The Fatal Pinch • Hacker News Board

Re: The Fatal Pinch

#111

Post by jisaacks » Tue, Dec 09, 2014, 4:46 AM UTC

michaelochurch wrote: post #38

super_sloth wrote: post #8

"Although your product may not be very appealing yet, if you're a startup your programmers will often be way better than the ones your customers have or can hire." Is this really true? I'm very sceptical. Does anyone have any evidence to back this up?

Actually, it's more like this. There are good programmers in the enterprise (meaning, say, investment banks or large corporations or governments) but they generally fall, ambition-wise, into one of three categories: (1) those who want to become managers or software architects (or, in finance, quants and traders) and will define and oversee work but delegate the dirty bits. This would be fixable (they could oversee a…

Can you please explain the numbers 2.0+, 1.4-1.5, etc. when referring to a programmer's skill. I have never seen this before.

Re: The Fatal Pinch

#112

Post by tptacek » Tue, Dec 09, 2014, 4:47 AM UTC

outworlder wrote: post #99

I'd argue that the 'consultingish' part is as hard as the startup's main business itself, if you add the human factor. On one hand, you have your ideas, your product or whatever you're working on – which, by definition, isn't working all that great. On the other hand, you have a client (or more than one), who's willing to pay right now (usually you can negotiate something upfront) or at least just one invoice away. P…

Yes, that is what you do when you've cleared the runway: you start saying no to consulting clients. That is, for example, what 37signals did. I'm not sure I see the problem here.

Re: The Fatal Pinch

#113

Post by danieltillett » Tue, Dec 09, 2014, 4:51 AM UTC

mrkurt wrote: post #103

davidu wrote: post #96

Earlier quoted context omitted.

If you have a SaaS business, growing 100% Y/Y is just fine until you hit $100m ARR. -David

Maybe after you pass $10mm ARR. :)

Yes I think this is the rub. I don't think you can expect right now to get funding at the A round if you have only shown 100% Y/Y growth.

Re: The Fatal Pinch

#114

Post by X-Istence » Tue, Dec 09, 2014, 4:54 AM UTC

danieltillett wrote: post #80

feverishaaron wrote: post #65

Earlier quoted context omitted.

I know of a company that thought they would be in this category. They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it. That way the expectation was set from the beginning that this company might take some time to build out their product and see traction. It's smart, because the discount for the follow-on was pre-negotiated, so investors get…

>They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it. Just out of curiosity why not just raise 2MM+? What value is there in this to the investor unless they have the ability to back out of the prenogociated follow-on? It seems like an expensive way to get no peace of mind?

Maybe because the founders are not required to take the follow-up 1MM if they don't need it, and thus don't need to hand over equity worth that 1MM.

Re: The Fatal Pinch

#115

Post by frandroid » Tue, Dec 09, 2014, 4:54 AM UTC

danieltillett wrote: post #62

proveanegative wrote: post #23

Is becoming ramen-profitable before you raise your first round a possible solution to this problem?

If you can become profitable without raising funds then why raise funds?

It's a question of speed. Do you take your 1) $100K annual profits and re-invest them in one new market every year, slowly growing every year? Or 2) you take $2M in funding and expand worldwide. The thing is, if you hit on a good idea, you want to do #2, because if you don't, someone else will take $2M in funding to copy your product and go to 20 markets in 2 years.

Re: The Fatal Pinch

#116

Post by danieltillett » Tue, Dec 09, 2014, 5:01 AM UTC

tonydiv wrote: post #72

These days, the stakes are higher for everyone. Investors expect faster growth and want a "meaningful stake" (15%+) early on. Meanwhile, entrepreneurs generally try to raise more too. Who doesn't want more cash if they can get it? This is dangerous for those who don't understand these dynamics. The growth trajectory needs to align with the incoming cash. The second you raise a $3M seed round, you're on the roller coa…

The problem of course is that only a minority of companies can ever really meet this. This requirement seems to have driven a lot of startups to do things in a way that does not maximise the benefit to the founders [0] - investors can spread the risks over multiple investments while the founder are stuck with all their eggs in one basket [1].

0. I don't blame the VCs for doing this as they are doing what is best for them and their partners, but as a founder you should look very carefully at what is on offer and if what you are expected to do is viable.

1. Paul's point about the fatal pinch is correct, it is just that it is occurring much earlier (at the seed round) not 6 months from the money running out.

Re: The Fatal Pinch

#117

Post by breck » Tue, Dec 09, 2014, 5:03 AM UTC

raymondgh wrote: post #68

Does anyone have tips for quickly and responsibly finding a spot on the slippery slope of consulting? We have found our few distractions so far to be too distracting.

I do. Shoot me an email.

Re: The Fatal Pinch

#118

Post by danieltillett » Tue, Dec 09, 2014, 5:04 AM UTC

tptacek wrote: post #112

outworlder wrote: post #99

I'd argue that the 'consultingish' part is as hard as the startup's main business itself, if you add the human factor. On one hand, you have your ideas, your product or whatever you're working on – which, by definition, isn't working all that great. On the other hand, you have a client (or more than one), who's willing to pay right now (usually you can negotiate something upfront) or at least just one invoice away. P…

Yes, that is what you do when you've cleared the runway: you start saying no to consulting clients. That is, for example, what 37signals did. I'm not sure I see the problem here.

But 37signals bootstrapped. The problem is once the founders take VC money they are taking on what the VC expect them to do which is play a very high risk, potentially high reward game with a very low chance of success. This strategy is almost certainly not optimal for the founders.

Re: The Fatal Pinch

#119

Post by marvy » Tue, Dec 09, 2014, 5:06 AM UTC

zak_mc_kracken wrote: post #104

Can someone tell pg that he should stop putting hard every forty characters? One of the fundamental aspects of the web is that presentation is done by the client, not the publisher. Please let me reflow the text as I see fit.

There is no br every 40 chars. Instead, the whole thing is wrapped in a table cell of width 436.

Re: The Fatal Pinch

#120

Post by tptacek » Tue, Dec 09, 2014, 5:08 AM UTC

danieltillett wrote: post #118

tptacek wrote: post #112

Earlier quoted context omitted.

Yes, that is what you do when you've cleared the runway: you start saying no to consulting clients. That is, for example, what 37signals did. I'm not sure I see the problem here.

But 37signals bootstrapped. The problem is once the founders take VC money they are taking on what the VC expect them to do which is play a very high risk, potentially high reward game with a very low chance of success. This strategy is almost certainly not optimal for the founders.

So what? At this point in the story we're talking about a company on life support. That's why they're consulting and not continuing to put all their time into product. There's not a whole lot VC can do about it at this point.