
Why a Venture Capital Bubble Is Good for Bootstrapped Entrepreneurs - joshuacc
http://danshipper.com/why-a-venture-capital-bubble-is-good-for-boot
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carsongross
Not explicitly mentioned in the article: VC bubbles redirect resources toward
flat-out bad ideas (to the point that they brag about how few of their ideas
pan out) which sends otherwise competent human capital off on fools errands.
So your smarter competition is off building pintrest-for-cats or navel gazing
at one of the over-funded tech giants.

The bootstrapper doesn't have that luxury: the idea is singular, it has to
work. Therefore he or she must get to cashflow quickly, or adopt a secondary
business to self-fund the idea. Either way, it isn't Other People's Money,
which concentrates the mind.

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jpdoctor
Nice article, but I was amused by this:

> _If it takes too long to turn a profit, as a bootstrapped company you're
> dead in the water._

I love how it's now an assumption that VC-funded companies will not be
profitable until they're flipped. That's a relatively recent invention, for
those that weren't around before the internet bubble.

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herval
Given this phrase alone, it only states that bootstrapped companies have to
profit FASTER - which is true, anyway...

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dkrich
I tend to disagree with the logic here. I think another way to frame this is
that companies that don't NEED VC money (I emphasize NEED because we all know
there are a lot of companies of late that aggressively go after VC dollars
without any real plan for how it is to be spent) are going after a space in
which it is probably extraordinarily difficult to build a $100k business, let
alone a $50MM business. No matter what, if you don't need a huge amount of
money to start, the initial barriers to entry in monetary terms are low. It is
certainly not impossible to build a sizable business out of complete obscurity
without investment (because money is just one barrier to entry), it is just
extremely difficult to do.

If it is easy to build, there will be an enormous amount of competition until
the ability to make any money is squeezed out. If it is extremely difficult to
build, your competition will be very limited.

So I actually believe the exact opposite is true- the more investment money
you NEED, the less competition you're going to face. It may be tempting to
think that if you just go after a very small, niche market, you can corner it
really easily because everyone else will ignore it in favor of larger
opportunities, but that's just not realistic. Again, not saying there is
anything wrong with this approach (I believe bootstrapping is better than
trying to get overly aggressive early on in your career), but very few
businesses are easily built and sustained for a long period of time.

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rdl
So VCs bidding up the prices on everything every startup needs (founders,
early employees, later stage employees, offices, etc.) is good for
bootstrapped companies how, exactly?

The only way VC funding helps bootstrapped companies is if the bootstrapped
companies are selling to VC funded startups (developer tools, for instance),
or if the VC funded companies build infrastructure (great platforms, network
infrastructure, etc.) which helps the bootstrapped companies serve other
customers in a capital efficient way. Otherwise, it's just more competition,
either for factors of production or customers, and not really a good thing.

There are some industry segments where being bootstrapped makes a lot of sense
(consultancies), others where it makes no sense (huge fiber rollouts), and
some where both strategies can coexist.

Also, you should be aware of the differences between fully bootstrapped, angel
or seed funded (directly to profitability, but with "real" investors), and
traditional VC funded. There are a lot of cases where people talk about
bootstrapping but really mean using angel or seed funding until deciding later
about VC funding for the business.

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verelo
Some truth to this but i dont know i agree with everything.

We're a bootstrapped company too. Very small, just getting our product in good
shape for prime time and getting feedback from customers on what it will take
to convert them from free to paying customers.

Funding for us would save a lot of headaches, give us the ability to spend
some money on UI and accelerate our dev cycles...but i'm sure it'll also
create just as many.

The truth i see in this is where he talks about VC funded companies having
high expectations. As a bootstrapped company you can target a very small
niche, as someone with a significant amount of funding...you do need to have a
little broader horizon...but is that so bad? Maybe not after the first 6-12
months.

Personally i think funding is all about timing. Don't take it when you need
it, take it when you want it...

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whenisayUH
Sorry but I'm not clear on the point of this.

Is it that VC-backed companies cannot pursue smaller markets and so there are
nice size opportunities left for bootstrapped startups?

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dshipper
Exactly. And it's not just that there are nice size opportunities left, it's
that it's easier to succeed as a bootstrapper with a lot of people funded
because there's less competition in the spaces that bootstrappers generally
play in.

~~~
marquis
An added benefit of targeting a sub-section of the market is that these big
companies are doing the awareness marketing for you.

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krausejj
i love the airtime for email idea. you should raise a round and get some sales
guys to push it!

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shingen
I'm skeptical if this guy understands what he's talking about.

He says he doesn't have to build a billion dollar company, he can just build a
$50 million dollar company and go home happy. It's probably time for a massive
reality check, because that's not a good way to assess your bootstrapped
context.

I don't know who Dan Shipper is, but I'm hoping he's 19 or 23 years old and
just getting started in business.

edit: I'm happy to find out he is in fact that young. Good for him, I remember
being that naive at his age. He'll learn a lot from doing Airtime no doubt.

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dshipper
Hey shingen, saying that I didn't want to build a billion dollar company and
instead want to build a $50 million dollar one is more of a tongue in cheek
way of saying that as a bootstrapper I can pursue opportunities with a smaller
addressable market.

Sorry if I came off as young and inexperienced, I am actually 20. I'd love to
know if you still think what I'm saying doesn't hold water and more about why.
Thanks for the comment

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shingen
The gist was fine - the notion of the advantages in not taking serious VC
backing.

My concern in reading the post was how you're gauging opportunity, scale, and
competition. The $50 million remark in particular threw me.

In my experience and opinion, while legally you may have no other employees or
investors right now, you'll benefit from assessing your business as a founder,
an investor (your time or money put in), and an employee (CEO of Airtime, LLC
or so on). You are all three in one, and I think that's an advantage if you
use it. Those perspectives will all help you shape the business and its
future. Do you have investors and employees? Yep, you and Patrick. You guys
should be the most demanding investors you'll ever deal with.

If you're pursuing an idea that can be worth $50 million (in either sales or
valuation), some sizable companies, whether venture backed or other, are going
to want to eat your lunch. The competition will absolutely be there, and it'll
be every bit as fierce at $10 to $50 million as at $1 billion.

Clearly you can target a market and not need to make much money for two years
(what that might be implying about your product or execution is another
matter). I imagine you know that you can buy one or two good servers for $250
to $500 / month, enough for a web server + database setup, plenty strong
enough to support a load of tens of thousands of users or more in almost any
segment. Financially it's very possible to keep that afloat with zero sales
for an indefinite amount of time, particularly with no kids or family to
support at 20 years of age. Sometimes products and companies go through crazy
iterations and reboots. Point being, definitely don't assume it won't take up
to two years to get consistent sales rolling in.

It's mostly regurgitated propaganda that you don't have time, the idea that
everything is moving at light speed. That's true in a very small subset of
Internet segments. There are a lot of web companies out there running $5 to
$10 million businesses that took ten years to build up from scratch.

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dshipper
I understand what you're saying and I think we actually agree on a few points.
I'm not saying that bootstrappers can target a market and not make money for
two years. In fact it's the opposite. It seems that that's the kind of idea
that's suited for VC if you can get traction in other ways (signups,
engagement etc).

To me, the kind of concept that's best fitted for bootstrapping is one that
you can build in a few days and make money with right away like a project I
did recently called DomainPolish.

I guess I should have been more careful about choosing the figures I cited,
but I really didn't mean $50 million vs a billion as hard numbers. I was
trying to say that as a bootstrapper you can target a smaller market or a
smaller problem. That's something that you can't do as a venture funded
business.

That means that all of the people who get funded early on who might ordinarily
target your small problem are off building businesses targeted at HUGE
markets. This means less competition for the bootstrapper and a greater chance
to capitalize on the market opportunity.

I definitely realize how hard it is to do this stuff and I didn't want to make
it seem like it's super easy to build a $50 million business. I'd love to
actually some time man you seem like you have a good amount of experience with
this stuff. I couldn't find your email but mine is dshipper@gmail.com. Would
love to hear from you.

