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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

#241

Post by knightofmars »

verdagon wrote: post #141
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.)

Lots of people say they would do the right thing when a situation arises that requires it. But the greedy part of the human brain is very good at rationalizing why the altruistic path isn't the best path. Imagine an inner dialogue, "Why should I settle for 10 million dollars instead of 50 million? I own the company, I made the most sacrifices, everyone else just road my coattails to success. They'll still get something but I deserve the most."

This is why we should never trust anything that isn't in writing. No matter how many times someone promises to "do good by you" there will be a moment where that promise won't mean a thing or will be interpreted to have meant something different.

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

#242

Post by Qwertious »

eastdakota wrote: post #22

You’re so right! It was an absolute disaster for us. Never do it!!!!! Kidding aside, it is true that raising money from VCs puts you on a very defined path with really only three potential outcomes: 1) failure, 2) sell to acquirer, or 3) go public. There are a small handful of exceptions, mostly for companies that throw off massive amounts of cash, but, realistically, those are the outcomes. If you don’t like any of…

Context: the above commenter founded Cloudflare, which is a huge company now.

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

#243

Post by bombolo »

verdagon wrote: post #141
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.)

If you work at a startup and you expect the stocks to be worth anything in 10 years you're an idiot.

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

#244

Post by adrianN »

tptacek wrote: post #202
rattray wrote: post #66

Earlier quoted context omitted.

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 .

If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.

It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.

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

#245

Post by eastdakota »

nwienert wrote: post #190
eastdakota wrote: post #121

Earlier quoted context omitted.

The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your inves…

You get almost no money in salary, and you spend something way more valuable than money: time, during your most energetic and precious years of life typically. I think it’s really dangerous to put rose tinted glasses on the whole thing. For anyone not upper class, if you spend 6 or so years chasing a startup and fail, and you’re a good software developer.. once you factor in savings and interest, your total opportuni…

Agree that’s the right analysis for many people. Wasn’t arguing whether you should start a startup or not. Just that if you do bootstrapping isn’t inherently better than raising venture capital.

Your broader point is important too: startups are unfortunately too often a luxury of the upper class. It is extremely scary to take a risk when you don’t have a safety net. I was personally broke when we started Cloudflare and had to borrow money from my mom to pay my rent. But I could borrow money from my mom. And I had a mom and a family that if I failed would make sure I didn’t go hungry. My family wasn’t anything close to what I now see really rich looks like, but we weren’t scraping by. Had I not had that safety net I don’t think I’d have had the confidence to start Cloudflare. And I think that’s a real issue with entrepreneurship we don’t talk enough about.

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

#246

Post by dijit »

I'll take another position; since it might be keen to understand a little more from a different perspective.

I am a person who is a non-founder startup CTO; my company does not have any venture capital funding and we have enough capital to go to market.

However, certain institutions (especially US ones) give great discounts, insider incentives (such as early access to features or access to people) and so on to venture backed startups.

I have even been explicitly told this by AWS and Google; I am basically invisible to them except for the fact I have previously worked with a small handful of people coming from a large organisation. I have to use personal contacts which wouldn't be necessary if I was venture backed.

VC's also seem to open doors into other companies that they are invested in, which can be hugely beneficial.

Even companies that invest egregiously in everything, like Tencent, can't command such door-openings.

So, if you absolutely need some doors to open, VCs can be a good way to go, but it's very much a "selling your soul to the devil" type deal.

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

#247

Post by woobar »

Alex3917 wrote: post #167
jacquesm wrote: post #74

Earlier quoted context omitted.

Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.

> But no less unusual than building a successful company to begin with. Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app. Which…

What is the Flashlight app developer success? At best the app sales supported them for a year or two. By this metric a failed VC funded company also has supported its founder (plus employees) for a year or two.

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

#248

Post by sdenton4 »

dijit wrote: post #246

I'll take another position; since it might be keen to understand a little more from a different perspective. I am a person who is a non-founder startup CTO; my company does not have any venture capital funding and we have enough capital to go to market. However, certain institutions (especially US ones) give great discounts, insider incentives (such as early access to features or access to people) and so on to ventur…

Would it be possible to take ~$100k of VC funding to get the 'VC-funded' benefits without actually giving up any real control of the company?

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

#249

Post by ajkjk »

8n4vidtmkvmk wrote: post #205
eastdakota wrote: post #158

Earlier quoted context omitted.

Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again. Success or failure aren’t the bad…

I'm in The Slog and coming up in 10 years Bootstrapped. Not sure what to do.

Quit, do something else.

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

#250

Post by ajkjk »

blibble wrote: post #52
eastdakota wrote: post #22

You’re so right! It was an absolute disaster for us. Never do it!!!!! Kidding aside, it is true that raising money from VCs puts you on a very defined path with really only three potential outcomes: 1) failure, 2) sell to acquirer, or 3) go public. There are a small handful of exceptions, mostly for companies that throw off massive amounts of cash, but, realistically, those are the outcomes. If you don’t like any of…

> You’re so right! It was an absolute disaster for us. Never do it!!!!! has cloudflare ever had a profitable quarter? I could give away my investor's $10 bills all day too

The _people_ are profitable, even if the company is not. They're not profitable in part because of all the generous salaries they're paying.
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