Ask HN: Do you regret taking investment? - forgottenacc57
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luckydude
I regret not taking it. Hummer-Winblad really wanted to give us some money but
I couldn't figure out what they brought to the table. In retrospect, it was
marketing, the money could have paid for marketing. And because they were
invested they would have insisted on marketing.

Did I mention we needed some marketing? We really needed some marketing.

So, while it's very common to ask about taking investment, also look hard at
the whole picture and see if there is a part of it that you'll (perhaps
secretly) admit that you don't want to do. If you are in complete control you
can kid yourself that you'll get to that part and never do it. Or, in our
case, not do it until it is too late.

Investment can be viewed as adding some adult supervision. I screwed up by not
taking it, I was so worried about the dreaded VC's screwing up my company that
I didn't consider the possibility that they could also help. Well I did, but
was too stupid to value the marketing part (I'm a hard core engineer at
heart).

~~~
ascendantlogic
This is a problem that a lot of engineering types fall into. We as technical
people think that the best technology will win, but that's not true. The best
technology that the most people have heard of for the most reasonable price
will win.

~~~
Gustomaximus
I used to think the best product was key. Over the years I've realised I'd
prefer a standard product with a brilliant distribution channel than a
brilliant product with a standard distribution channel.

Obviously the goal is to develop both!

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neom
I've been through a few startups and in all of them I've been within the first
15 or so employees, some of them took on hundreds of millions in VC funding. I
regret instances where we took on too much funding, or in instances we took on
funding without a good investment strategy for the capital we raised. In the
startup I am running today we have taken on about $1.5MM from Samsung,
Fontinalis, Story Ventures and a few others, before we did that, we put
together a detailed plan of what we wanted to do 2017, and how much it would
cost for us to do that, then we went out and sold enough of the company to
hire the folks we needed to get to our next proof point. We lightly padded (6
months) additional runway incase we had trouble. We also discussed with our
investors why we wanted to prove what we wanted to prove with the money they
gave us, how much time the money would give us, and how much more money they
would have to give us if we're either a) wrong or b) spot another opportunity.

~~~
jasim
That's a very helpful walk through, thank you.

I'm very naive about this and would appreciate any more thoughts - If you hit
a sustained 20% net profitability with just this funding, would you be able to
avoid raising more? Would investors demand an exit, and in what time-frames,
and is it feasible to pay it out from your profits?

Essentially my question is whether you would be forced to keep raising the
stakes for your business, and if so, till what point?

~~~
contingencies
Investors understand that projections are fantasies and risk is present: do
not worry about them. You are only truly forced to do things as a company if
you lose decision making power due to reduced voting rights. To avoid this
situation, there are numerous strategies available many of which are outlined
in the book _Venture Deals_.

~~~
jasim
Thanks very much!

~~~
neom
I would caution that the poster has maybe never raised over $5-10MM. This is a
very early stage mentality and does not jive with investors as partners,
certainly, there is truth in it, but it's not the crux.

~~~
contingencies
I agree that this is not an attitude to take to the detriment of partnerships.
However, as an antidote to worrying about potential future demands in lieu of
focusing on business development, it is an available and effective if perhaps
heavy-handed mental modeshift!

FYI: Our next round is $10M and we are oversubscribed, but I do not claim to
be an expert at raising or anything else for that matter.

~~~
neom
Totally fair.

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smirksirlot
I've worked at 2 different startups - currently in management capacity at one.
2 cents:

1) Appreciate the $ that it provides for income + ability to grow 2) If we
could do it again I would not recommend it to the founders and instead focus
on bootstrapping

Managing and dealing with pressures from investor is a giant suck on ability
to think. No matter how much you say you're going to ignore them, they will
ALWAYS weight on you and you will always weigh their opinion. This is despite
them not knowing much about your industry or tech or market.

I've increasingly come to the opinion that investors become a drag on the
company, and the best investors are the ones who put money in and stay
completely out of the way.

~~~
siegel
The typical terms of a VC round give the VC sufficient actual power that they
are difficult to ignore. They will have veto rights on major company
decisions. And, assuming they have a board seat, you will be having regular
board meetings in which they will have the opportunity to weigh in on
strategic decision-making.

I have been involved with board meetings pre and post-VC investment, including
with top-tier VCs. And it is night and day. Pre-VC investment, these meetings
(if they happen) are informal. Post-VC, they become akin to a presentation to
the VC, with the VC taking the role of the real "boss" in the room.

What I tell founders I am advising is this:

1) Delay VC funding until you really have use for the money and cannot fund
through other means (bootstrapping, angels, etc...); 2) The best time to get
funding is when you have leverage to negotiate; and 3) Most importantly - USE
that leverage.

The terms of your VC financing round massively impact the founder's ability to
control the company's future and enjoy the economic fruits of their labor. So,
you really need to push as hard as you can - as hard as the VCs will - to get
terms in your favor. Your VC will sell you as your partner and that can be
true. But when you are negotiating investing terms, they are not your partner.
That negotiation is simply a zero-sum game.

Your VC will want to position the company to their benefit (which is totally
rational) by: 1) Minimizing their risk and pushing risk onto the founders; 2)
Extracting as much of the economic benefit of any potential exit or pre-exit
liquidity; 3) Obtaining as much control as possible.

This does not end when your Series A closes. For example, your VC will likely
pressure you to hire their hand-picked attorneys. This is a smart and
calculated decision on their part. These will be attorneys who count on the VC
(and not you) for repeat business and there will always be an element of a
conflict in the representation. Think about it - when you are negotiating your
Series B and the VC's hand-picked counsel is trying to "help" you negotiate
with the Series B investors, are they really going to play hardball with your
Series A VC to take or share the dilution and control hits that your Series B
investors are trying to foist on the company? Of course not - at least if the
attorneys want the VC to come back to them with work again...

Don't get me wrong. A high-quality, well-chosen VC can bring experience and
connections that can help your company immensely. And funding can help you
achieve things you cannot achieve by bootstrapping.

But, at a minimum, go into any funding round with your eyes open, good
advisors on your side, and a willingness to negotiate as hard as your VC will.
Remember, a good negotiator will usually respect you more if you negotiate as
hard as they do.

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yesimahuman
I don't regret it, but at the same time I no longer buy the peer pressure to
fundraise for startups anymore and I see a lot of bias and hidden motives in
the system. I think we're going to see a lot more majorly successful
bootstrapped tech companies in the future (at least until a much later stage
than Seed or typical A/B). So, I think the current system is perhaps
suboptimal.

Also, many go into business to not have bosses, and having a board and
investors can often feel like that even if that feeling is just self-
inflicted. So, stick to your values if that's something you know you really
want, and don't feel bad about it.

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mjohnre
Some startup post-mortem stated that they had problems with investment. Some
are because of mismanagement. Others are because of conflict with the
investor. Getting investment seems to have become the mainstream metric of
success like it's the end-game. Success should be realizing the purpose of
taking the investment.

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imsofuture
I worked at a company that was almost entirely bootstrapped, and honestly I
think it was for the worse. When they had early momentum, they could have
raised money but chose not to. It was an okay choice at the time, and the
founders were rightfully proud of this -- that they'd grown as a profitable
company on their own.

But when things got leaner, they didn't have a reserve of cash to use, nor did
they have the accountability or advisory capacity of investors to help them
out. And when things were lean, they didn't have the momentum to raise money
any longer, just a 'lifestyle' business's revenue which isn't very exciting to
VCs.

Just my personal, uninformed, opinion. And while it's clear to me that not
raising money was a mistake, that's only with hindsight.

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mifeng
I'm glad that we only raised a small amount and that subsequent amounts to
raise capital failed.

This is because we were eventually acquired, which turned out to be a decent
outcome for us and our investors. Had we raised more capital, the price would
have been higher and the probability of it actually happening would have been
lower.

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fudged71
In the Canadian prairies, it took so long to raise funding that the overhead
wasn't worth the time. We travelled elsewhere but got little interest because
we weren't local. Joining a remote accelerator helped but by that time we were
behind in the market.

~~~
johlindenbaum
Prairie funding is changing pretty quickly, at least here in SK. We don't
really focus on getting SK-money, but we've had great funding and interest
from Toronto, Chicago and some Valley funding. Locality didn't matter to any
of our investors as much as what the plan and growth strategies are.

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jasonkester
I feel like I dodged a bullet by not taking VC money for Twiddla back when
everybody was fighting to give it to us.

Considering how happy my life is now, and how often you see the Technical
Founder get pushed out of his own company in place of a board-approved CTO, I
don't imagine it would have left me net happier.

Best case might have been an acquihire, a few years couching it out waiting to
vest at a big company, then a medium sized payday. Actual case was a
(different) bootstrapped product and a bit of consulting that was a lot more
fun and left me in a similar spot financially, 10 years later.

Anything less than best case, I'd be responding to the actual question posed
here today.

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paulmatthijs
Never, not for a second. It's the investors that made it possible to go full
time with our venture. We couldn't have done it without. Be happy.

I sometimes hear founders regretting it, thinking the returns are too high
compared to the initial investment (angel, seed). That's unfair, I think. It
reeks of jealousy. You can't put a value on the peace of mind you get, for a
while, of being able to do it your way.

FWIW, we only did a large seed round, no need for VC since, so things might be
pretty different for Startups in the Series ;)

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ythn
I think the real question is whether or not the extra money is worth being
beholden to other stakeholders... I know a lot of people like complete control
over their company

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Alex3917
It seems like ten or fifteen years ago most startups went out of business due
to not being able to raise money, whereas today most startups go out of
business due to raising money.

Whether or not people regret this probably depends on personal utility, but I
think the way most people think about this (and the standard startup advice)
hasn't caught up to the new reality.

~~~
eloff
"most startups today go out of business because they raised money" citation
please.

~~~
kordless
Speaking from observation, the claim may be considered true if the primary
purpose of investment firms is to exit the position as either a large gain in
value, or a complete loss. In other words, investment strategy today causes
the outcome of the company to _avoid_ finding a "happy medium" where the
company is able to just make enough to pay the employees that work there to
build a good product the customers like and which serves those customer's
interests, even at the expense of additional revenue.

VCs don't invest in breakeven, or slightly ahead of breakeven companies. They
would rather force a product move by the company to try to make more money for
the stakeholders, even at the risk the move kills the company OR hurts the
customer's privacy/UX experience. Case in point, Facebook.

~~~
bingojess
Maybe a better way of phrasing it would have been "most startups that raise
money still go out of business"

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dmritard96
In many cases, there simply aren't many good alternatives. I'll illustrate
with our (flair.co's) example. FYI we are a hw/sw play.

Why Not KS/Indiegogo We are building a product that has a large b2b angle and
while the b2c angle is perhaps substantial enough that Kickstarter and
Indiegogo could work, they have big enough draw backs that we decided to
forgo. Specifically, it forces you to share your idea (AND its popularity
which is more important) publicly. This is bad because 1) right now successful
campaigns are immediately cloned since the market has been proven publicly
before you even ship and 2) because it forces you signal the b2b viability via
the early adopter b2c channel which of course makes zero sense but most
investors don't think that hard... Thats not to say we couldn't do it or even
that we shouldn't do it, but rather that if we didn't have to we didn't want
to. There are other advantages to preorders on our own site, namely, the
ability send traffic our way instead of staying on KS which ultimately plays
well for your SEO and also the ability to iterate on your pitch over time.
Kickstarter is a very all or nothing proposition but if you are convinced that
you have a large market, opportunity, and inevitable product market fit, why
take the risk on kickstarter if you don't need to.

Costs

There is of course the people time. If you are wealthy or have a ton saved
then maybe you can work for free for 6-12 months but we weren't/aren't. If you
can build your entire product in 6-12 months with 0 money, you also have to
wonder if this is something that is simply too easy to make and thus has no
moat unless you have some sort of other advantage (former employer that has
promised to be your first big customer, key network in the industry/space,
etc.). So there are people costs that need to get paid from somewhere and its
also worth noting that when you start working on your company, you don't have
a preorder campaign ready to go day 0 - you will need time to develop at least
some aspects of the product and hopefully have tested that its physical
incarnation/features/etc make sense before you decide to start committing to
making and selling it.

If you make hardware and software there are some costs around initial
prototyping (lightweight or maybe even free hosting, small print or
prototyping jobs etc.) These will be in the thousands and likely 10s of
thousands if you are iterating over 6 to 12 months. Especially if you need to
make some pilot units and send them to people for testing. Now I'm sure some
of you are thinking - but I can just 3D print an enclosure and make a cheap
pcb for nothing. The answer is maybe at best. I would argue the age of simple
little sensors in plastic boxes has come and gone for getting a new connected
hw company off the ground. Also, how many of the companies that you have
seen/heard of have done this successfully past the first 3 months? I'm sure
there is some anecdata out there but most quickly move on to higher fidelity
techniques (CNC or SLA at least) and those begin to get pricey. And you need
to buy and ship all those components. If you are buying in the states its,
mouser/digikey which means $. If its Shenzhen, well, unless you live there you
still are spending to fly and live somewhere so its not really free but the
cost of the components is at least considerably cheaper.

Tools are the next big hurdle. Depending upon your product size/materials/etc,
you are likely to pay between 10k and 200K for tools (variance here can be
quite high). Don't forget, the designs for these processes need to be very
carefully modeled before hand for moldability/formability and this is
nontrivial to do if you are an EECS type person. Even your mech-e if you have
one may or may not be qualified to do this well so it may cost time or money
to get this done. Also, its worth noting that this assumes your mechanical
design doesn't have too many moving parts otherwise you need a lot of testing
at the pretooling stage with all of your draft angles etc in place. Also,
tools can take between 2 and 6 months in our experience and even after the
tool is finished, you will spend plenty of time testing different plastic
forms, verifying your powder coater isn't shipping something toxic/unallowable
etc. Getting rid of sink/flow/flash literally can mean a new tool if you have
complex/unbalanced shapes and that means time/money. Tools are literally set
in stone so the changes you can make are rather limited.

Inventory

So lets assume magically, you were able to do all those things above without
any VC/Angel money. Now you need to make units. So you have a few thousand
preorders maybe. Great. If you have a large CM, MOQ (minimum order quantity)
is often 5K so you are on the hook for paying off the rest. If you can get
good credit with your CM, thats great, but also unlikely on your first run
unless you have worked with them in the past. What about bank loans? Banks
will do nothing for you. They want collateralized loans so they will loan
money to a likely to fail restaurant because they can sell the
stoves/ovens/chairs etc to he next likely to fail restaurant that will move
in. Same goes for xyz you name it non 'startup' businesses. We sell smart
vents as an example - so if the bank funds the inventory and you can't sell
it, they aren't going to be able to sell it either. So no banks. Even with a
sales agreement in hand, you are likely not going to get the bank to fund you
unless its from a brand/company that is well known (Big Box store maybe).

So what does that mean? It means, many of these things are precisely what
Venture money is there to solve. Riskier bets than banks are willing to take
but with a higher upside. If you had the money in hand already, this is a
different discussion but for the many hungry first time founders, this is one
of the only ways to get your product to market. What you do after getting to
market is almost an entirely different angle. Post getting the product to
market, you may want to keep the company small/nimble/innovative and your
investors won't care about that as much as growth since thats how they make
their living. But for that early stage, there aren't really substitutes from
what I have been able to surmise.

~~~
mifeng
Great insights. Given the investment in time and money required to simply get
to prototype, how did you develop the conviction to plunge ahead into the
business at the outset?

~~~
dmritard96
A couple hacks helped us. First was finding some short cuts to test the core
functionality of the idea and make sure that when we pulled X string, Y things
happened (in our case, adjusting air flow of vents had a material impact on
temperature across the home was a critical thing to test) and measured with
arduinos and raspis. Also, LOTS of nights and weekends 'moonlighting'

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skdotdan
I actually regret _not_ taking investment.

