
VC confidence plummets, does anyone care? - iamelgringo
http://iamelgringo.blogspot.com/2008/04/if-startup-doesnt-need-vc-and-vc.html
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smoody
does anyone care? hell yes.

\- there are entire classes of problems that require VC funding due to their
complexity. Sure, some don't, but many do. Google is a great example. In their
case, they required capital to quickly expand their team and for capital
equipment.

\- when VC confidence plummets, then angel investor confidence also plummets
-- perhaps more so because angel investors are investing out of their own
pockets. does anyone care if angel investor confidence plummets? hell yes.

I read someplace about the percentage of YC companies that secured funding
after graduating. I can't find the reference, but the percentage was fairly
high. If nobody cared, then that percentage would have been close to zero.

This is even something PG appears to care about:
<http://www.paulgraham.com/googles.html>

BTW, if you're talking $1MM in company revenue per year, better divide that
in-half-ish as the amount that ends up in your bank account every year
(assuming you live in the USA). There are taxes to pay, after all, and many
other fees. So now you're looking at 9 - 10 years. Oddly enough, DHH really
didn't make note of that in his presentation, which just goes to show you how
he over-simplified everything.

But then again, if $1MM a year is so easy, then how hard could $2MM per year
be, right? After all, he didn't mention an upper-limit on the amount of
revenue his 3-step plan could generate.

I'm not trying to convince you that you shouldn't move forward with your DHH-
slide-presentation-inspired company. You absolutely should! But I've been
there myself a couple of times and there's a good chance that one day, before
profitability, you'll need money. And you've already borrowed everything you
can from your friends and family. And you're broke and the people who work for
you aren't getting paid. And if you ever reach that point (and I sincerely
hope you don't), you might care too.

~~~
dennykmiu
After reading your comment, I went back and read the original article again. I
believe you have made some very good points and no one can really argue
against them except I believe the main point of the article was much simpler
than that, which is what the author calls "dynastic", as in dynastic company,
dynastic exit and therefore dynastic funding (from VC).

My own experience with starting and running startups is that time has changed.
I am not saying that time has changed completely such that the old model (get
VC money to do R&D) does not exist, I am just (humbly) saying that a new model
has emerged that allows entrepreneur to "bootstrap" a meaningful company with
sustainable and meaningful revenues. And when time comes to scale the company,
one can always go out for more money. That path has not gone away just because
you bootstrap, except now you are treating VC money as working capital (not
R&D grant).

It really comes down to impedance matching which I think is the important
point of the original article. Should we match the impedance for the VC which
means big exit, big company and big funding? Or should we try to match the
impedance for the entrepreneurs which calls for modest exit, modest company
and modest funding?

I am a successful example of the latter which is what I call "getting a medium
slice of a medium pie". My last company is completely bootstrapped. Six
founders worked three years with no salaries. They then took a modest amount
of angel money to launch the product and buy inventory. Now the company is
very successful. Late-stage VC's are kicking the door down to want to buy a
piece of the action. And I took an early retirement to write a book. It can
work.

<http://www.StartupForLess.org>

------
dennykmiu
A well-written article. I enjoyed it.

I think the message has been out there for sometimes but it took a group of
credible messengers (especially DHH) and a visible forum (Startup School) to
drive the point home.

The following is my own experience on how VC's can be an entrepreneur's worst
enemy. I have posted it a number of times in this forum already and I
apologize in advance if I have over-done it. Thanks.

<http://www.lovemytool.com/blog/2007/10/vc-worst-enemy.html>

