
TinySeed applications close today - einarvollset
https://tinyseed.com/apply
======
rsweeney21
This is an interesting approach. I'm not sure I'd call it bootstrapping if you
are taking external funding. Having access to mentors is good though.

I bootstrapped my first company to several million and revenue by doing
contract work on the side. Later, I decided to use the money from my
bootstrapped company to launch another startup. Once we got some traction I
decided to take company #2 the VC route. 0/10 would not recommend! :-) I'm
working on a blog post about why bootstrapping can be much better for
founders.

I've since gone back to company #1, where I own 100%, and pivoted it into a
service to help engineers go from FTE -> contract -> truly bootstrapped
startup. Of course, you are could always just go from FTE -> contract if
starting a business isn't your thing.

We've got quite a few devs in our network now.

More info: [https://blog.facetdev.com/the-facet-developer-network-the-
fr...](https://blog.facetdev.com/the-facet-developer-network-the-freelancer-
network-for-former-faangetc-engineers/)

To sign up: [https://www.facetdev.com/work](https://www.facetdev.com/work)

~~~
akcreek
_I bootstrapped my first company to several million and revenue by doing
contract work on the side. Later, I decided to use the money from my
bootstrapped company to launch another startup. Once we got some traction I
decided to take company #2 the VC route. 0 /10 would not recommend! :-) I'm
working on a blog post about why bootstrapping can be much better for
founders._

I'm in a similar position; company #1 is successful and now running without me
and I'm switching focus to company #2 and considering the VC route as this
business has appropriate scalability. I'm quite interested to hear why you are
0/10 on going that route. Will you be posting that to the facet blog or how
can I ensure I see that when posted?

~~~
rsweeney21
Yeah, i'll be posting it to the blog in the next week or so. You can subscribe
to the blog to get notified when it gets posted.

Also happy to talk one on one about my experience. My direct email is in my
profile.

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TACIXAT
What's weird about this application is that there is no field asking what the
business is. There are a lot of questions around that (why is now a good time,
who is your target customer), but there is no elevator pitch. As well, a lot
of the questions are focused on which businesses your customers are, is B2C
not a thing?

~~~
rwalling
We'd like for the marketing website, product demo or deck to do the talking.
We don't need someone to re-hash something they should have already
communicated in another format.

~~~
TACIXAT
For sure, that filters it to established products and not prototypes though. I
have a garbage landing page now, but when I applied I just had some barebones
features prototyped. I might have read a little much into the "seed" part of
it.

------
staunch
TinySeed seems _much_ better than the "predatory" deal Earnest Capital is
offering[1].

But they still seems hamstrung by not _understanding_ that startup investing
is inherently a hits-based business. At some point they're going to get a
1000x return, whether they want it or not, and it will make all their previous
investments look financially insignificant.

A startup doesn't have to be the "the next Facebook" to return 1000x. It could
be an Atlassian or GitHub, two previously-tiny bootstrapped startups.

The big advantage of trying to make your money off your big hits is it allows
you to be genuinely founder friendly. The big hits pay back so much that you
can be generous and high-minded with the rest, like YC.

1\. Giving up 15% for ~$150k would suck as a founder.

But 8% would be a good deal. Forcing smart founders to insist on the minimum
end of the range seems like a bad place to start the relationship.

2\. Having an investor make monthly payments and control your salary would
suck as a founder.

It's going to cause anxiety about the money being cut off and it will make you
feel like an employee that has to report to their boss. Investors should be
peers and partners.

Seems like they should just make the deal 8% and pay the money at once, and
trust that you've chosen good founders. If they blow the money, well, you
messed up. And if they spend it differently from how you would, but succeed,
who cares?

1\.
[https://news.ycombinator.com/item?id=19160036](https://news.ycombinator.com/item?id=19160036)

~~~
einarvollset
Skipping over the comment about how we don't understand startup investing.. :)

On pt 2: there is no mandatory monthly payments, and we don't really control
founder comp. What we're trying to do (which relates to the point I skipped
over above) is attempting to come up with a structure where a founder can
build a profitable business doing 7 or 8 figures while the investors get
"suitably" risk adjusted compensated for that success.

Whether you think our valuations "suck" or not, we have spent a lot of time
thinking about what we can do to build out a novel ecosystem that can provide
fertile ground for these kinds of businesses. What we don't think works is
simply say "hey, you know what this is a hits business, so forget about
valuations and just give them a SAFE".

If you had a business that wanted to raise financing but was honest about the
fact that the founder did not thing they were going to become GitHub you'd
know what I meant :)

~~~
staunch
Thanks for the reply. I hope you appreciate some critical feedback that comes
from a good place. Helping early stage startups is a great thing.

But the entire point of startups being hit-based is that not even the founders
themselves know how big they could get. The founders of Atlassian and GitHub
could not possibly have known. Their opinion at the beginning was totally
useless. They very well might've said "We'll never be as big as X" with total
honesty.

So it's not a matter of "honesty" at all. Businesses and people evolve.
Ambitions grow. Even Mark Zuckerberg had absolutely _no idea_ how big Facebook
would become.

This is a counter-intuitive fact of startups that seems hard to internalize,
but it's the very nature of such highly scalable companies.

It doesn't require that you "forget about valuations". You can absolutely try
to get returns on your average outcomes, in total they should be significant.
But it just takes a single 1000x return to dwarf them all, and now your big
hit is all that really mattered _financially_.

I think the 15% valuation sucks and the 8% valuation is high but reasonable.
As a founder I would not want to give up more than 8% but I wouldn't want to
come across as a hardass either, which is an awkward spot to be placed.

Good luck!

~~~
einarvollset
Thank you, but I think your assumption that the only thing that matters is
finding 1000x returns is wrong. If you look at VC returns at scale and over
time, what's considered acceptable returns are lower than you might expect
(12% IRR).

If you're funding people at $2m valuation without customers and with a SAFE,
then yes the only way to get there is with the hits. We are betting that's not
the only way, but it does mean we cannot compete in the valuation olympics.

~~~
staunch
_(I find this topic interesting to talk about and I don 't mean to make this a
huge criticism of what you're doing. I think it's great any time someone in a
position to help early stage startups does so.)_

I'm definitely not saying that 1000x returns are all that matters, just that
they're an inescapable reality.

My understanding is based on what I believe are three facts:

1\. A given startup's financial returns can range from 0x to 1000x or more due
to the uniquely-high scalability of tech startups.

2\. It's impossible to predict how big any particular startup's returns will
be (i.e. not even the founders or investors can know).

3\. Some very small percentage of any (sufficiently large) startup portfolio
will return huge multiples unless you do something _incredibly_ backwards.

I'd imagine that YC generates much more than 12% IRR even excluding their
hits. But what makes them so incredibly profitable is their hits. And because
of their understanding that the hits are what makes them so profitable, they
can rationally afford to be very generous towards all of their startups, which
makes great startups want to apply, creating a virtuous cycle.

Creating a firm that tries to be YC-without-the-hits seems totally fine,
except if you still end up with huge hits, because then you're just YC with
much less founder-friendly terms. It may feel like the conservative and safe
approach but it could also be the riskiest possible path, by serving to filter
out the best startups.

There's a huge market opportunity for YC competitors that are remote but
operate on the same terms. And when someone does this, they'll be first choice
for all of the best startups, just like YC is. And it seems smart to compete
with what's possible rather than with what currently exists.

~~~
einarvollset
"I'd imagine that YC generates much more than 12% IRR even excluding their
hits. "

What makes you think so? 12% IRR is 3x capital in 10 years. YC terms are $120k
for a SAFE * 256 companies/year = $30m/year. 10x is $300m return per cohort.

Assuming we remove the unicorns, and that 50% die, that's 127 companies (half
dead, one unicorn). Assuming again that the non-dead raise subsequent funding
over various rounds, diluting YC's original stake down to (say) 4%, then all
the 127 remaining companies would need to sell for an _average_ $60m to beat a
12% IRR. Given how many exits are actually zero investor return acqui-hires
then I think that's unlikely.

" then you're just YC with much less founder-friendly terms."

I don't think so, because nobody who applies to YC is going to be able to get
any funding what so ever if they argue that they want to become a $20m ARR
vertical SaaS business. So I guess it boils down to whether you think it's
more founder friendly to say "no" than it is to offer our terms.

~~~
staunch
YC has pro rata rights, so maybe that 4% is low? Regardless, I concede that
it's entirely possible many (or all) of the YC batches are unprofitable
without the hits. It's an interesting question.

I just think the entire concept of asking founders how big their companies
could be doesn't make much sense. If Drew Houston predicted that he would be
willing to sell Dropbox for $1 million in six months, and the Google Guys
wanted to sell Google for a few million to Yahoo, YC had zero idea how big
Airbnb would be, etc. what exactly is the point?

My understanding is that YC asks the question "How big could your company
become?" but discounts the answer very heavily because of how hard it is to
predict at the earliest stages. Almost any startup can give an answer about
how they could conceivably be huge. Anyone trying to build a $20 million ARR
SaaS company has a very easy answer.

It seems obvious that a founder with nothing would love to have a nice $20
million ARR business. It also seems obvious that when they achieve that level
of success their ambitions will often grow, as happened with Dropbox,
Facebook, Google, Stripe, and virtually every other hit startup ever.

I do think there's a good point about focusing on sustainable growth, and "not
growth at all costs" but this just seems like what all the best founders and
VCs actually practice, so it boils down to "don't be stupid".

~~~
einarvollset
So if I may - your assertions are:

A) There is nothing wrong with how funding currently operates in the tech
space. It allocates resources optimally in terms of risk adjusted returns for
investors and there is no room to try alternate approaches.

B) There is no way to assertain what the potential size of a business is,
anything could become Dropbox (including - I dunno, a SaaS focused on kitchen
countertop installers)

C) The only way to provide suitable risk adjusted returns for investors is the
current approach (focusing on finding unicorn outliers that can scale to
1000x)

------
let_var
Two thumbs up for this "...companies that don’t aspire to grow at all costs to
reach a $1B valuation..." If someone is raising capital, not sure if that'd be
same as bootstrapping. Access to mentors-cum-support group who has some stake
in the game makes them valuable.

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zenlibs
It would be interesting for applicants to share their submissions, for the HN
community's feedback, and vote.

I've created a simple markdown version, for easy editing here:
[https://zenlibs.com/write](https://zenlibs.com/write)

Just fill in the specifics and share as a gist or on Github.

~~~
throwaway_d158
This editor looks fantastic.

Have you shared the code anywhere?

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urlwolf
Can anyone post the text for the form? I'm very interested in what their
thesis is, but didn't get there on time.

