
Becoming more formidable - sethbannon
http://blog.42floors.com/becoming-more-formidable/
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7Figures2Commas
> But if you’re more of a normal case, where you could pursue profitability
> with marginally worse growth, go after the profitability; because once you
> are profitable you don’t need investors’ money. And not only will you be
> picky, you will appear picky as well. Investors will realize that they will
> have to convince you to take their money because you don’t need it.

This is silly and idealistic. Profitability in and of itself doesn't make a
company more attractive from an investment perspective. Silicon Valley angels
and institutional investors are looking for companies that are believed to be
targeting a market opportunity of a certain size, capable of achieving certain
growth, etc. Profitable companies that don't fit the profile are no more
investable than unprofitable companies that don't fit the profile.

More startups _should_ target profitability because many of them will
eventually find that they can't raise additional capital and will either have
to sustain themselves or die. They should _not_ target profitability in the
belief that it will instantly make them more attractive to investors.

~~~
saosebastiao
His point is about BATNA, and _ceterus paribus it is true_. If you are
profitable or even cash neutral, even if you are growing slowly, you are in a
better negotiating position than if you are burning cash with an end in sight.
VCs can sense your desperation, and have tons of experience calling bluffs.

~~~
7Figures2Commas
If you are "growing slowly", especially in today's market, you are going to
have a very difficult time raising capital from Silicon Valley investors.
Period.

The fundamental point you're overlooking is the fact that profitability does
not equate to leverage in a negotiation _when you are not in a negotiation_.
Thinking that you're negotiating with investors because they're talking to you
is sort of like thinking that you're pursuing a serious relationship with
someone because they allowed you to buy them a drink at the bar.

Professional investors look at a lot of deals and fund a small percentage of
them. They have a number of motivations for talking to entrepreneurs who they
have no immediate interest in backing.

~~~
saosebastiao
> If you are "growing slowly", especially in today's market, you are going to
> have a very difficult time raising capital from Silicon Valley investors.
> Period.

Bullshit. For many VCs, a startup that happens to be slowly but profitably
growing can be a complete nonstarter, but it can also be a goldmine. For
example, if the product is a slam dunk, but growth is bounded by the size of
the sales team, then VC money can turn slow growth into fast growth overnight.
This type of funding happens _all the time_ in B2B startups.

Don't believe me? When USV invested in DDG, they were the definition of a slow
growth company. Completely bootstrapped, not a cent of funding, and had taken
5 years and still wasn't at 1MM searches per day. They nearly tripled their
growth rate with the addition of funding which allowed them to hire, move out
of a basement, and start business development. They were positioned in the
right niche at the right time, and the slow growth was nothing more than a
symptom of a lack of resources rather than a lack of a viable business model.

[https://www.usv.com/posts/duck-duck-go](https://www.usv.com/posts/duck-duck-
go)

~~~
7Figures2Commas
Playing the survivorship bias game is always fun, but the devil is always in
the details:

1\. USV's investment was made in 2011. In 2014, we're at a point in the cycle
where investors are even more focused on growth.

2\. According to DDG itself[1], the inflection points in DuckDuckGo's growth
correspond to key privacy-related and distribution events. There's nothing in
DDG's growth to suggest that USV's investment itself sparked growth.

3\. DDG's founder is a successful serial entrepreneur. Entrepreneurs with a
track record can more easily raise money, even for bad ideas (see: Color).

4\. USV's investment rationale ("we invested in DuckDuckGo because we became
convinced that it was not only possible to change the basis of competition in
search, it was time to do it") is fundamentally based on the potential size of
DDG's market (search), which is one of the largest. In other words, it was a
small bet (USV only invested $3 million) on there being an emerging
opportunity to compete with Google.

I repeat: if you are "growing slowly", especially in today's market, you are
going to have a very difficult time raising capital from Silicon Valley
investors. Period.

There are a lot of entrepreneurs who believe they're the exception to the
rule, and you see a lot of companies trying to game growth metrics because
they know how important growth is to fundraising, but the vast majority of the
post-launch startups that don't have a growth story to tell are getting "no"
far more often than they're getting "yes."

[1] [https://duckduckgo.com/traffic.html](https://duckduckgo.com/traffic.html)

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rattray
I liked the piece, but "formidable" feels like the wrong word to me. This
piece is about becoming more "impressive to seed stage investors in silicon
valley", not becoming more "capable and relentless, plowing through everything
in your way", which is closer to what I think PG was talking about and what I
aspire to.

This piece does nothing to help you pass the "animal" test, in other words,
which is what the title makes it sound like.

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avifreedman
Great article...

Semi-related - who is the cartoonist? Can anyone (or Jason if following) xlate
the signature?

~~~
RickS
Theresa McCracken

[http://www.cartoonstock.com/cartoonview.asp?catref=tmcn2784](http://www.cartoonstock.com/cartoonview.asp?catref=tmcn2784)

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rokhayakebe
Can someone as experienced write "Becoming profitable."

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flbglugah
From the first paragraph:

> FlighCaster

Later:

> FlightCaster

If you can't even spell the name of your _own company_ consistently within a
self-promoting blog post like this, why should anyone give you money?

~~~
jaf12duke
My mistake--typo fixed. Thanks!

