
Consumer startups that said no to investor money - gavman
https://www.recode.net/2018/8/29/17774878/consumer-startups-business-model-native-mvmt-tuft-needle
======
acconrad
I'm not surprised. The default for starting a startup seems to be that you
need VC funding because you need to monopolize as fast as possible and having
extra cash will allow you to get there sooner than if you were to bootstrap.

What we're seeing is that growth is able to happen in spite of the frothy VC
environment, not because of it. So if it is possible, then why would you _have
to_ seek funding? If you think getting VC money is good because you should get
VC funding (or because getting some will get you press in TechCrunch) then
you're thinking about it all wrong.

You should seek VC money if you need the money (with a very serious definition
of "need"). If you don't, why would you:

* Have a boss (outside of your customers)

* Give up a board seat

* Give up control of your company (and possibly eventually a majority of that control)

If you need enough money that doing the above 3 things is less painful than
basically your business dying, then yes, you should seek funding. Actually I
want to emphasize the "less painful" part. Don't read this as "if your
business will die otherwise, seek funding."

Sometimes you _should_ let a business die. If family is important to you and
raising VC money and working even harder to keep someone else happy will
possibly end your marriage, and ending your marriage is more painful than
keeping this startup alive, you should probably let the startup die.

And that's okay!

What matters is you seek VC money for a very specific reason, and it is vital
for you and your business for the right reasons.

~~~
lilbobbytables
Do you believe it's worth taking on investors to bring in people that have
both connections and input that will be helpful for growing your product?

~~~
cardine
Get a business coach and extensively network - or just focus on product market
fit and the connections will come. I guarantee you that will be far cheaper
than the millions of dollars worth of equity you would be giving up.

I agree with the parent, raise VC money only if you absolutely need money.

~~~
Gibbon1
Notable there is a tendency for VC's to start staffing up your company with
their overpaid and under performing associates. Since you no longer have full
ownership you can't fire them either. Often those guys real job is to serve as
place holders for when the VC's push out you and your senior managers. So when
the company is acquired they are the ones that get the retention bonuses not
you.

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dcole2929
One of the things I really like about this article is the story of Tuft &
Needle. One of the biggest reasons (imo) why there are relatively few minority
founders is because of the lack of access to inter-generational wealth. If you
are poor or come from a poor background it's hard to build the requisite
capital necessary from a friends and family round because often times they
just don't have it. Now as a founder you find a way, but still it's nice
seeing a success story of a company that started with only $6k. That's money
that most engineers could save up relatively easily.

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eitally
I think it's stupid to overuse the term "startup" where it doesn't make sense.
At what point is something just a new small business? Is there an arbitrary
set of lines that differentiate between "startups" and every other new
enterprise? The vast majority of new businesses are funded solely by personal
savings, friends & family, and SBA loans.

Conflating something like a deodorant company with a pure play tech startup
just doesn't make any sense to me, especially when the intent is to analyze
and compare funding models, performance and exits. And even if you consider
new SaaS companies, there are thousands more Bingo Card Creators out there
than [insert unicorn here].

~~~
tchaffee
We could also flip that around. Startups are nothing more than small
businesses. Most will fail. A few will go on to become somewhat bigger. One
out of a million becomes a Ralph Lauren empire. What's the difference really
between a small business and a startup?

~~~
mikenyc
[http://www.paulgraham.com/growth.html](http://www.paulgraham.com/growth.html)

~~~
tchaffee
That's a good definition, and a very useful one for VCs . It's also not how
most people are using the word. It's not how dictionaries or wikipedia define
the word either. So I think we need to be a little careful and make sure
everyone agrees on whose definition we are using at the start of a
conversation.

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monksy
I think this is a great thing. The VC influence has caused product quality to
slip a lot, the customer needs to be ignored, and has focused on preferring
engineering to rush things. That's a long-term focus on undermining the
economy. (Being quick to build something, and only being quick isn't a
feature)

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adventured
I took VC for my last company. I'm choosing not to do it this time around.
What I'm working on has at least a planned ten year horizon at the outset,
hopefully it extends beyond that (the cost is so low to do it, I can stay in
it perpetually without concern, and have decided the end goal is worth it). It
requires long-term planning and thinking, there will be no exit pursued.
Venture capital is a mediocre option in that environment, they almost always
need an exit (there are some prominent angels that will stay in long-term, be
sure to filter for that upfront). Most venture capitalists will burn your
corporate house down or drive you into a wall at 120mph in the pursuit of
_their_ homerun, whereas I'm willing to eat my time in the pursuit of getting
where I want to go with it. If it takes years to get it right, that's ok. The
other reason: I won't allow liquidity preferences, VC gets to ride in the same
boat as every other share owner (or not at all). The last VC I took on met
those terms, it's very difficult to find however.

If there's one thing all start-ups should conspire to abolish, it's liquidity
preferences. Somewhere along the line, they all decided that putting their
capital at risk in exchange for a potentially large return, wasn't a good
enough arrangement. At that point they stopped being real investors and became
financial engineers looking to play the angles to remove risk from their
position and shift their risk to everyone else. You don't need venture capital
that bad, such that shooting yourself in the face is the only way to go. Just
say no.

~~~
Stryder
"At that point they stopped being real investors and became financial
engineers looking to play the angles to remove risk from their position and
shift their risk to everyone else."

Sadly this seems to be the game being played by literally every person and
their grandma these days. We need a mentality shift as a society in order to
find real innovations and growth again, or else, well we're just digging our
own graves really.

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aero-
This headline is misleading.

Native raised venture capital, it wasn't disclosed but there's plenty of PR
surrounding it.

Tuft and Needle was started by engineers that had a good bit of personal cash
saved in the bank, then later borrowed $500,000.

MVNT raised Money.

It's not like these companies didn't raise a bunch of money, they just didn't
use VC $$ supposedly.

The common denominator here is the direct to consumer model with the use of
growth hacking via social media campaigns and the rise of such social media
platforms.

I.E. Make product that people want to buy and market it efficiently on social
channels.

~~~
jtmarino
Hey there, JT, Co-founder of Tuft & Needle. To clarify, Daehee and I started
with $6k in 2012 and have raised no investments to date. We took a loan in
2016 of $500k for our SF retail store (that year our revenues were around
$40mm) but did not use it and paid it right back. To be honest, we were
wanting to learn how to leverage debt for growth but immediately decided that
it wasn't needed and didn't make sense for us at that time. We've been fully
unfunded and profitable every year.

~~~
aero-
Hey JT,

That seems incredible. I guess I just don't understand how you could custom
brand and design a physical product, find manufacturers and fulfill their
MOQ's, store all of your product and market it for $6,000. Either way, I
understand you approached this sector with a technology first mindset, and
it's been a really impressive business model.

I've approached similar D2C products in different markets using your method
but the initial costs just to get a product to market before advertising is
usually close to about 10 times higher.

~~~
jtmarino
Thx! We were definitely a special circumstance. We found a tiny mom & pop
manufacturer who had the equipment and had capacity. We negotiated 30 net
terms (this was hard to get) allowing us to fund with negative working
capital... customers buy the product, we paid mfgt 30 days later.

My co-founder and I also have engineering/design/product backgrounds so we
didn't need to hire anyone to build our initial dotcom or product. We ran it
all for the first 1.5yrs before we could afford to hire our first customer
service team member in 2014.

Marketing expense was also kept to almost zero, branded search primarily,
until around 2014.. we had to rely on word of mouth/organic. This forced us to
build in such a way to keep costs low while ratcheting up the value prop which
has translated into an efficient process we still have now. Our spend of
advertising as a % of net rev is estimated at less than half of our next
heavily funded competitor.

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ikeboy
I met the native guy recently at a conference. He's seriously one of the most
impressive stories I've ever heard - 2 years, 1 product, only sold on their
site, 100M exit, vast majority going to him. He talked about testing a ton of
variations (over 100 overall) of their product by selling batches of a couple
thousand and tracking return rate, reviews, and reorder rate. Get the best
product after extensive customer testing, get the best ads after extensive a/b
ad testing, scale up profitable ad spend.

------
edoceo
My most recent company has been built w/o outside fundimg. 10/10

Rasing money takes a lot of energy.

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steven2012
I was sad to see Tuft and Needle get acquired by Serta. I bought 3 TN
mattresses from their post here, and I love them. I vociferously recommended
them to anyone I know. I really doubt their quality will continue to be
maintained now that they are in the grips of Serta, but I guess next time I am
in the need for a mattress in about 10 years, I'll check.

~~~
jtmarino
Hey this is JT, Tuft & Needle co-founder. Firstly, thanks for all your support
and please send any feedback or thoughts any time. I'm at jt@tn.com.

Since we started Tuft & needle in 2012, we've been bootstrapped and have been
growing very fast while being profitable. We didn't view this merger as
something that we needed to do. But it was something that we knew if done
right and everything aligned with our goal of completely disrupting
(converting it to being customer focused) the mattress industry from beginning
to end, we would do it.

This wasn't a typical acquisition. Tuft & Needle combining with Serta Simmons
was a merger operationally, legally, and financially. My co-founder Daehee and
I structured the deal with Serta Simmons in such a way that we would have
maximum impact towards accelerating the transformation of the industry. Daehee
and I will be joining the executive team of the combined company, leading with
the goal of both internal and external transformation. Our team in Phoenix
will be not only be focused on growing Tuft & Needle, but also for dusting off
Serta Simmons' other brands and implementing everything that we've learned and
built to the other brands.

Regarding quality, what's really exciting for us is that through this merger
we will be able to accelerate our product, feature and service roadmaps for
Tuft & Needle. What we could do in 5 years we can now do it almost
immediately. Specifically regarding quality and pricing, this is actually best
case scenario for our customers, because we'll have access to more
efficiencies to make our value and innovations even better.

Again, thanks for your support. This is going to take a lot of time and a lot
of work. What we expected and hoped from our customers is cautious optimism
that we can then validate and prove over the coming years that this merger was
definitely the greatest step we could have taken for our customers and the
market as a whole.

------
andyidsinga
We're following a very similar philosophy of bootstrapping a set of businesses
we're working on [1].

reasons are :

1\. we want to stay flexible and put out a variety of businesses that might
not be similar except in that we're leveraging our skills to build them. From
my experience in venture funded startups - once you take funding for that
business - radically changing direction or adding unrelated businesses seems
impractical.

2\. we want to keep full control and ownership - so that if an opportunity
arises to sell the business we can do it with minimal hassle.

4\. we're skeptical of our own ability to raise vc; and worried about all that
that exercise entails - especially the potential distractions.

[1] "Yukon Data Solutions" is our first; we have a few other analytics related
businesses in the pipeline; but also, interestingly some direct to consumer
products that sort of fall into the "fashion" category.

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epynonymous
refreshing article, i have what i consider to be a potential small business,
it's not as attractive i'd assume to investors as most things these days that
have something to do with blockchain, machine-learning, self-driving cars, or
billion dollar valuations, but i think there's potential for a very nice
business that could potentially evolve into a lifestyle business and it
doesn't need hordes of employees, i've been doing everything from development
of backend services, platform, and front end mobile app, to marketing,
testing, product management all on my own. obviously having a couple more
people to help with sales and development would speed things up, but i don't
need a 50 person team at the moment.

having read this article and buffer.com's recent buyout of investors, it shows
that there are potential alternate routes to success. i can understand the
nature owner not feeling good in the beginning when everyone around him's
talking about billion dollar valuations and series a, b, c funding, but it
seems he sold for several hundred million which seems like sweet vindication.
obviously most small businesses fail and eventually need some sort of funding
whether from a small business loan or bootstrapping, etc, but it's manageable.

[https://madsportslab.com](https://madsportslab.com)

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MicahKV
I've been reading about VC and all it entails for years now, and it always
leaves me with a sketchy feeling. Pouring so much time and effort into chasing
capital, and then giving up so much ownership and being on the hook for big
returns once it's finally attained... seems like a sure way to suck the soul
out of any business.

Not saying VC doesn't have a place in the world, but I get the sense that a
lot of founders pursue VC just because that's what startups are "supposed" to
do.

~~~
Stryder
The nature of VC is to build portfolios. The success and failures of
individual companies within that portfolio matter very little- what matters a
lot more is whether the lessons learned and knowledge/IP generated can spill
over to other portfolio companies to eventually produce winner(s) somewhere.

The success of the portfolio is what matters to the firm, and the returns are
what matter to the LPs.

It is what it is, so entrepreneurs should use it for what it is. The hype over
the past decade has been ridiculous.

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andyidsinga
Related to this - there is a podcast ep on "How I built this" with the Wayfair
people. I find it very interesting that they built several businesses - and
_then_ got investment to build the Wayfair brand and bring those businesses
under that brand.

[https://www.npr.org/2018/06/07/601985854/wayfair-niraj-
shah-...](https://www.npr.org/2018/06/07/601985854/wayfair-niraj-shah-steve-
conine)

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sharemywin
I imagine the investors were happy too if they went from 500k to 20m.

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cannabisceo
If you're a consumer brand you can turn to factoring and vendor financing to
run your business. There's more options open to you.

