Weebly story is amazing
The Fatal Pinch
71–80 of 208 posts
Re: The Fatal Pinch
#72These days, the stakes are higher for everyone. Investors expect faster growth and want a "meaningful stake" (15%+) early on.
Meanwhile, entrepreneurs generally try to raise more too. Who doesn't want more cash if they can get it?
This is dangerous for those who don't understand these dynamics. The growth trajectory needs to align with the incoming cash. The second you raise a $3M seed round, you're on the roller coaster. You will need to show "hockey stick" growth in 12 months, and raise your A in 18. If not, you're dead.
Re: The Fatal Pinch
#73There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. So if someone starts a company that is in this category, is it just dead in the water if the founders aren't already rich/connected?
I know of a company that thought they would be in this category. They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it. That way the expectation was set from the beginning that this company might take some time to build out their product and see traction. It's smart, because the discount for the follow-on was pre-negotiated, so investors get…
They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it.
So my guess is that these founders were either already successful previously, were well connected or had already bootstrapped quite a bit of the technology that would underlie the product (ie patents, team, etc...). Any or all of that the case?
Re: The Fatal Pinch
#74Is becoming ramen-profitable before you raise your first round a possible solution to this problem?
Not really. If you're ramen-profitable and looking to raise money, that means you want to spend money to get on a path to greater profitability. On the path to greater profitability, depending on your burn rate and profit growth rate, you may still experience the "fatal pinch" even if you were previously ramen profitable.
You may be able to revert to ramen profitability again, but it will be painful (cut your burn rate).
Re: The Fatal Pinch
#75Earlier quoted context omitted.
It certainly doesn't make the strategy any sounder, but why are highly intellegent founders who have far more to lose than any investor getting caught in this pinch? This seems to be the missing question from Paul's post. Edit. Changed how to who :)
Founders aren't entitled to investor money. Investors are looking for a particular curve. The slow burn, 7-figure exit that founders want is almost useless to VCs. The model requires that the winners pay for the losers. The VC has a finite number of at-bats every year, and each one needs to potentially be an out-of-the-park home run. A company that deliberately bunts is costing the VC an opportunity to recoup their l…
>Investors are looking for a particular curve. The slow burn, 7-figure exit that founders want is almost useless to VCs. The model requires that the winners pay for the losers. The VC has a finite number of at-bats every year, and each one needs to potentially be an out-of-the-park home run. A company that deliberately bunts is costing the VC an opportunity to recoup their losses on failures, which is the majority of their portfolio.
This is the problem isn't it. Investors are basically saying unless you can hit 30% month on month growth then we aren't interested in you, but if you do what is required to hit this target then we won't give you the funding to do this with a reasonable runway.
>Safe, conservative plans are awesome. That's why companies should bootstrap.
I agree 100%. Almost all founders should avoid taking VC money and just bootstrap. This of course is not the sort of meme that is popular with VCs.
Re: The Fatal Pinch
#76This is why I hate investing in startups raising $500k or less. You won't be able to raise again unless you have significant upwards progress.
Several of my best investments have been from startups raising less than $500k. Justin.tv/Twitch returned 97x my original investment, and Weebly will likely be even more.
[deleted]
Re: The Fatal Pinch
#77There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. So if someone starts a company that is in this category, is it just dead in the water if the founders aren't already rich/connected?
I don't think so. Being rich/connected is great, but there's a third option: Show early traction. Absent other advantages, you will need to get to product-market fit pretty quickly if you want to survive.
Being rich/connected is great, but there's a third option: Show early traction.
Isn't that the point of those companies though, that you aren't seeing traction for a while? It could be that PG is making the distinction implicitly between revenue/profit and traction.
So for example twitter, FB etc... were not profitable or getting revenue well after they had already amassed millions of users. If that is the case, then we aren't learning anything new and it doesn't help people who are trying to make new, hard, breakthrough technologies.
Re: The Fatal Pinch
#78Earlier quoted context omitted.
Founders aren't entitled to investor money. Investors are looking for a particular curve. The slow burn, 7-figure exit that founders want is almost useless to VCs. The model requires that the winners pay for the losers. The VC has a finite number of at-bats every year, and each one needs to potentially be an out-of-the-park home run. A company that deliberately bunts is costing the VC an opportunity to recoup their l…
>Investors are looking for a particular curve. The slow burn, 7-figure exit that founders want is almost useless to VCs. The model requires that the winners pay for the losers. The VC has a finite number of at-bats every year, and each one needs to potentially be an out-of-the-park home run. A company that deliberately bunts is costing the VC an opportunity to recoup their losses on failures, which is the majority of…
No, founders are accepting the amount of funding VCs give them. I don't love VCs, but it's weird to blame them for this phenomenon. The VC model can't work differently. Most companies fail, and the winners have to pay for the losers.
Re: The Fatal Pinch
#79How do you keep your employees in this market if you're lowering salaries across the board?
Re: The Fatal Pinch
#80There are a handful of companies that can't reasonably expect to make money for the first year or two, because what they're building takes so long. So if someone starts a company that is in this category, is it just dead in the water if the founders aren't already rich/connected?
I know of a company that thought they would be in this category. They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it. That way the expectation was set from the beginning that this company might take some time to build out their product and see traction. It's smart, because the discount for the follow-on was pre-negotiated, so investors get…
>They ended up raising a very large seed round (1MM+) from a VC and pre-negotiating a follow-on of equal size, should they need it.
Just out of curiosity why not just raise 2MM+? What value is there in this to the investor unless they have the ability to back out of the prenogociated follow-on? It seems like an expensive way to get no peace of mind?