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We need a middle class for startups

neilthanedar.com

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Re: We need a middle class for startups

#131

Post by clairity »

ehnto wrote: post #118
clairity wrote: post #105

Earlier quoted context omitted.

most new businesses in the US are still bootstrapped, usually through a combination of family (non-)wealth, non-professional investment, (small) bank loans, supplier credit, and plain ol' hard labor. most of those will be small businesses, but many will grow to mid-sized businesses. most will not be software businesses. software doesn't have an investment problem. in fact, it's a maturing industry where all the big m…

I had not considered the way crypto/nfts have been commandeered to be a side effect of wealth not being able to be allocated fully anymore. That's an interesting take. I wish there were a way for that kind of wayward money to do some real work improving our communities while it waits for something more profitable to do. I don't necessarily mind that people are trying to make money with their money, but it is a shame…

that's exactly the crux of the problem: a misallocation of resources due to the increasing distortions caused by increased wealth concentration. it's directly observable in investment markets like software startups or crypto, but it's effects are felt all over the economy.

like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).

at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.

Re: We need a middle class for startups

#132

Post by hyperdimension »

chrisweekly wrote: post #116
coderholic wrote: post #103

Totally agree with this article. It's not just about funding methods, but also playbooks for these types of businesses, and best practices. I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mos…

Your story with IPinfo.io is profoundly compelling; have you written anything about your journey? > "let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome" This sounds so great.

> have you written anything about your journey?

Well, he can't yet, since it's still a going concern!

Re: We need a middle class for startups

#133

Post by atentaten »

scarface74 wrote: post #30
seibelj wrote: post #8

Earlier quoted context omitted.

Local banks can provide the capital, often collateralized by your house. Also small business loans from the government and accelerator awards can provide 6 figure amounts. I know some "generic" business people who are fairly wealthy and they own things like food franchises and apartment complexes. There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to…

My question is why does everyone with the next CRUD SaaS app think they need to hire the “best people”? I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently. And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The a…

> The average fast food franchise, convenient store averages about $70K a year.

Where can I find industry stats to explore this assertion?

Re: We need a middle class for startups

#135

Post by TA-blahhh »

coderholic wrote: post #103

Totally agree with this article. It's not just about funding methods, but also playbooks for these types of businesses, and best practices. I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mos…

"millions in revenue and a team of over 20" are not "Middle class"...

Re: We need a middle class for startups

#136

Post by dustingetz »

The investment terms would be terrible; monopoly math is what makes early stage risk worth it. Alternatively, VC underwriting would need to get 100x better. (Which such a disruption IMO is entirely feasible by a new younger/smarter cohort of investors)

Re: We need a middle class for startups

#137

Post by asellke »

I once pitched a fairly well-known Bay Area VC in 2015. We were looking to raise a $2.5M Seed round. The VC looked at me through his steepled fingers and said: "This is great. I'm just trying to figure out if you're a $100M business or a $1B business..."

And while it was flattering to be considered either, there was only one business they were going to invest in.

I understand the mechanics involved in some of these funds and the myriad of considerations that go into their investment theses, but it was also sad and frustrating that a lowly "$100M business" (with 4.5M registered users, mind you) couldn't get funded.

Don't hear me bemoaning the fact that we didn't get funded or that we somehow didn't receive our due. I'm just adding my experience with the gap that Neil is citing. And just like in broader societal terms, I think a healthy startup "Middle Class" would make for a healthier overall economy.

Re: We need a middle class for startups

#138

Post by mprovost »

roflyear wrote: post #3

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

Someone once asked the Duke of Westminster for career advice: “Make sure they have an ancestor who was a very close friend of William the Conqueror.” At least he was honest.

Re: We need a middle class for startups

#139

Post by bradgessler »

limedaring wrote: post #125
michaelbuckbee wrote: post #92

This post is describing a structural issue on the funding side of new ventures: - - bootstrapping is very hard - traditional credit/loans aren't structured well for the "mid" type risks of starting software businesses (not much collateral) - and on the VC side there is much less opportunity for the Unicorn 1 in 10 exits. Tackling this problem are two funds that I didn't see mentioned in either the article or the comm…

Tracy here from TinySeed, thanks for linking to our thesis! Point of clarification: we don't do profit-sharing. Instead, we are equity owners. So when a company gets to the point of success where they want to take money off the table, they can issue dividends (and TinySeed get's a pro-rata amount of those dividends). I find this is one of our most unique points and aligns the incentives of the founder with TinySeed.…

You should add that you cap founder salaries at $250-$300k/year (if I remember your terms correctly)

If you’re a founder looking at TinySeed, what this means is that if your business reaches a level of success you can pay yourself over $250k-$300k through your W-2, you’ll either have to cap it there or pay the rest through dividends.

That said, this isn’t really a terrible setup if you plan to go down this route. The IRS takes issue when tightly held C-corps pay themselves large amounts via W-2’s because they would want to reclassify those as dividends. They won’t say what the “large amount” is, but I’ve been advised that its around $250k-$300k if you don’t have disinterested stockholders or board members voting on your comp.

As always, consulting with your accountant before making tax and/or fundraising decisions.

Re: We need a middle class for startups

#140

Post by throwaway98797 »

thanedar wrote: post #56
tptacek wrote: post #40

I'm a fan of bootstrapped companies and have started and operated a couple of them, sometimes quite successfully. But I don't understand how the economics of funding them are supposed to work. VC is a star-search business. Most businesses fail, and that includes businesses run conservatively with organic growth. In a portfolio like that, the winners have to pay for the losers, or the math just doesn't work.

I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy. It works because Mittelstand revenue and profitability is much more predictable. If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.

but how will the LPs brag to their friends about their brilliant investments?

sure 13% IRR is amazing, but it is not going to make my neighbor jealous

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