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Should you really get funding?

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Re: Should you really get funding?

#11

Post by staunch »

BitGeek wrote: post #9
staunch wrote: post #4

Earlier quoted context omitted.

Get a blog man -- they're free :-) Funding is great for providing food, housing, servers, bandwidth, etc. If you can arrange all the practical issues yourself and can work full-time on your startup it definitely doesn't seem wise to take investment. Taking investment is a huge risk and it should only be done in a calculated way. It has to be a net increase in your chances of success and for each company that calculat…

I failed to make a distinction-- I am not opposed to funding, but think that VC funding is overrated. If you are seeing your business as a 1-3 year affair- if you believe that in that time period you'll either crash or get bought or go big, and you don't have any resources... then taking VC funding to cover basics like food, housing, bandwidth, maybe makes sense. I would still say that angel funding is better. And if…

Google is probably the best example of making funding work for you. They took angel and VC and built a company to last.

"...so even a success results in nothing to the founders."

No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs.

"...hit a home run, or die trying..."

That's not necessarily a bad thing. VC money can force you to move at breakneck speed to prove your idea is worthwhile or not. It's up to you to decide if its possible to succeed quickly like that, or find investors willing to build more slowly.

"...replace you if you do not make the choices that lead that way."

Again it comes down to smart investors. Bad ones replace people frequently and good ones are primarily investing in "the team", replacing you doesn't make sense when that is the case.

I think you might be interested in building more of a "lifestyle" business than what most people would define as a startup. I could personally enjoy doing either type of business.

Re: Should you really get funding?

#12

Post by davidw »

BitGeek wrote: post #8
rajamohan wrote: post #5

it is not only about the funding but also about the network. Todays world information is wealth and information can be collected by network. Hence for network building funding is necessary.

Are you sure about that? We're on a network, and I suspect most of us are building networking tools. Networking is a lot easier now. Plus, I think networking is a skill, not a service. And think about the cost- not just the equity, but the strings. It would be cheaper to pay a highly networked individual a fee for making introductions than getting VC funding. I understand the perspective of someone who has no entre i…

"It would be cheaper to pay a highly networked individual a fee for making introductions "

Do you really think a bootstrapping company could pay someone like PG what his time is worth? Letting him invest is a way of paying him, but it's even better because he doesn't collect unless you'r successful.

I'm not convinced being funded is necessary either, just that you have to weigh the advantages and disadvantages, and do the best with what you have.

Re: Should you really get funding?

#13

Post by staunch »

pg wrote: post #7
abossy wrote: post #6

Earlier quoted context omitted.

This brings up a good point: choose your investors wisely. While there are a plethora of non-technical investors that can potentially ruin your company, there's also technical investors who have been in the shoes of an early tech entrepreneur and have made it big. There's no guarantees of success, obviously, but it's important to take into consideration. I especially like Philip Greenspun's account of the tragic down…

As amusing as Philip's story is, screwups that spectacular are rare.

It's my perception that less spectacular versions are repeated frequently. Every time I see a story about a new investment followed by an announcement of a new CEO I have to wonder.

Gray Haired Suits and Hackers aren't exactly a match made in heaven. Few VCs seems truly comfortable with young technical people running the show. I'll admit that most of the time that might be because the founder lacks the confidence-inspiring "assertiveness" of people like Zuckerberg.

Re: Should you really get funding?

#14

Post by BitGeek »

staunch wrote: post #11
BitGeek wrote: post #9

Earlier quoted context omitted.

I failed to make a distinction-- I am not opposed to funding, but think that VC funding is overrated. If you are seeing your business as a 1-3 year affair- if you believe that in that time period you'll either crash or get bought or go big, and you don't have any resources... then taking VC funding to cover basics like food, housing, bandwidth, maybe makes sense. I would still say that angel funding is better. And if…

Google is probably the best example of making funding work for you. They took angel and VC and built a company to last. "...so even a success results in nothing to the founders." No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs. "...hit a home run, or die trying..." That's not necessarily a bad thing. VC money c…

Google-- they did, and they also seemed to take their time doing it...

"No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs."

I responded to this, but its been said, and better: "As things currently work, their attitudes toward risk tend to be diametrically opposed: the founders, who have nothing, would prefer a 100% chance of $1 million to a 20% chance of $10 million, while the VCs can afford to be "rational" and prefer the latter." http://www.paulgraham.com/vcsqueeze.html

"VC money can force you to move at breakneck speed"

You cannot predict the future- you cannot predict the level of success you will have in advance. Thus, signing agreements that put a ticking clock on your business is never a good thing. You can work at "breakneck speed" anyway, without increasing the risk of breaking your neck.

There is a fundamental limit to how fast you can go. Google was able to take their time and was fortunate in that regard. Netscape killed themselves with their speed. In fact, this forced breakneck speed is one of the killers of startups -- all the billions that were burned up in the space of 2 years between 2000-2001... much of that money, if spent more wisely, would have resulted in viable businesses in 2003.

"I think you might be interested in building more of a "lifestyle" business than what most people would define as a startup. "

I'm not sure what you mean by a "lifestyle" business. I consider the word "startup" to apply to any business. But since I am building a high tech startup that is a web based platform, I'm not taking the relaxed approach of someone opening a hair salon, or whatever.

I'm looking to increase leverage, growth rate, and viability.

In looking for a citation, I cam across the Paul Graham essay cited above- which I think makes the same essential point I'm trying to make. (So I'm sure I'm plagerizing him to some extent, mixed with my own experiences and stated less eloquently.)

In summary, many costs are now lower, thus leverage has increased, and so VC funds under traditional terms, are less desirable and less needed.

Re: Should you really get funding?

#15

Post by rajamohan »

BitGeek wrote: post #8
rajamohan wrote: post #5

it is not only about the funding but also about the network. Todays world information is wealth and information can be collected by network. Hence for network building funding is necessary.

Are you sure about that? We're on a network, and I suspect most of us are building networking tools. Networking is a lot easier now. Plus, I think networking is a skill, not a service. And think about the cost- not just the equity, but the strings. It would be cheaper to pay a highly networked individual a fee for making introductions than getting VC funding. I understand the perspective of someone who has no entre i…

Network is not the network in computer scince it is the people who connects and share the knowledge or atleast assert your idea. It is not possible to all that they just talk to everybody or they are very few frens but they are brilliant in creating the products, for such people VC funding and getting into their network is more usefull. And doing so you can get the pulse/need of the people and your ideas sharpens and you know you need to close the doors.

Re: Should you really get funding?

#16

Post by staunch »

BitGeek wrote: post #14
staunch wrote: post #11

Earlier quoted context omitted.

Google is probably the best example of making funding work for you. They took angel and VC and built a company to last. "...so even a success results in nothing to the founders." No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs. "...hit a home run, or die trying..." That's not necessarily a bad thing. VC money c…

Google-- they did, and they also seemed to take their time doing it... "No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs." I responded to this, but its been said, and better: "As things currently work, their attitudes toward risk tend to be diametrically opposed: the founders, who have nothing, would prefer a 10…

Google didn't take time doing anything. They spent millions on building out datacenters and on bandwidth.

The big thing that separates them from the Netscape story is that they're apparently smarter and managed to create a financially successful company. Its quite conceivable that lesser men would have given us Netscape #2.

"You cannot predict the future- you cannot predict the level of success you will have in advance."

But being forced to try things more quickly than you might otherwise may help you discover problems and their solutions before others do, like a fast forward button. If you have a company that can genuinely absorb capital it seems to work just fine.

"...prefer a 100% chance of $1 million to a 20% chance of $10 million, while the VCs can afford to be "rational" and prefer the latter"

In that scenario there's still great motivation for the founders to work hard. In the scenario you presented (no money left for founders) that is not the case.

Why didn't you just post a link to VC Squeeze essay if that's all you wanted to say? You're saying some different things and saying other things differently.

Re: Should you really get funding?

#17

Post by nostrademons »

staunch wrote: post #11
BitGeek wrote: post #9

Earlier quoted context omitted.

I failed to make a distinction-- I am not opposed to funding, but think that VC funding is overrated. If you are seeing your business as a 1-3 year affair- if you believe that in that time period you'll either crash or get bought or go big, and you don't have any resources... then taking VC funding to cover basics like food, housing, bandwidth, maybe makes sense. I would still say that angel funding is better. And if…

Google is probably the best example of making funding work for you. They took angel and VC and built a company to last. "...so even a success results in nothing to the founders." No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs. "...hit a home run, or die trying..." That's not necessarily a bad thing. VC money c…

"No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs."

That's not necessarily true. VCs want management's interests to be aligned with theirs. However, there's no particular reason for them to care whether management consists of founders or VC cronies, and most would probably prefer the cronies.

I've worked for startups where VCs liked the technology, liked the market positioning, but weren't particularly fond of the founding team. So they invest their money, and at the first sign of trouble, force the founders out. They ended up losing the auction for the company's IP (one of the founders bid on it through an employee proxy and took it to China), but that's not to say they didn't try...

I suspect this happens more often than entrepreneurs would like to think. It's the same VC that was featured on an essay here by a certain prominent Lisp hacker...

Re: Should you really get funding?

#18

Post by nostrademons »

pg wrote: post #7
abossy wrote: post #6

Earlier quoted context omitted.

This brings up a good point: choose your investors wisely. While there are a plethora of non-technical investors that can potentially ruin your company, there's also technical investors who have been in the shoes of an early tech entrepreneur and have made it big. There's no guarantees of success, obviously, but it's important to take into consideration. I especially like Philip Greenspun's account of the tragic down…

As amusing as Philip's story is, screwups that spectacular are rare.

Greylock did almost exactly the same thing to a company I once worked at.

Re: Should you really get funding?

#19

Post by BitGeek »

staunch wrote: post #16
BitGeek wrote: post #14

Earlier quoted context omitted.

Google-- they did, and they also seemed to take their time doing it... "No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs." I responded to this, but its been said, and better: "As things currently work, their attitudes toward risk tend to be diametrically opposed: the founders, who have nothing, would prefer a 10…

Google didn't take time doing anything. They spent millions on building out datacenters and on bandwidth. The big thing that separates them from the Netscape story is that they're apparently smarter and managed to create a financially successful company. Its quite conceivable that lesser men would have given us Netscape #2. "You cannot predict the future- you cannot predict the level of success you will have in advan…

Paul and I are describing the same scenario... and that incentive only exists when it looks like there's a possibility for the one in a million payoff. Otherwise Liquidation Preferences mean that even a successful sell results in no return to the founders.

"But being forced to try things more quickly than you might otherwise may help you discover problems and their solutions before others do, like a fast forward button."

I could write code sitting here with a loaded gun on a timer, pointed at my head. I'm sure I would find problems in that code faster and "get it done" faster so that I could reset the timer.... but the code would not be as high quality, and it certainly wouldn't be more innovative.

And if I reached the point where I knew there was no way to get it done in time, then I'd spend the time looking for an exit. I'd have no motivation to get the code done, and a lot of motivation to get out of there.

Re: Should you really get funding?

#20

Post by BitGeek »

davidw wrote: post #12
BitGeek wrote: post #8

Earlier quoted context omitted.

Are you sure about that? We're on a network, and I suspect most of us are building networking tools. Networking is a lot easier now. Plus, I think networking is a skill, not a service. And think about the cost- not just the equity, but the strings. It would be cheaper to pay a highly networked individual a fee for making introductions than getting VC funding. I understand the perspective of someone who has no entre i…

"It would be cheaper to pay a highly networked individual a fee for making introductions " Do you really think a bootstrapping company could pay someone like PG what his time is worth? Letting him invest is a way of paying him, but it's even better because he doesn't collect unless you'r successful. I'm not convinced being funded is necessary either, just that you have to weigh the advantages and disadvantages, and d…

You answered your own question, and I'm not talking about YC anyway. I'm talking about VCs, and in particular the strings that come with them.

My purpose is to point out the disadvantages, because the assumption seems to be that its always a good thing to get VC funds.

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