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Isn't the problem that the founders have to spend like drunken sailors to show "traction" to have any chance of getting more funding while their investors give them so little money that the runway is then incredibly short? There is very little room for error here.
tl;dr :: nobody wants to board a sinking ship.
This is why I hate investing in startups raising $500k or less. You won't be able to raise again unless you have significant upwards progress.
Several of my best investments have been from startups raising less than $500k. Justin.tv/Twitch returned 97x my original investment, and Weebly will likely be even more.
Isn't the problem that the founders have to spend like drunken sailors to show "traction" to have any chance of getting more funding while their investors give them so little money that the runway is then incredibly short? There is very little room for error here.
Why would you have to "spend like drunken sailors" to show traction? I think you make a much more compelling for having traction if you can continue to grow while spending like a sober sailor.
(My take on this is very secondhand, unless you count experience from 1999.)
Earlier quoted context omitted.
Did they have progress when they raised again?
For some definition of progress, certainly, but neither company was an obvious winner in the first couple of years. The key is to stay very lean until you have definite product/market fit and can raise a huge growth round.
Isn't the problem that the founders have to spend like drunken sailors to show "traction" to have any chance of getting more funding while their investors give them so little money that the runway is then incredibly short? There is very little room for error here.
If you operate as if every round of financing you get is your last, it is irrational to waste investor money to fake traction. One view of the lifecycle of startups is that companies that try to do that have already lost the game; they're predicating their success on future financing rounds.
Is becoming ramen-profitable before you raise your first round a possible solution to this problem?
Earlier quoted context omitted.
Why would you have to "spend like drunken sailors" to show traction? I think you make a much more compelling for having traction if you can continue to grow while spending like a sober sailor.
This is a meme about the evils of venture capitalists, that their expectations are so uncalibrated that it's more important to act the part than it is to play the part. It might even be true in a lot of cases, but that doesn't make the strategy any sounder, right? You should just write off those investors. (My take on this is very secondhand, unless you count experience from 1999.)
Edit. Changed how to who :)
They were getting paid, right? I'm not losing time I work at a company that will eventually fail.
So if someone starts a company that is in this category, is it just dead in the water if the founders aren't already rich/connected?