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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

#261

Post by vonnik »

Like much advice that is supposed to apply universally, this is false.

There are some kinds of startups so capital intensive that they came only built with massive external funding, notably hardware and biotech (and probably most deep tech).

In addition, products that face very slow sales cycles selling into enterprise or government can benefit from the time that external funding buys you.

What’s true is this: if you yourself are a builder and can run a very capital efficient software business in an industry you know well where you will not get lost in the idea maze, then you may not need VC funding.

In most cases, you will still need external capital from your savings, day job or friends/family.

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

#262

Post by laurex »

onion2k wrote: post #68
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…

According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deserved…

Beyond the issues surrounding the failure rate, it's worth thinking about the extra work to keep satisfying investors, the likelihood that you'll lose at least some measure of control, and fundamentally the ethics of extraction that VC models necessitate, meaning you will need growth even if it's not good for the company or the customers in the long term, and that kind of growth often also means that there's an impetus to ignore the negative impacts on environments, communities, and economies.

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

#263

Post by wolf550e »

tptacek wrote: post #194
metadat wrote: post #185

Earlier quoted context omitted.

Great points and perspective, thanks for sharing! Totally agree. Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested. What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!".…

What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with y…

Can you please share a link about understanding "what's going on and learn to read the room"? For real-estate and venture capital.

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

#264

Post by noobermin »

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…

This is a nice wrinkle to the story, but as a reply points out, your story (3) is a hell of an exception, a fairytale if you will. It would be nice if people realise that and have realistic expectations. You shouldn't set people on chasing fairytales without them being aware that's what they are doing.

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

#265

Post by noobermin »

DeathArrow wrote: post #252
Alex3917 wrote: post #167

Earlier quoted context omitted.

> 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…

>Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. I'd wonder if taking VC money five times, failing 4 times and building a large and growing company 1 time, isn't better than bootstrapping a small and profitable company just 1 time.

The article is specifically about this value judgement. If you do not value making a profit as a company you have to find value in something else. Which is fine, different things motivate different people and should, but at least be clear that it is fundamentally a values conversation.

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

#266

Post by Hermitian909 »

tptacek wrote: post #94
hn_throwaway_99 wrote: post #85

Earlier quoted context omitted.

As someone who's worked for tons of startups, it's not that binary. For loads of industries, there is simply no viable path without significant outside funding (whether from a VC or very rich founder), and even if you look at some of the most famous outliers (like Atlassian), I don't believe the path they took is even viable these days anymore. For example, if you're selling any sort of business SaaS product these da…

(1) SOC2 is somewhere between $10,000 and $20,000 if you do it cheap. (2) That's a dollar amount that most bootstrappers can swing. (3) Critically, you don't do SOC2 until you have a critical mass of purchases requiring it. (4) Many (most?) of your customers, especially your early customers, won't require it, and/or will have alternate paths for companies without a SOC2 attestation. (5) When you finally do hit the bi…

SOC2 is also waaaay less expensive on the development side if you do just a little upfront development in dev tooling: logging, backups, encryption in transit and at rest, tagging data with sensitivity levels, IAM policies, and CI. I've seen a few founders who invested a few weekends pre-funding into this sort of tooling get to SOC2 and have almost no development costs (still have to document those processes though).

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

#267

Post by yowlingcat »

anonzzzies wrote: post #181
yowlingcat wrote: post #119

Earlier quoted context omitted.

> No idea why I want all this misery of competing, stress, exposure, running all the time etc etc. Have you ever run a business before? The belief that you can build a business without dealing with competition is a myth. Having a successful company requires picking your poison. Non-VC is a different poison than VC, and I do agree that it is a much better approach for far more many businesses. But make no mistake, hav…

> Have you ever run a business before? Only 30 years. You? Not mean to be as snarky, but this US all or nothing stuff is getting on my nerves just a bit. I came from a simple background, but in a country with free education, so I got a degree in uni, opened a company in high school, all without too much risk. Didn’t need to work myself to death, didn’t have much stress, didn’t need VCs and make more than most here wh…

I've been building startups successfully for a decade, but they are US based. So you got me there.

There are many self proclaimed dropshipping millionaires on the the internet selling courses while living the good life in Bali, overleveraged to the gills, living off of credit card debt, desperately hoping the courses they sell as a grift somehow can be ponzied to the next fool before the whole thing collapses. So that's always my assumption when people discuss something in business that seems too good to be true. But maybe you are correct. Perhaps my US all or nothing priors have closed my mind.

What kind of business do you run that can be done without too much risk, how does it make money, and what country do you operate out of? I am genuinely curious and I would like to be prove my priors wrong, if possible. They're not particularly pleasant priors, as you might imagine.

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

#268

Post by sfink »

DeathArrow wrote: post #208

Looking at the author's bussineses website, here's a sales pitch for potential new employee: >OpenRegulatory is different. It's 100% boostrapped. Ironically, having no investors (and less money) opens up interesting opportunities: We can serve customers who don't have a lot of money, like, Healthcare startups. And we can build software which only solves a tiny problem, and solves it well. While eating your own dog fo…

> future employees most likely won't be pure idealists who will take a lower pay out of the satisfaction that their work helped others

If you rewrite that to "a much smaller percentage of prospective future employees won't be pure idealists..." then I would agree. But it's about the pool being smaller, and in fact small enough that you risk not being able to find anybody, but the fact that 95% of people are not going to be adequately motivated by helping underserved people does not mean that the remaining 5% won't be.

Existence proof: I am working for substantially less salary than I could get elsewhere. I can prove it, I've been offered the higher salary at a FAANG and turned it down twice. It's financially irrational. I don't think it's wrong for people to work for directly ad-funded Big Tech. Or even for me. I'm not ecstatically happy in my current position. If I were younger I might make a different choice.

But I care enough about working for a mission-driven organization that I basically have no intention of leaving as long as the organization doesn't lose my trust about being mission driven. (There's often a gap between stated positions and reality, and I try to watch closely to monitor how big that gap is.) And I think I'm far from being the only one in this position.

I'm also aware that it's a privilege to even have the option. I grew up poor. Now I have a spouse and kids and live in an insanely high CoL area that we mostly don't get much from, but our past work was enough to make us financially comfortable. (Actually, I suspect it probably has more to do with the extremely unfair macroeconomic situation that has inflated our real estate and other investments, but whatever.) When I go to feed the worms, I won't be leaving my kids with as much financial security as I could have, but I hope to leave them with better respect for my values than I would have otherwise.

That said, "mission-driven" doesn't actually mean that much. Any mission is going to have unintended consequences, and it's pretty dispiriting what people are actually using my mission-driven labor for. There's no easy way to sort companies into "good" vs "bad". It's often not even a meaningful distinction at a whole-company level. But there are still large differences if you pay attention.

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

#270

Post by echelon »

tester457 wrote: post #259
echelon wrote: post #34

Earlier quoted context omitted.

I self-funded my startup to the tune of half a million dollars. I've had what I can only assume to be a VC-funded competitor study my endpoints for high latency / expensive queries, then saturate them with millions of requests a second across thousands of simultaneous IP addresses. Business is survival of the fittest. Pressures and growth gradients come in all shapes and sizes.

How did you mitigate the attack?

- Moved DNS to Cloudflare, which handled the brunt of it.

- IP and CIDR blocks

- A few trivial heuristics to catch certain behaviors they were using

- In-app query caching for read-only endpoints that serve the same data to all users

- Redis TTL caching for read-only endpoints that take view arguments. A means to manually expire on writes.

- Runtime control plane additions to dynamically block IPs/CIDRs, user accounts, and endpoints (if they find another hole to exploit, we can just block a few endpoints rather than the whole service)

- A tool to inject bad responses (we found another, probably different actor consuming and reselling our service)

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