
What's dumb money? - iamelgringo
http://venturehacks.com/articles/dumb-money
======
pg
Their advice about weeding out bad investors is reasonable, but they're
incorrect about the meaning of "dumb money." Conventionally, "dumb money" just
means investors who have no particular connections or expertise in the
startup's domain. E.g. your college roommate's uncle Al, who made his money
from a chain of shoe stores.

An evil VC who wants to control your company or fire you as CEO or merge you
with one of his portfolio companies could be called "bad money," but that is
certainly not what people currently use the phrase "dumb money" to describe.

~~~
gigamon
This reminds me of the old joke about the wife asking the husband on whether
or not her butt is fat. There is no good answer here and the absolute wrong
one is when the husband asks for the definition of fat.

There is no definition of smart versus dumb money that would serve the
discussion here.

My observation is that many of the Hacker News readers are first time
entrepreneurs and my belief is that it is important that they understand that
they don't build companies by relying on VC money (even if it comes from YC).
The more they accept that VC money is dumb, the more they will focus on what
it takes to build their companies.

~~~
pg
_The more they accept that VC money is dumb, the more they will focus on what
it takes to build their companies._

Larry & Sergey, Max Levchin, and Mark Zuckerberg all took VC money. If they're
dumb, who counts as smart?

~~~
gigamon
I never said that we don't take VC money.

I just said that we take VC money when all we need is money.

Which by way is exactly what these gentlemen did? They didn't treat VC money
as R&D money but instead they treat them as working capital. They took VC
money when they have paying customers and a working business model and it was
time to grow the company.

The point that I am trying to make in my own writing
(<http://www.startupforless.com>) is that entrepreneurs should concentrate on
building their company with their own money FIRST and when they have a ready
product, they can CHOOSE.

On the other hand, there is nothing wrong with the YC model which is to take
money early. But YC is an exception, not the rule. And YC money is clearly
smart money.

But there are a whole bunch of us who doesn't fit the YC model.

~~~
Harj
"They took VC money when they have paying customers and a working business
model and it was time to grow the company."

Paypal had no idea what their business model was going to be when they took VC
(they tried to fight off ebay sellers to begin with), their idea changed every
week. They actually raised money so they could buy users (literally, they gave
users money if they signed up).

"entrepreneurs should concentrate on building their company with their own
money FIRST"

it's precisely because this isn't an option for young founders out of college
that something like YC exists. we have no money of our own in the first place
so taking external investment is our only option.

~~~
gigamon
I think YC is a great concept.

It is actually not a VC but more like an adoption agency that takes promising
orphans off the street (not based on needs and not based more merits, but
based on genetic match) ... feed them and cloth them, then send them off to
foster parents (real VC's) who can afford to bring them up properly.

I don't mean to be harsh. And I have great respect for everyone who is
involved with YC. And I am certainly not trying to be a sour grape.

I am just saying that it is unique.

------
gigamon
For a bootstrapping entrepreneur, VC money is a drug and a distraction. And by
calling it "Smart" money, the popular culture is attempting to turn it into a
"legalized" drug. This is a really good article and having been in the
trenches for many years, I highly recommend it to the YC community. VC money
should be dumb, the dumber the better. Only by understanding this assertion,
can one focus on what it really takes to build a company ... and it is not
about taking VC money. Enjoy.

