investors don't like solo founders, but I can see
big reasons well qualified technical founders
should want to be solo founders.
(2) For more, this latest lecture and much more,
e.g., John Doerr from KPCB, keep saying that ideas
are easy, plentiful, and worthless and that
execution is challenging, risky, and everything.
My version would be, good ideas are challenging,
rare, valuable, and nearly everything and, given a
good idea, execution is routine and reliable.
It appears that Silicon Valley (SV) believes that an
idea is just some one sentence product description
a founder might explain to his neighbor and regards
everything else as execution. So, it appears that
SV fails to understand what else should be in a good
idea. No wonder on average VC has poor ROI:
http://www.avc.com/a_vc/2013/02/venture-capital-returns.html...
But a good idea might be based on some original
research, secret sauce, challenging for others to
duplicate, and be protected as a trade secret or
with a patent. Some people believe that some trade
secrets and patents are valuable assets, maybe
just crucial to the business, and not easy,
plentiful, or worthless.
So a founder wants to report to a BoD that believes
that ideas are worthless? What about some original
and solid ideas for much more effective ad
targeting? Easy? Worthless? Gads.
(3) For more, VCs keep saying that a start-up that
claims that they have no competition is just silly,
that there is always competition or at least near
substitutes. Let's see: What about the original
Xerox 914 copier, a license to print money?
(4) For more, there is the common claim that
whatever a start-up is doing, it is not the first.
Hmm .... Suppose we take the set of all efforts that
did the same thing and there consider the effort
that was started with the earliest date. Then that
effort contradicts the claim.
(5) For more, some of the VC arithmetic doesn't work
out:
E.g., once Menlo Ventures wrote me that they would
not consider an investment in my work before I had
100,000 unique visitors a month. Okay, assume (a)
each month, on average, each unique visitor comes 5
times and each time sees 8 Web pages, (b) each Web
page has on average 4 ads, and (c) get paid $1 per
1000 ads displayed. Then the monthly revenue would
be
100,000 * 5 * 8 * 4 * 1 / ( 1000 ) = 16,000
dollars. If the site soon has 100,000 unique
visitors a month, then maybe soon it will have 1
million and, right, $160,000 a month.
But the CapEx to serve 1 million uniques a month?
Let's see:
That would be an average of
1 * 10**6 * 5 * 8 / ( 3600 * 24 * 30 ) = 15.4
Web pages a second. Even if need, say, CapEx, of 30
servers at $2000 each, that's just
30 * 2000 = 60,000
dollars to get revenue of $160,000 a month. So, buy
the servers in the first month and just use them in
future months.
I can understand that a start-up with 100,000 unique
visitors a month and five co-founders, each with a
pregnant wife, might very much want some equity
funding. So, be a solo founder.
In simple terms, by the time a solo founder has a
business of interest to VCs, he has high motivation
just to continue to own 100% of the business and
f'get about equity funding.
With points (1)-(5), I see a pattern: Denigrate
founders.
Net, I'm missing why good technical founders should
want to be on that bus.
Yes, YMMV.