In short: this author is endorsing a funding model focused on low initial investment and faster profitability. The benefits key benefits are that this funding model results in more women and minorities getting funding, as well as higher rate of companies surviving (10% vs. 44% [1]). The former is good, but probably isn't sufficient to motivate most investors. The latter doesn't necessarily translate into better retur…
I found the point about minorities and women curious, is that perhaps due to the fact that profitable-ish business can be assesed more rigorously on the foundamental, rather thsn on VC's opinion of the founders?
As a founder of a bootstrapped & profitable company, I don't really get what's so attractive about this funding model. It seems like it's just a really, really, really expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you're borrowing.
I agree. This isn't quite an apples-to-apples comparison. But middle-market companies with okay-ish financials can easily get covenant-lite leveraged loans from the gigantic private credit market, for well under LIBOR + 1000 basis points. The current yield-to-maturity on the leveraged load index is 5.64%[1].
3X in 7 years implies a yield-to-maturity of 17%. Why would any company pay more than three times the cost of capital they can get from much larger, more liquid, and established Wall Street financing?
Wordpress > Ghost. Its 2020 and ghost does not support a table, as in normal table copy-pasted from excell. Or audio. Or a gif, or comments. Sure you can host them elsewhere, but how many secondary services am I meant to use for a personal blog? As i get older, I seem to be growing respect for legacy software: if people are still using it after 30 years, it probably got something right.
Ghost supports tables via markdown. You can embed SoundCloud and YouTube natively for audio.
Embedding third party services may go against the values of some Richard Stallman types, for me however it enables me to host behind cloudflare with a $5 a month digital ocean droplet and not have to worry about getting hugged to death. I can live with the tradeoff.
As a founder of a bootstrapped & profitable company, I don't really get what's so attractive about this funding model. It seems like it's just a really, really, really expensive loan. They make it sound nice with their anti-VC, pro-founder marketing angle. But at the end of the day, they are charging you 3x what you're borrowing.
I agree. This isn't quite an apples-to-apples comparison. But middle-market companies with okay-ish financials can easily get covenant-lite leveraged loans from the gigantic private credit market, for well under LIBOR + 1000 basis points. The current yield-to-maturity on the leveraged load index is 5.64%[1]. 3X in 7 years implies a yield-to-maturity of 17%. Why would any company pay more than three times the cost of…
I would guess they would tell you "because it isn't personally guaranteed", which absolves you as an individual of financial risk.
Personally I'd be really excited to see better loans being offered to startups, but this isn't it.
EDIT: Also you're assuming a 7 year payback period, and I would guess it's a lot shorter than that for the average indie VC customer.
Wordpress > Ghost. Its 2020 and ghost does not support a table, as in normal table copy-pasted from excell. Or audio. Or a gif, or comments. Sure you can host them elsewhere, but how many secondary services am I meant to use for a personal blog? As i get older, I seem to be growing respect for legacy software: if people are still using it after 30 years, it probably got something right.
Ghost supports tables via markdown. You can embed SoundCloud and YouTube natively for audio. As for gifs and comments here's a link to my ghost blog with a gif as well as comments(disqus) https://thoughts.willcipriano.com/weird-python-tricks/ Embedding third party services may go against the values of some Richard Stallman types, for me however it enables me to host behind cloudflare with a $5 a month digital ocean d…
I stand corrected, not sure why i was under impression gifs dont work.
But as I said, it's unfortunate that comments sound and video have to be hosted externally.
In my mind , my domain is where I make the rules.
I do not want my self-hosted blog to be subject to flavour-of-the-month demonetisation, copyright and censorship of like 5 different teams. Think of youtube banning any video mentioning corvid.
In short: this author is endorsing a funding model focused on low initial investment and faster profitability. The benefits key benefits are that this funding model results in more women and minorities getting funding, as well as higher rate of companies surviving (10% vs. 44% [1]). The former is good, but probably isn't sufficient to motivate most investors. The latter doesn't necessarily translate into better retur…
But isn't it a scale problem? If you happen to have Softbank-sized cash heaps to administrate and you try to invest them by the single million in almost bootstrapped companies you will inevitably become a handout machine. You can't industrialize investment decisions without exposing exploitable patterns and they will be exploited. Survival rate won't stay at .44 for long once people learn how to push your buttons. Unicorn-scale investments are far from immune to exploitation as well (what happened to Wework anyways?), but at least they can't hide in the masses.
"In short: this author is endorsing a funding model focused on low initial investment and faster profitability." -> so basically, Canadian "venture" capital. They don't even want to talk to you unless profitability is there or within a few months. So, basically, it distills to a barely riskier than usual bank loan, except you pay the loan with equity.
A cause or symptom (I'm not sure about causality here) is that the Business Development Bank of Canada (BDC) directly funds most private Canadian VCs. VCs now have public money as part of their LP base, with some strings attached. Most of these strings (eg. don't waste taxpayer money doing anything unethical or overly negligent) will nudge VCs to be more conservative. Plus, the VCs are guaranteed 20%+ of their 2% car…
Purely anecdotal, but having lived in Canada for 5+ years now, I'd definitely say Canadians tend to be more averse to risk.
This is probably silly but I have often wondered why you don't get straightforward loans in Software. If I were to open a restaurant I would hardly go for a VC. Do banks have something against software businesses ? Are there software companies that have bootstrapped themselves with loans (not friend/family loans) as opposed to VC ?
If your startup fails then you software is harder to value. If the bank have ovens at least they can resell them. If you have a piece of software it's much harder to value or sell.
Interesting, in that sense software is like making an art piece where value is uncertain. That definitely opens a viable case for public funded software. Plenty of movies are produced with the help of Govt for example.
In short: this author is endorsing a funding model focused on low initial investment and faster profitability. The benefits key benefits are that this funding model results in more women and minorities getting funding, as well as higher rate of companies surviving (10% vs. 44% [1]). The former is good, but probably isn't sufficient to motivate most investors. The latter doesn't necessarily translate into better retur…
But isn't it a scale problem? If you happen to have Softbank-sized cash heaps to administrate and you try to invest them by the single million in almost bootstrapped companies you will inevitably become a handout machine. You can't industrialize investment decisions without exposing exploitable patterns and they will be exploited. Survival rate won't stay at .44 for long once people learn how to push your buttons. Un…
Planetary scale finance is FUBAR literally everything; all of civilization, resource allocation, etc needs to be rethought (re-evolved) for a world that is post light-speed communication. Power is now liquid and can be transferred from any random node in the human mesh to any other node instantly. Robinhood bailing out Hertz, Trump, Startup Not-Bubble, all the same root cause and it's barely getting started.
VC without huge ROI expectations doesn't work. Like the actual economics don't work. I don't really understand the point of any of this. VCs need massive outsized returns because 99% of the companies they invest in will return $0 to the fund. You need that one company that returns the entire fund (ex: $500m) + some percentage. Also, from the article "And founders can even buy back the stakes (ranging between 10% and…
Another part of VC economics to understand is to look at Uber. Total disaster, right? Softbank and retail investors got totally screwed by the IPO due to questionable economic assertions made by Uber. But the angel and early series investors, circa 2011? Still made out like bandits. An IPO price of $72, when you paid pennies per share, times several hundred thousand shares equals a cool $10mm, easy. Perhaps not as mu…
> Total disaster, right? Softbank and retail investors got totally screwed by the IPO due to questionable economic assertions made by Uber.
I wouldn’t call making a bad bet getting screwed. There was no fraudulent numbers I am aware of.