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The Fatal Pinch

paulgraham.com

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Re: The Fatal Pinch

#141

Post by danieltillett »

michaelrwolfe1 wrote: post #136
danieltillett wrote: post #123

Earlier quoted context omitted.

>There's not a whole lot VC can do about it at this point. Except ask for their money back :) If you think you can get away with running a sane growth company (100% Y/Y) and don't have to worry about the VCs asking for their money back, then the most rational thing to do is take the seed money and run the business as a "slow growth" business with an enormous runway. Unfortunately most VC's are aware of this and will…

VCs can't ask for their money back. It belongs to the company and is in the company bank account. They can refuse to give you more, and if they control the board they can try to put in a new management team, but except for cases of fraud or other malfeasance, they cannot get their money back.

What about redemption rights? These are a pretty big stick to bang over the head of any founders who think it might be better to run the business in a way the VC doesn't like.

Re: The Fatal Pinch

#142

Post by nostrademons »

jisaacks wrote: post #111
michaelochurch wrote: post #38

Earlier quoted context omitted.

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.

It's michaelochurch's rating system for programmers:

http://michaelochurch.wordpress.com/2012/01/26/the-trajector...

I've never seen it used by anyone other than him either.

Re: The Fatal Pinch

#143

Post by aytekin »

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…

That's the path we took. The consultingware products we had really slowed us down, but in the end our subscription revenues gradually built up to a point where it simply didn't make sense to continue doing consulting. So, this path can have a happy ending.

Re: The Fatal Pinch

#144

Post by jaza »

jameshart wrote: post #132
to3m wrote: post #83

Earlier quoted context omitted.

Wikipedia has a few pages about the various systems of this kind: http://en.wikipedia.org/wiki/Pre-decimal_currency . Difficult to fathom why the fashion for these passed, because such systems provide so many advantages. A good example is the Spanish system of division into 34, which permits straightforward further division into not only 2 but also 17 pieces - a case very difficult to handle with the modern restricti…

It saddens me in some ways that the UK currency decimalized before mass computerization of record-keeping took off. I think I would have liked to have lived in a world where database currency columns needed to support pounds, shillings and pence (keeping in mind that pence could be divided into quarters, of course).

Dealing with Olde English currency units (and other non-decimal currency units) may have been "a fun challenge" for programmers... but it does NOT sadden me that programmers have seldom had to deal with them! It would have led to a whole world of hellish pain. Have we not suffered enough pain as it is, what with character encoding, timezone handling, y2k-incompatible dates, spatial coordinate / projection systems, etc?

Re: The Fatal Pinch

#145

Post by escape_goat »

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.

Challenge accepted!!

After opening the article, copy & paste the following line into the URL field:

javascript:a=document.createNodeIterator(document.getElementsByTagName('table')[0],NodeFilter.SHOW_ELEMENT,{acceptNode:function(node){return(node.getAttribute('width')&&node.nodeName!=='IMG')?NodeFilter.FILTER_ACCEPT:undefined;}});while(b=a.nextNode()){b.setAttribute('width','100%')}

Make sure your browser doesn't strip the "javascript:" at the beginning automatically, there's a good chance that it might; in that case, you'll have to type that in yourself.

Re: The Fatal Pinch

#146

Post by parasubvert »

danieltillett wrote: post #141
michaelrwolfe1 wrote: post #136

Earlier quoted context omitted.

VCs can't ask for their money back. It belongs to the company and is in the company bank account. They can refuse to give you more, and if they control the board they can try to put in a new management team, but except for cases of fraud or other malfeasance, they cannot get their money back.

What about redemption rights? These are a pretty big stick to bang over the head of any founders who think it might be better to run the business in a way the VC doesn't like.

Redemption rights are relatively rare, and even if such a clause were in the funding, it would be after a longish period after close (5-7 years). Usually it's for older funds.

Thus they're not much of a stick. The only stick is the board voting to fire (or strongly encourage resignation of) the all or part of the founding management team, which if you're already on life support, can be a win/win: founders keep their shares, and someone potentially takes the company to profitability and exit. I can think of at least one major software IPO in the past 15 years where this made everyone (including the ousted founder) a lot of money.

Re: The Fatal Pinch

#147

Post by nostrademons »

danieltillett wrote: post #87
tptacek wrote: post #78

Earlier quoted context omitted.

No, founders are accepting the amount of funding VCs give them. I don't love VCs, but it's weird to blame them for this phenomenon. The VC model can't work differently. Most companies fail, and the winners have to pay for the losers.

I am not blaming VCs, I am blaming founders for taking VC money when the model they are giving it to you under is fundamentally flawed. It is debatable if VC model couldn't be made to work better, but if this is how they are going to play the game then you are better off not playing and get on with bootstrapping.

But the model isn't fundamentally flawed. Many founders just want to apply it in situations where it doesn't work. VC money is useful when you have a scalable, winner-take-all market that requires a large amount of capital to build out a viable product that you can monetize. If any of those clauses don't apply - the market is not scalable, the market is not winner-take-all, or the capital requirements for monetization are not large - a founder should not take VC. (Strangely, VCs are much better at telling founders when the VC model doesn't apply: many will outright refuse to fund companies that don't meet these qualifications.)

But for founders who are attacking markets with those characteristics - the existence of VC is a huge boon that can accelerate what would normally be a lifetime process (eg. Walmart, Microsoft) into a decade or less (Google, Facebook).

Re: The Fatal Pinch

#148

Post by feverishaaron »

AndrewKemendo wrote: post #73
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. So my guess is that these founders were either already successful previously, were well connected or had already bootstrapped quite a bit of the technology that would underlie the product (ie patents, team, etc...). Any or all of that the case?

It was an experienced salesperson who saw an open market, paired with a repeat startup CTO.

They did their research and validated the market by finding prospective customers before raising. Which is a good model to remove risk from any venture – especially one that would take many years to build.

Re: The Fatal Pinch

#149

Post by ghobbins »

First time founder. My company is in a "fatal pinch."

Similar to a previous comment by @LukeFitzpatrick, we built something for our alma mater that we thought we could sell to colleges for 50k/year. We got investment, we built it, we sold it to a few more schools but the software is not feature-packed and mature enough to attract sales fast enough. Higher ed also moves super slow even when you're doing well.

We're starting to see some traction with parties that want the software custom-tailored for their need (the consulting PG speaks of). But we're stuck in spot where we haven't gotten a check from any of these parties yet and are reluctant to pull the trigger and focus on only on the consultative sale.

The team, product roadmap, and marketing strategy is all geared towards higher ed. But it's clear now we can't become profitable in 6 months in that industry. How do we operationally perform the "pivot" into consulting? Do you agree it's time to do so?

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