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Don't Take VC Funding – It Will Destroy Your Company

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Re: Don't Take VC Funding – It Will Destroy Your Company

#141

Post by verdagon »

XCabbage wrote: post #113

> VC Funding Means You Will Sell Your Company > Remember when I wrote earlier that the VC dudes definition of “making everyone happy” after investing in your company doesn’t mean making it profitable? So now you might ask: Okay, so what do my VC investors want? ... They want to make a lot more money. > ... > Now, all of this might be none of your business, you might think. But it is! Because now the inevitable conseq…

I know nothing on this topic so perhaps a naive question but: what about the employees? I imagine part of their TC was in stock, so if I was a CEO I'd feel pretty motivated to reward my employees, who quite literally bet their family's income on me (and indirectly, their retirement and kids' college funds and inheritance etc.)

Re: Don't Take VC Funding – It Will Destroy Your Company

#142

Post by sf4lifer »

tiborsaas wrote: post #122
anonzzzies wrote: post #64

Earlier quoted context omitted.

How do you know if you have a Rocket? Many (most?) VC funded companies are just appearance, no substance and it’s all very apparent. All the new AI ‘products’ for instance. So those are clearly not rockets, just blah and hype. Maybe we had rockets before, but I don’t want to lie and cheat like some of our vc invested companies did (most are gone). Never were rockets, just hype, Twitter presence and faking all around.

You have a reassuring proof that you have product market fit.

You know you have a rocket if you're leaving money/customers on the table because your cashflow doesn't support rate of fulfillment of potential growth.

Re: Don't Take VC Funding – It Will Destroy Your Company

#143

Post by Centigonal »

XCabbage wrote: post #113

> VC Funding Means You Will Sell Your Company > Remember when I wrote earlier that the VC dudes definition of “making everyone happy” after investing in your company doesn’t mean making it profitable? So now you might ask: Okay, so what do my VC investors want? ... They want to make a lot more money. > ... > Now, all of this might be none of your business, you might think. But it is! Because now the inevitable conseq…

Many VCs take board seats, allowing them to replace the CEO

Re: Don't Take VC Funding – It Will Destroy Your Company

#144

Post by seraphsf »

A fun puzzle: if today you take $10m of VC funding at a $20m post-money valuation (ie you sold 50% your company), how much will you get if you sell the company for $20m tomorrow?

Answer: typically, you’ll walk away with $5m (25%) or less. VC funds usually have a 1x preference, which means the get their $10m back (plus interest), and THEN they split the remaining proceeds with you 50-50%.

So if you take VC money, you might have to double your valuation just to keep your take-home value the same.

VC makes sense if you can grow fast and very large. But assuming you have scenarios to grow slower or to a smaller size, those scenarios often turn into bad ones if you’ve taken VC funding.

Re: Don't Take VC Funding – It Will Destroy Your Company

#145

Post by antupis »

rattray wrote: post #66
dabeeeenster wrote: post #35

Earlier quoted context omitted.

> While there are plenty of VC horror stories, there are fairytales as well. What's the ratio, though??? 10/1? 20/1? 50/1?

Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital. It's not for everyone, but eastdakota is right that it's not for nobody .

It is tool and there is cases where you need to use that and some case where it is just stupid to use it.

Re: Don't Take VC Funding – It Will Destroy Your Company

#147

Post by raincole »

raesene9 wrote: post #32

The article has a lot of interesting points, but seems to miss out on one of the main reasons (IMO) that startups take funding, which is to grow faster than (or as fast as) their competition. Unless you're lucky enough to be in a market segment without competition, you need to keep an eye on what your competitors are up to. If they can expand faster, add features faster and get more customers than you, it damages you…

https://www.joelonsoftware.com/2000/05/12/strategy-letter-i-...

From 2000(!), still a must read today.

My takeaway is: you either raise (and spend) more than all the competitors in your field, or you spend very little. In terms of funding, be the 1st or the 100th. Don't be the 3rd.

Re: Don't Take VC Funding – It Will Destroy Your Company

#148

Post by yowlingcat »

I think this is a really poorly written blog post. Not because it was written in a thoughtless manner -- on the contrary, it was written in a very thoughtful manner! But it's not written by an expert. It was written by someone who has never raised VC themselves and doesn't have personal experience with it. And it shows.

The reality about raising VC versus not raising VC is never "yes or no" it's "on what terms." During the heady days of 2021, those terms were incredible for founders -- favorable multiples, lax governance, clean sheets, no loss of control. You'd have to be an idiot, or an incapable fundraiser, to not to take that deal because it was free money. And the reason why that money was free was because we were in a ZIRP environment where debt was extremely cheap as well; just not as cheap and unencumbered by equity for many companies.

Today, the situation is more varied. If the terms of the deal are not particularly founder favorable, you won't take it unless you really need it. That doesn't say anything about whether you should or should not take VC -- just that the cost of capital has changed.

To the author, all I will say is this -- be wary that a VC funded competitor doesn't look at your business model, say "that's a nice business you got there, shame if anything happened to it" and raised a ton of VC to build a competitor, out-execute you at lower margins and take a ton of territory from you, and effectively eat your lunch. There are long-term strategic costs to bootstrapping. There are costs to everything in business.

Re: Don't Take VC Funding – It Will Destroy Your Company

#149

Post by EGreg »

This is like if David Heinemeier Hansson took drugs and gave a speech.

I like DHH, and his and his cofounder’s opinionated approach to, well, everything. Ruby on Rails was opinionated. Their company stood for building products you charge for and never taking VC. (I think Atlassian and JetBrains toom that even further.)

Until today, we never took VC. The way I live my personal life I have never attracted gold-diggers and I guess the same thing applied here… both my largest companies are a open source platforms, each builds an alternative to Big Tech, and I even extol the virtues of Utility Tokens and Web3 smart contracts in the face of massive opposition here on HN which has mostly ever seen Shareholder Capitalism. They haven’t really understood how taking VC or going public creates a parasitic class — equity investors — who every earnings call expect profits and rents to be extracted from all sides of the market. I think a word got pioneered recently by Cory Doctorow — enshittification — to describe what happens in Shareholder Capitalism, whether a company ends up being run by a benevolent dictator (Zuck, who isolated himself from ever being removed, or Elon, who straight up bought Twitter together with a group of friendly sovereign wealth funds) or bought out (FogBugz, Reddit) or acqui-hired and turned into a money-making machine (WhatsApp, Instagram, Oculus) while its founders leave in disgust after their golden handcuffs are off.

I recommend everyone TRY to start a project funded by sales of a utility tokens, similar to FileCoin or Ether. Even better if your project already works (IPFS, Ethereum, BitTorrent) by the time you introduce the utility coin.

The reason I prefer this is the same reason funding DisneyWorld through Disney Dollars are better than Disney Inc. shares. It’s “stakeholder capitalism.” The people using the network own the network. The incentives are aligned and there is no parasitic class.

Well — here is an important caveat. Do this only if you are building a PLATFORM, like The Web, because it can benefit the world more by being permissionless and open (and not fake-open like OpenAI).

Tim Berners-Lee on why the Web stayed open and permissionless: https://m.youtube.com/watch?v=QXmEcku6Udk

Re: Don't Take VC Funding – It Will Destroy Your Company

#150

Post by chasing »

Venture capital is a tool. Understand it and then decide whether it’s appropriate for your company.

“Don’t hire employees. They will destroy your company.” They will! If you hire a bunch of people just because it sounds cool and you think it’ll magically make you rich.

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