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The Fatal Pinch

paulgraham.com

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Re: The Fatal Pinch

#161

Post by danieltillett »

parasubvert wrote: post #152
danieltillett wrote: post #151

Earlier quoted context omitted.

Are they rare or just rarely enforced? I can't say that my experience is up to date, but back in the day when I was actively looking for VC funding they were in all the agreements pushed my way. If they are rare in agreements then more founders should "pivot" to a lifestyle business after raising a whole lot of cash. With a couple of million dollars in the bank you can certainly build a very nice low risk business th…

I'm not a VC so I don't have an eye on the current trend, but a few years ago they were in less that 20% of deals in a particular quarter: http://venturebeat.com/2011/07/04/demystifying-the-vc-term-s... So, perhaps not exactly "rare", but uncommon. And rarely used, even if included. Back in 2008ish when I was more into fundraising, I didn't see them.

Have they been replaced with anything else? Without redemption rights what do VC have to keep control of founders?

Re: The Fatal Pinch

#162

Post by jc123 »

LukeFitzpatrick wrote: post #82

I agree with this article. Founders overspend once they get their first initial investment, and rely on the next investment too much. Founders should be paying more attention to burn and churn rates. I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. 1) Spent the whole investment on Founders salaries. They had 4 tech prog…

#3 doesn't sound like a problem. Seems to boil down to #5 and market size being too small, instead of a fully finished product.

Re: The Fatal Pinch

#163

Post by LukeFitzpatrick »

rdtsc wrote: post #155
LukeFitzpatrick wrote: post #82

I agree with this article. Founders overspend once they get their first initial investment, and rely on the next investment too much. Founders should be paying more attention to burn and churn rates. I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. 1) Spent the whole investment on Founders salaries. They had 4 tech prog…

Selling to big colleges is not too different than selling to large enterprises and/or to Uncle Sam. Product quality and features are much lower on the list, than lobying, networking, marketing, developing contacts. Learn to play golf (or whatever the CEOs and administrators of big institutions or companies are doing today to socialize). Or instead of hiring another programmer hire someone who was in charge of making…

I think they had the options to target Universities or college students. The product connects college students to other students to for help with problems. It's mostly suited for the mathematics, engineering and computing faculties.

The big issue is, they didn't have anyone to do marketing for it or test the market to see whether it wants their service or not. They should of done a pilot system. Focused on one university in Beta mode, and then expanded. They were too fixed on selling it for 50K a piece.

Re: The Fatal Pinch

#164

Post by LukeFitzpatrick »

danieltillett wrote: post #126
LukeFitzpatrick wrote: post #82

I agree with this article. Founders overspend once they get their first initial investment, and rely on the next investment too much. Founders should be paying more attention to burn and churn rates. I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. 1) Spent the whole investment on Founders salaries. They had 4 tech prog…

Actually I am not so sure that your friends did the wrong thing here. Sure the business failed, but if they got to transfer all the investors money to themselves while at the same time learning how to run a startup (all with someone else money) then it was pretty smart. Now they need to take the cash they saved and wisdom accumulated and bootstrap their next business up without any VC money.

Yeah, they used all the money on themselves. A free learning period so to speak. But, I wouldn't want to do that with investors money, reputation might hurt them in the long run.

One of the guys is a product manager at Google now, another moved back to his home town. Only one of them is still doing the startup thing.

They definitely got a lot of experience, this only counts if they learnt from their mistakes. Which, I really hope they did.

Re: The Fatal Pinch

#165

Post by LukeFitzpatrick »

Permit wrote: post #159
LukeFitzpatrick wrote: post #82

I agree with this article. Founders overspend once they get their first initial investment, and rely on the next investment too much. Founders should be paying more attention to burn and churn rates. I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. 1) Spent the whole investment on Founders salaries. They had 4 tech prog…

>I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. >5) They didn't do any market testing and validation = wrong product market fit. How does this happen? How do startups receive funding without doing some level of marketing testing and validation? I ask because in Canada it seems extremely hard to get even angel funding…

The investor they got, was actually doing something similar. Running a tutoring company that became quite profitable. Two of the guys working at the tutoring company got the idea to make this service, and sold the idea to their boss at the time.

Raising money is hard work, these guys got lucky in that respect. I think they made the absolute rookie mistake, afraid to talk to as they might 'steal' their idea. They thought it was a sure thing. Especially when they received the investment.

Re: The Fatal Pinch

#166

Post by LukeFitzpatrick »

jc123 wrote: post #162
LukeFitzpatrick wrote: post #82

I agree with this article. Founders overspend once they get their first initial investment, and rely on the next investment too much. Founders should be paying more attention to burn and churn rates. I once saw one of my best friends fail his first startup. They had a kickass programming team, received investment and did a bunch of things wrong. 1) Spent the whole investment on Founders salaries. They had 4 tech prog…

#3 doesn't sound like a problem. Seems to boil down to #5 and market size being too small, instead of a fully finished product.

The market size wasn't too small, it allied to college students everywhere.

From what I know, a startup should look something like this. Build your MVP, get some traction, add on another feature, get more traction... A continually process of expanding your features and user base. Every time you add on features, you want to see growth.

The same goes for getting investment. Seed A, MVP with traction, add on a feature and go through Seed B stage etc etc. Adding on features to get more users which can lead to more investment. Investors want to see a plan for what a startup will do with that money.

Re: The Fatal Pinch

#167

Post by to3m »

jaza wrote: post #144
jameshart wrote: post #132

Earlier quoted context omitted.

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, et…

I'm not even sure there'd be much to do: just store everything in sixteenths a of a farthing and format on output, much as people do with tenths of a penny today. If anything the numbers are actually slightly more convenient for machines with no divide instruction.

Re: The Fatal Pinch

#168

Post by LukeFitzpatrick »

danieltillett wrote: post #135
jseliger wrote: post #131

Earlier quoted context omitted.

Founders overspend once they get their first initial investment Interestingly enough, Joel Spolsky wrote about this danger in http://www.joelonsoftware.com/articles/VC.html , where he discusses the relationship between revenue, PR, fundraising, and code. Any of those can get wonky if one substantially outpaces the others.

I am not sure that spending it all on yourself is the worst thing you can do with the money. If you continue to live on raman then you will be accumulating a lot of cash that you can leverage later. I am surprised that any investor would sit back and let this happen - I certainly wouldn't if I was an investor in such a company.

I'm also very surprised this happened. I've done my fair share of Ramen, can barely eat it anymore. I'd assume they sold the investor on selling the service to Universities at 50K each, the investor believed in them and that he'd get a good return in his investment.

Re: The Fatal Pinch

#169

Post by danieltillett »

LukeFitzpatrick wrote: post #168
danieltillett wrote: post #135

Earlier quoted context omitted.

I am not sure that spending it all on yourself is the worst thing you can do with the money. If you continue to live on raman then you will be accumulating a lot of cash that you can leverage later. I am surprised that any investor would sit back and let this happen - I certainly wouldn't if I was an investor in such a company.

I'm also very surprised this happened. I've done my fair share of Ramen, can barely eat it anymore. I'd assume they sold the investor on selling the service to Universities at 50K each, the investor believed in them and that he'd get a good return in his investment.

Well in cases like this the investor should have known better. I really think your friends did OK.

I sell into the university system and I expect that each sale will take me at least 12 month to convert. The positive is that once you sell a university customer you rarely lose them.

Re: The Fatal Pinch

#170

Post by danieltillett »

LukeFitzpatrick wrote: post #164
danieltillett wrote: post #126

Earlier quoted context omitted.

Actually I am not so sure that your friends did the wrong thing here. Sure the business failed, but if they got to transfer all the investors money to themselves while at the same time learning how to run a startup (all with someone else money) then it was pretty smart. Now they need to take the cash they saved and wisdom accumulated and bootstrap their next business up without any VC money.

Yeah, they used all the money on themselves. A free learning period so to speak. But, I wouldn't want to do that with investors money, reputation might hurt them in the long run. One of the guys is a product manager at Google now, another moved back to his home town. Only one of them is still doing the startup thing. They definitely got a lot of experience, this only counts if they learnt from their mistakes. Which,…

I hope the whole experience was a great learning exercise for everyone including the investors.
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