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 those end states and what it realistically will take to get to them, don’t raise money from VCs.
But, having done so and been successful and taken a company public, I can say: it’s pretty great and I have zero regrets about anyone we raised money from. And I’m proud that everyone who invested in us prior to going public made at least a 10x return.
While there are plenty of VC horror stories, there are fairytales as well.
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 deservedly so, but if you're at a point prior to raising 'what if we IPO?' probably isn't a very useful question.
I wish we could stay away from generalities. There is no one size fits all answer to questions like "should I take funding?". The answer depends on your goals and where you are competing.
If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding.
If you want full control over your product or are operating in a niche and think the explosive growth necessary will hinder you, you have different priorities. You might not be trying to make the next "big thing" and in this case probably don't take funding. In fact, you probably don't want VC funding because your goals don't align with theirs.
Like most difficult questions, the answer is: it depends.
With all due respect, your company is probably one of the biggest and most successful mass surveillance operations on earth. I wouldnt lose sleep over these things too if I knew my company would be scooped up by a 3 letter agency if anything were to happen that threatens this flow of data.
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.
I think it is mostly based on one's POV. From the founders perspective starting a company, raising capitol and eventually taking it public might be taken as a wildly successful path. To an employee all it means it more and more dehumanization, destroying the company as a work place.
I'd add a caveat here: you guys were a Harvard founding team w prior experience and connections though...
Just like everything else, the real approach to this is nuanced. It's important to highlight that as many fundraisers are operating under misguided thinking on this topic.
Customers of VC-funded companies take note: none of these outcomes are good for you.
When you have a choice between being a long-term customer of a VC-funded company vs a self-funded business, think about long-term incentives and don't follow the rich and shiny.
Disclaimer: I run a self-funded SaaS business and sometimes explain why I never wanted VC funding and why a LARGE BUSINESS is not necessarily better for customers.
The article has a lot of interesting points, but seems to miss out on one of the main reasons (IMO) that startups take funding, which is to grow faster than (or as fast as) their competition.
Unless you're lucky enough to be in a market segment without competition, you need to keep an eye on what your competitors are up to. If they can expand faster, add features faster and get more customers than you, it damages your chance of success in that market segment.
Taking VC money could provide that velosity.
That said ofc I do agree that, if your goal is to run a profitable business for a long time, taking VC cash is quite possibly a bad idea, depends on what the founders goals are.
I recognize there must be good VCs around, but so much of what you see looks really like a kid's game to me. So many douchy people with the same cliche advice acting like they're visionaries. And a certain kind of "lifestyle" "founder" fawning all over them. Starting a company has been commoditized and turned into an internship for smart kids. I know it's not all like this but for anyone seriously interested in doing something different, the whole scene comes off as very unappealing.
It's an availability bias. You're noticing the worst founders and VCs, because the worst of them work to be noticed (some good ones, too, but all the worst ones). But as long as you understand the modality, it's also fallacious to write off a whole financing model just because its douchiest practitioners rub you the wrong way. Remember Sturgeon's Law!
I think it falls into a few categories: and you can _feel_ the difference. There is type one: the company just going through the motions because they're just the NPC that feels "oh I now its time to 'do' VC because that's what everyone does"
Then another type: some of the deep tech startups full of super smart people, even publishing papers, and are usually backed by one or more major institutions (universities, companies, etc.) you can literally feel the passion pouring out of their employees
Then even still there is a third but very rare type: that startup that bootstrapped itself to profitability without any VC at all! (IMO most impressive and difficult)
VCs want to feel good about investing in innovative and exciting startups that will give them massive returns, and the free market responds with founders who meet their emotional needs by selling personalities that are quirked up and coked out with just a hint of sociopathy. Truly a virtuous cycle.
On the other hand, my first self-funded startup got destroyed by a VC funded venture. They had a worse product but far better marketing and they used every dirty trick in book to tarnish my company’s reputation.
There is no way I’ll start another startup unless I receive backing from a huge VC company.
Current economic paradigm is more similar to centralised/controlled economies of USSR. Thus if you want to succeed, you will need friends with connections to central banks.
Having co-founded multiple companies and been an early or the first employee at several more, several of which have taken VC funding, this feel unnuanced. Of the VC funded companies I've been involved with I think only one would've happened at all without VC funding because they'd have been too capital intensive. For the one that we could've done without a VC, I do somewhat regret taking VC money, as we ended up pushed by investors into selling off a part of the business that could've been a nice lifestyle business, but it's not at all a given it'd have grown enough without taking investment to be worth it.
I've bootstrapped businesses too, and it's an arduous process and often far slower. If you're successful you're then lucky enough to be fully in the drivers seat, and that's great. If you're not, chances are you've wasted far more time.
Overall it boils down to what do you want? VC accelerates the the whole process, and multiplies outcomes - both risks and rewards. If you feel comfortable with taking a higher risk for a chance at either making it big fast or failing fast, then VC investment can be great. If your idea is your baby or your life's mission and it's what you want to keep doing whether or not it's a runaway success, VC might be a poor fit for you unless you happen to strike it lucky very quickly and can dictate terms - control can slip away very fast if things go in the wrong direction or too slow.
I'm far less likely to take VC money if I were to start something today largely because I've got enough money that it'd take far better terms to make it feel worth it, but I don't regret taking investment in the past other than maybe that single one I mentioned.
Only take rocket fuel (VC funding) if you've got a rocket (PMF in a massive TAM with net revenue retention)
If you don't have a rocket, the rocket fuel will be wasted and disappointing in any other vehicle. Ideally you bootstrap until it's clear. But if you start the company with VC funding, you should know the expectation.
If you truly have a rocket the economics of VC funding is favorable for everyone.
> 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 consequence, once you’ve taken VC funding, is that the objective of your company has changed: You’re no longer building your company the way you like it. You’re building your and the VCs company so that they can sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re building to sell.
Why? Why do you have to respect the VCs' desires? Why can't you take VC funding, then use it to build a company that yields modest returns and live a comfortable life running it (and paying modest dividends to the VCs that over a few years return their investment)? Doing so would (I presume) not constitute any kind of breach of fiduciary duty, so what right can the VCs possibly have to enforce their preference for a more aggressive strategy?
People commenting on startups often imply - like in the quote above - that VC investors ultimately control any business they invest in, and not the founding CEO, even when that founding CEO holds the majority of the voting stock. This strikes me as bullshit. At least, nobody ever spells out the mechanism of control, and their inability to do so makes me think they don't know what they're talking about.
If I'm right that the narrative of VC control is bullshit, then what's the alternative explanation for why CEOs so often choose to pursue aggressive growth and sell their "babies"? Simple: the CEOs themselves want big money. It's not that the evil VCs are forcing the CEOs to do something they'd rather not do. It's that the VCs and CEOs are aligned in their objectives in the first place.
VC bubble was a side effect of 0% rates and free money for 15+ years, no? High interest rates are making that impossible for the foreseeable future. I think nntaleb puts it right about this new era where "it doesn't rain money anymore" for revenue-less companies and real estate
I think the biggest stain that was left from this era is that it mixed the millionaires made from cash flow with the millionaires made from empty valuations, and now the two are inseparable
This article is technically correct about a lot of things, but it also feels like it’s over-thinking things. Yes if you take big VC investments, the purpose is to grow a big company and sell it later, and at that point the deal really is “rocket ship or bust.” But there are also a lot of VCs who are happy to invest small amounts very early, don’t get control of the company, and would be happy to see you get profitable without taking any more investment — often these smallest investors are called “angels” but there are also firms that specialize in these kinds of investment.
It’s fine for the author to be all high and mighty about looking down on taking funding, but for most people bootstrapping isn’t practical or even possible, the business they want to run requires full-time focus and attention, and they don’t have the means to work for 2+ years without a paycheck. VC funding gives people like that a chance to try!
I didn't like most of this post but did feel like the "Second Order Effects", for the most part, ring true.
The only thing I can comment on here with any authority is the consult-to-product model, which I've attempted a bunch of times. It is drastically harder than this post makes it seem to pivot from a viable consulting business to a product; it's notoriously difficult, consultancies are constantly trying to do it (it's the dream!), and very few of them succeed.
That's not to say you shouldn't do a consulting company! They can be great. If you are comfortable with the idea of settling into a long-term consultancy if the product doesn't work out, it's a good way to hedge. Most products fail too! But consultancies (as opposed to products bootstrapped by consultancies) are probably a lot safer to build.
> You confess that you as a founder were still not able to make the company profitable with the resources you currently had. You’re bleeding money, and you need more.
For a lot of companies this is true, but tons of business models require economies of scale to be profitable and there's nothing wrong with that. It's not a failure to say that a company can't be profitable at a small scale.
The real issues are the plethora of companies where the unit economics will never make sense regardless of scale. Painting VC money with such a large brush is unhelpful.
> VC Funding Means You Will Sell Your Company
I think this is the more serious critique. Your VC investor wants you to make an exit, either through IPO or acquisition. This is the VC business model. A steadily growing profitable business will almost never provide the kind of return neccesary to compensate the risk of a VC firm.
The writer is not an entrepreneur (according to his bio), and didn't back his "analysis" with any form of data (beyond some anecdotal telltales) — yet his conclusion is stated without any sliver of doubt: "it *will* destroy your company"!
I think the conclusion is justifiable, but it relies on the author's definition of "destroy".
"If you want to run a company that looks like X, then taking VC money will prevent that from happening" is a pretty easy conclusion to make, though the only value in it is in the description of potentially surprising parts of what not-X looks like, to allow readers to judge whether they care.
VC money is the rocket fuel. If you're not going to build a rocket, then don't take resources. There are plenty of tech startups generating over $100 million in revenue that didn't require that fuel.
Similar advice from Mark Cuban: "If you think that raising capital is the best way to get your business off the ground, you’re wrong, according to Mark Cuban.
You should actually do the complete opposite, the billionaire entrepreneur said during a panel at SXSW last month, and opt to start a business “with as little money as possible.”
VCs are not all created equal. Some are better than others. Some like to stick to a company’s vision unless things are clearly not working while others don’t care and will make you flail around. Some understand and specialize in a given market and others just throw spaghetti at the wall. Some are decent people and some are assholes.
Terms matter a lot too. If you raise a ton or raise on a super high multiple you will have to show cocaine growth to make that make sense. If you raise sanely the expectations are going to be more sane. (Lots of companies raised overstuffed rounds in 2021 to 2022 at batshit multiples. Expect some carnage soon.)
That being said it does put you on a certain track. If you don’t have something that can show VC scale growth, you shouldn’t take VC money. As with all other things know what you are getting into.
Right now I would consider VC for B2B but not B2C. There are no VC scale B2C business models right now that do not involve exploiting people. B2B can be done in much more above board ways because businesses will just pay for things directly. You will have to build a sales org though.
> you’ll also have the non-obvious effect that you hire people who are not perfect fits for your team.
That's only if "you" are not a smart manager. You hire some 'B' players, and they in turn hire 'C' players. An 'A' player will hire other 'A' players.
The article assumes that your business is already there and running. Many VC-funded startups only really get started when they have enough backing to do it. Hiring really good engineers and marketers takes some money (although less than it did back in the day).
He's right, though, that bootstrapping is cool and worth trying. It forces you to think about profitability right from the start, instead of all those BS metrics he decries.
A fun puzzle: if today you take $10m of VC funding at a $20m post-money valuation (ie you sold 50% your company), how much will you get if you sell the company for $20m tomorrow?
Answer: typically, you’ll walk away with $5m (25%) or less. VC funds usually have a 1x preference, which means the get their $10m back (plus interest), and THEN they split the remaining proceeds with you 50-50%.
So if you take VC money, you might have to double your valuation just to keep your take-home value the same.
VC makes sense if you can grow fast and very large. But assuming you have scenarios to grow slower or to a smaller size, those scenarios often turn into bad ones if you’ve taken VC funding.
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 food has a certain face value, future employees most likely won't be pure idealists who will take a lower pay out of the satisfaction that their work helped others who "don't have a lot of money".
The term “VC” has been colloquially generalised to the point of uselessness. I’ve seen straight-faced professionals use it to describe angels, growth investors in public companies and lenders.
Broad rule of thumb in finance is to understand how the people giving you money make money. Traditional VC is high-risk / high-reward. If that’s not your strategy, don’t take VC. OP seems to be describing small businesses. These frequently do need to raise capital to get going, and they do it through banks and the SBA. (That market entirely dwarfs traditional VC.)
> Companies which receive VC funding are not profitable.
This is absolutely false. Company may be at a stage where they are profitable, but lack the capital to establish themselves as undisputed market leader before competition catch up.
Banks only allow you to leverage so far, thus VC makes the most sense for truly scaling globally.
I'll skip all the other things in the article, but there are plenty truism like this to watch out.
Also it tries so hard to not be just an opinion piece, drawing for own experience, but sample size and none of the other details are never mentioned again.
[+] [-] eastdakota|2 years ago|reply
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 those end states and what it realistically will take to get to them, don’t raise money from VCs.
But, having done so and been successful and taken a company public, I can say: it’s pretty great and I have zero regrets about anyone we raised money from. And I’m proud that everyone who invested in us prior to going public made at least a 10x return.
While there are plenty of VC horror stories, there are fairytales as well.
[+] [-] onion2k|2 years ago|reply
[+] [-] metadat|2 years ago|reply
https://www.wired.com/story/lee-holloway-devastating-decline...
[+] [-] mattbuilds|2 years ago|reply
If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding.
If you want full control over your product or are operating in a niche and think the explosive growth necessary will hinder you, you have different priorities. You might not be trying to make the next "big thing" and in this case probably don't take funding. In fact, you probably don't want VC funding because your goals don't align with theirs.
Like most difficult questions, the answer is: it depends.
[+] [-] blibble|2 years ago|reply
has cloudflare ever had a profitable quarter?
I could give away my investor's $10 bills all day too
[+] [-] dabeeeenster|2 years ago|reply
What's the ratio, though??? 10/1? 20/1? 50/1?
[+] [-] Qwertious|2 years ago|reply
[+] [-] no_time|2 years ago|reply
[+] [-] Kye|2 years ago|reply
[+] [-] jrm4|2 years ago|reply
[+] [-] j45|2 years ago|reply
Superior tech, maybe hyper efficient, hyper profitable.
[+] [-] noobermin|2 years ago|reply
[+] [-] eikenberry|2 years ago|reply
[+] [-] bawolff|2 years ago|reply
Maybe those strings line up with what you want anyways, which is great. If they don't, don't take the money.
[+] [-] arpowers|2 years ago|reply
Just like everything else, the real approach to this is nuanced. It's important to highlight that as many fundraisers are operating under misguided thinking on this topic.
[+] [-] youngtaff|2 years ago|reply
[+] [-] jwr|2 years ago|reply
When you have a choice between being a long-term customer of a VC-funded company vs a self-funded business, think about long-term incentives and don't follow the rich and shiny.
Disclaimer: I run a self-funded SaaS business and sometimes explain why I never wanted VC funding and why a LARGE BUSINESS is not necessarily better for customers.
[+] [-] sumeno|2 years ago|reply
[+] [-] valyala|2 years ago|reply
[+] [-] epolanski|2 years ago|reply
You're still unprofitable after 13 years though, aren't you? Growth is prompted by skyrocketing sales costs.
Does any VC funded company ever ends up not losing money?
[+] [-] floomk|2 years ago|reply
[+] [-] JodieLeal|2 years ago|reply
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[+] [-] Scottwilliams|2 years ago|reply
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[+] [-] jaboutboul|2 years ago|reply
[+] [-] raesene9|2 years ago|reply
Unless you're lucky enough to be in a market segment without competition, you need to keep an eye on what your competitors are up to. If they can expand faster, add features faster and get more customers than you, it damages your chance of success in that market segment.
Taking VC money could provide that velosity.
That said ofc I do agree that, if your goal is to run a profitable business for a long time, taking VC cash is quite possibly a bad idea, depends on what the founders goals are.
[+] [-] version_five|2 years ago|reply
[+] [-] tptacek|2 years ago|reply
[+] [-] fullstackchris|2 years ago|reply
Then another type: some of the deep tech startups full of super smart people, even publishing papers, and are usually backed by one or more major institutions (universities, companies, etc.) you can literally feel the passion pouring out of their employees
Then even still there is a third but very rare type: that startup that bootstrapped itself to profitability without any VC at all! (IMO most impressive and difficult)
[+] [-] mafuyu|2 years ago|reply
[+] [-] freediverx|2 years ago|reply
[+] [-] DethNinja|2 years ago|reply
There is no way I’ll start another startup unless I receive backing from a huge VC company.
Current economic paradigm is more similar to centralised/controlled economies of USSR. Thus if you want to succeed, you will need friends with connections to central banks.
[+] [-] vidarh|2 years ago|reply
I've bootstrapped businesses too, and it's an arduous process and often far slower. If you're successful you're then lucky enough to be fully in the drivers seat, and that's great. If you're not, chances are you've wasted far more time.
Overall it boils down to what do you want? VC accelerates the the whole process, and multiplies outcomes - both risks and rewards. If you feel comfortable with taking a higher risk for a chance at either making it big fast or failing fast, then VC investment can be great. If your idea is your baby or your life's mission and it's what you want to keep doing whether or not it's a runaway success, VC might be a poor fit for you unless you happen to strike it lucky very quickly and can dictate terms - control can slip away very fast if things go in the wrong direction or too slow.
I'm far less likely to take VC money if I were to start something today largely because I've got enough money that it'd take far better terms to make it feel worth it, but I don't regret taking investment in the past other than maybe that single one I mentioned.
[+] [-] sf4lifer|2 years ago|reply
If you don't have a rocket, the rocket fuel will be wasted and disappointing in any other vehicle. Ideally you bootstrap until it's clear. But if you start the company with VC funding, you should know the expectation.
If you truly have a rocket the economics of VC funding is favorable for everyone.
[+] [-] XCabbage|2 years ago|reply
> 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 consequence, once you’ve taken VC funding, is that the objective of your company has changed: You’re no longer building your company the way you like it. You’re building your and the VCs company so that they can sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re building to sell.
Why? Why do you have to respect the VCs' desires? Why can't you take VC funding, then use it to build a company that yields modest returns and live a comfortable life running it (and paying modest dividends to the VCs that over a few years return their investment)? Doing so would (I presume) not constitute any kind of breach of fiduciary duty, so what right can the VCs possibly have to enforce their preference for a more aggressive strategy?
People commenting on startups often imply - like in the quote above - that VC investors ultimately control any business they invest in, and not the founding CEO, even when that founding CEO holds the majority of the voting stock. This strikes me as bullshit. At least, nobody ever spells out the mechanism of control, and their inability to do so makes me think they don't know what they're talking about.
If I'm right that the narrative of VC control is bullshit, then what's the alternative explanation for why CEOs so often choose to pursue aggressive growth and sell their "babies"? Simple: the CEOs themselves want big money. It's not that the evil VCs are forcing the CEOs to do something they'd rather not do. It's that the VCs and CEOs are aligned in their objectives in the first place.
[+] [-] seydor|2 years ago|reply
https://www.youtube.com/watch?v=fhuSM8JTSpU
I think the biggest stain that was left from this era is that it mixed the millionaires made from cash flow with the millionaires made from empty valuations, and now the two are inseparable
[+] [-] burlesona|2 years ago|reply
It’s fine for the author to be all high and mighty about looking down on taking funding, but for most people bootstrapping isn’t practical or even possible, the business they want to run requires full-time focus and attention, and they don’t have the means to work for 2+ years without a paycheck. VC funding gives people like that a chance to try!
[+] [-] tptacek|2 years ago|reply
The only thing I can comment on here with any authority is the consult-to-product model, which I've attempted a bunch of times. It is drastically harder than this post makes it seem to pivot from a viable consulting business to a product; it's notoriously difficult, consultancies are constantly trying to do it (it's the dream!), and very few of them succeed.
That's not to say you shouldn't do a consulting company! They can be great. If you are comfortable with the idea of settling into a long-term consultancy if the product doesn't work out, it's a good way to hedge. Most products fail too! But consultancies (as opposed to products bootstrapped by consultancies) are probably a lot safer to build.
[+] [-] liorben-david|2 years ago|reply
For a lot of companies this is true, but tons of business models require economies of scale to be profitable and there's nothing wrong with that. It's not a failure to say that a company can't be profitable at a small scale.
The real issues are the plethora of companies where the unit economics will never make sense regardless of scale. Painting VC money with such a large brush is unhelpful.
> VC Funding Means You Will Sell Your Company
I think this is the more serious critique. Your VC investor wants you to make an exit, either through IPO or acquisition. This is the VC business model. A steadily growing profitable business will almost never provide the kind of return neccesary to compensate the risk of a VC firm.
If that's something you're okay with, great.
[+] [-] ahmedfromtunis|2 years ago|reply
[+] [-] sfink|2 years ago|reply
"If you want to run a company that looks like X, then taking VC money will prevent that from happening" is a pretty easy conclusion to make, though the only value in it is in the description of potentially surprising parts of what not-X looks like, to allow readers to judge whether they care.
[+] [-] allenleee|2 years ago|reply
[+] [-] klysm|2 years ago|reply
[+] [-] nvrgngvup|2 years ago|reply
[deleted]
[+] [-] breadwinner|2 years ago|reply
You should actually do the complete opposite, the billionaire entrepreneur said during a panel at SXSW last month, and opt to start a business “with as little money as possible.”
https://www.cnbc.com/2023/04/09/mark-cuban-best-way-to-start...
[+] [-] api|2 years ago|reply
Terms matter a lot too. If you raise a ton or raise on a super high multiple you will have to show cocaine growth to make that make sense. If you raise sanely the expectations are going to be more sane. (Lots of companies raised overstuffed rounds in 2021 to 2022 at batshit multiples. Expect some carnage soon.)
That being said it does put you on a certain track. If you don’t have something that can show VC scale growth, you shouldn’t take VC money. As with all other things know what you are getting into.
Right now I would consider VC for B2B but not B2C. There are no VC scale B2C business models right now that do not involve exploiting people. B2B can be done in much more above board ways because businesses will just pay for things directly. You will have to build a sales org though.
[+] [-] AlbertCory|2 years ago|reply
That's only if "you" are not a smart manager. You hire some 'B' players, and they in turn hire 'C' players. An 'A' player will hire other 'A' players.
The article assumes that your business is already there and running. Many VC-funded startups only really get started when they have enough backing to do it. Hiring really good engineers and marketers takes some money (although less than it did back in the day).
He's right, though, that bootstrapping is cool and worth trying. It forces you to think about profitability right from the start, instead of all those BS metrics he decries.
[+] [-] seraphsf|2 years ago|reply
Answer: typically, you’ll walk away with $5m (25%) or less. VC funds usually have a 1x preference, which means the get their $10m back (plus interest), and THEN they split the remaining proceeds with you 50-50%.
So if you take VC money, you might have to double your valuation just to keep your take-home value the same.
VC makes sense if you can grow fast and very large. But assuming you have scenarios to grow slower or to a smaller size, those scenarios often turn into bad ones if you’ve taken VC funding.
[+] [-] DeathArrow|2 years ago|reply
>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 food has a certain face value, future employees most likely won't be pure idealists who will take a lower pay out of the satisfaction that their work helped others who "don't have a lot of money".
[+] [-] JumpCrisscross|2 years ago|reply
Broad rule of thumb in finance is to understand how the people giving you money make money. Traditional VC is high-risk / high-reward. If that’s not your strategy, don’t take VC. OP seems to be describing small businesses. These frequently do need to raise capital to get going, and they do it through banks and the SBA. (That market entirely dwarfs traditional VC.)
[+] [-] avereveard|2 years ago|reply
This is absolutely false. Company may be at a stage where they are profitable, but lack the capital to establish themselves as undisputed market leader before competition catch up.
Banks only allow you to leverage so far, thus VC makes the most sense for truly scaling globally.
I'll skip all the other things in the article, but there are plenty truism like this to watch out.
Also it tries so hard to not be just an opinion piece, drawing for own experience, but sample size and none of the other details are never mentioned again.