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The Advantage of No Funding (2011)

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Re: The Advantage of No Funding (2011)

#51

Post by horsawlarway »

mattgreenrocks wrote: post #33
horsawlarway wrote: post #17

Earlier quoted context omitted.

> Most of them force it actually This is my experience. I literally watched the VC board at a previous company get mad at my then CEO for not spending their cash quickly enough. Moreover - he was hardly the most fiscally responsible to begin with - exorbitant class A office space, expensive contractors, fully stocked kitchen and snacks, game systems and bean bag chairs in break rooms. Paying customers? Nah - not so m…

Admittedly, I don't think about these CEO-type issues much, so my opinion is not worth even two cents here, but that loss of autonomy in how to structure and run what was believed to be one's own business sounds horrible. I understand what VC funding can do, but delegating those decisions to people not completely invested in the outcome would keep me awake at night. It explains the behavior of VC-funded firms well th…

If you're interested, I think this article does a good job of laying out some of the realities of being a founder who has taken VC capital:

https://reactionwheel.net/2021/11/your-boards-of-directors-i...

Re: The Advantage of No Funding (2011)

#52

Post by micromacrofoot »

exdsq wrote: post #45
micromacrofoot wrote: post #4

Earlier quoted context omitted.

That's because VCs need an exit to make their money. They only care if the business is successful insofar that it can be sold or IPO.

Can VCs not profit share to hedge their bets to get an X multiple on their investment back too? Sure some won't be profitable but if I was to invest I'd want some way of recouping my investment back over time and then the upside of a sale/IPO.

Generally it's not something VCs are interested in. I'm not an expert so I might not be clear on the why... but as far as I know it only really makes sense to seek out an arrangement like that on smaller investments under <$1mil. Even on a small investment you'd probably be lucky to see a 2-3X return in 5 years.

Re: The Advantage of No Funding (2011)

#53

Post by frans »

truted2 wrote: post #48
frans wrote: post #40

VC's invest in 30 companies to find 1 unicorn on average. The profit on that one justifies the investment in the 29 others. Problem is that no one knows which one is going to be the hit in the pack of 30. So VC's push all ceo's to grow as fast as possible to find out as soon as possible who will succeed/fail. Great for the VC, too bad for the 29 unlucky ones. Never be the agenda of someone else, be your own agenda. I…

Since the money has already been invested they probably don’t care who succeeds/fails but they want the unicorn to give returns ASAP so they can be spent before they die.

You are probably right, but when the money first arrives in the bank you need to 'spend' it asap and may take decisions that are not in the best interest of the company (e.g. hiring to fast, spending a ton in marketing before the product is finished,...)

Re: The Advantage of No Funding (2011)

#54

Post by jlokier »

karterk wrote: post #12

My co-founder recently wrote about our deliberations on fund raising as an open source company here: https://typesense.org/blog/why-we-are-not-raising-funds/ Ultimately, there is no golden rule. One has to choose what's best for your customers and your stage of growth.

Interesting article and rationale. I was particularly struck by this, which I've seen happen but haven't understood it in these terms until now:

> We’ve seen more than a few companies raise millions of dollars in funding, go out and hire an army of people in an attempt to grow faster. However, unlike most other software products, search tech is an inherently hard thing to get right. It requires a lot of tedious R&D iterations over long periods of time and it cannot be parallelized by having X number of people working on it in parallel.

> When a large team congregates around work that cannot be parallelized, we’ve observed that new work gets created to keep everyone busy - new nice-to-have features get worked on. This ends up adding complexity to the product. New team routines are invented because there’s bandwidth available. This ends up adding communication overhead and layers between users and builders and slows down the pace of innovation. This sadly becomes a vicious cycle that dilutes the core product.

(I'd go further than "diluted" - sometimes the essentials of the core product remain broken for years because all the energy goes to managing those side features, even though they don't work properly with a broken core.)

Re: The Advantage of No Funding (2011)

#56

Post by bryans »

ilamont wrote: post #50
bryans wrote: post #42

Earlier quoted context omitted.

> Hard disagree. I certainly want to keep my customers satisfied and provide them with value, and they (along with employees and partners) are absolutely necessary to the success and continuation of the business. If your customers are only satisfied, that means you end up spending significantly more on acquisition and retention, because nobody is going to be rabidly loyal enough to your business to extol its virtues…

> And I assure you, things work exactly how he describes. If you bend over backward for them, your customers will take care of you. Do you own a real business, incorporated with real products, employees, P/L, etc.? If so, I would really like to hear your experience bending over backwards for customers and having the resulting social media and customer buzz solve everything. That's not the way things work in my admitt…

You're just being inflammatory now. Questioning whether or not I have business experience, concocting some arbitrary definition of "real" business, pretending I said social media "solves everything," and then declaring that you've got it figured out better than the whole of Seattle's population just because you have a failed business and one "ongoing" -- which doesn't exactly scream "wildly successful using my current strategy."

Toward the end of 2020 I consulted with a handful of startups. Among many topics, my primary advice was to be as genuine as possible in all situations and to become "professional thankers." Universally, the ones who took that advice saw their growth skyrocket in 2021, while the ones who didn't are still wondering why they can't get traction. And they're going to keep wondering until they figure out that the personal connection between yourself, your employees and your customers is paramount, because that's how societies work constructively and successfully.

Whereas your owner-first approach is how we end up with every major company on the planet paying virtually no taxes, and selling customer data, and sometimes even literally colluding and plotting against users' mental health and well-being, never realizing that they'd be so much more profitable and personally enriched if they would only give a damn about their fellow humans.

Re: The Advantage of No Funding (2011)

#57

Post by daibo »

karterk wrote: post #12

My co-founder recently wrote about our deliberations on fund raising as an open source company here: https://typesense.org/blog/why-we-are-not-raising-funds/ Ultimately, there is no golden rule. One has to choose what's best for your customers and your stage of growth.

There are just the two of you working on typesense right? Surely having some more people working on the core product (up to five?) should help, no? I'm also building an Algolia alternative, with three engineers including me working on the core engine, and sometimes I wish I had one or two more.

Re: The Advantage of No Funding (2011)

#58

Post by solatic »

horsawlarway wrote: post #17
tnzk wrote: post #8

Earlier quoted context omitted.

> The fact that some people who take venture funds see fit to use those funds in a vain way, doesn't mean that you're forced to use that kind of funding in a vain way. Most of them force it actually so they believe invested to the right company. The best VCs won't, not all VCs aren't though.

> Most of them force it actually This is my experience. I literally watched the VC board at a previous company get mad at my then CEO for not spending their cash quickly enough. Moreover - he was hardly the most fiscally responsible to begin with - exorbitant class A office space, expensive contractors, fully stocked kitchen and snacks, game systems and bean bag chairs in break rooms. Paying customers? Nah - not so m…

> But they wanted him to spend FASTER. "you need to adjust spending to be at around a 6 month runway - currently you're at 18. That's too high - spend more!"

1. Spending more is easy, and it doesn't require exorbitant parties or perks. You tell marketing to increase their spend by sponsoring high-end conferences and buying out street-level ad space along major thoroughfares and transit. It gets quite easy to burn seven, even eight figures this way.

2. Of course the investors want the company to have a shorter runway, and it's not even about reinvesting in the next round. It's about control. The lower the financial pressure on the company, the less power the financiers have. The higher the financial pressure on the company, the more the financiers are needed to help ensure continuity.

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