
Venture capital is a hell of a drug - tedmiston
https://techcrunch.com/2016/09/16/venture-capital-is-a-hell-of-a-drug/
======
lsc
My own experience is that the big risk that I did not account for, as a
founder without venture backing, is that you become ramen profitable and just
sit there for a decade.

This is hugely destructive for the founder in question. If you don't have vc
baking and you don't sell to a big name? Looking for a job after running a
business with a gross of a few hundred thousand a year is just not the same as
looking for a job after working for one of the big valley companies. I mean I
exaggerate and say that employers treat me like I was unemployed, and it is
not that bad, but compared to working for large companies with reputations for
hiring good people, running an unfunded, ramen profitable company looks pretty
bad on your resume.

I would argue that vc mitigates a lot of these risks. First, you have a name,
a reputation to put on your reputation. Second, the bit about get big or get
dead? In many cases, that is as good for the founder as for the vc. You are
way less likely to end up starting your career over when the thing fails, both
because of the reputation factor and because either you got big (which is good
for the career even if the company gets dead before you can cash out) or you
got dead fairly quickly, and have less time to explain away.

~~~
orthoganol
I think if you're so concerned about how you look on paper you should not be
launching startups. Although some might argue that starting a startup has
become a semi-established career path in itself, which I have mixed feelings
about, and I suppose in that case it could be thought of in terms of typical
career moves.

Also, a few hundred k/year in gross can get you a lot of very expensive ramen.
That's probably more than most devs make at FB or Twitter.

~~~
lsc
My concern for how I look, as you say, on paper largely has to do with career
options. If you find that shallow, that is your right, but personally, I think
it is important to talk about the risks inherent in this sort of thing. This
career downside is not one of the risks I anticipated when I went into this.

~~~
jtrtoo
How were you handling sales, relationships building, market/MVP feedback, lead
nurturing, and marketing in your business?

And what happened with your business? Were you left with no connections,
relationships, and reputation of results to leverage to your next "thing"
(I.e. new career path, consulting gigs, resume material)?

Even if your startup / bootstrapped / micro-enterprise failed, you got tired
of it, or the market shifted, you don't get to a few hundred K in revenue in a
solo/micro operation without having some results, reputation, and
relationships to stand on when you walk away. At least not in any situation I
can think of.

I don't know you, but I'm wondering if this is more about your perception
being off about what's making this next step (i.e. interviews and selling
yourself) challenging for you. If it is off, maybe you're overlooking
something else that is really the root cause of it, preventing you from
addressing it or even asking the right questions of yourself or the community.

~~~
lsc
>Even if your startup / bootstrapped / micro-enterprise failed, you got tired
of it, or the market shifted, you don't get to a few hundred K in revenue in a
solo/micro operation without having some results, reputation, and
relationships to stand on when you walk away. At least not in any situation I
can think of.

Sure, but that's the thing, reputation and relationships might get you an
interview, but it won't get you a individual contributor job at a top-tier
company. Why do I fail those interviews? Maybe I am not technically good
enough. Maybe, as a friend says, "They can tell" \- they can see that I am
depressed. Maybe it's a little bit of both.

My point is that you can show up to interviews at second or third tier
companies (or contract gigs at first tier companies) and pretty much say "hey
man, I've got hands, I can figure it out" and they hire you. And contacts and
experience selling works great for that. But my experience has been that there
is a ceiling on how far that takes you.

Contacts are important but they are not everything.

I'm actually fairly certain that a reasonable portion of my problem is that
nobody cares about the problems I was working on, or rather, that the sysadmin
role has shrunk a lot, and that's where my focus is. I need to redirect effort
into SWE skills. (The path forward for me is probably SRE jobs, but the part
of that I'm missing is the SWE stuff.)

That's another problem with working for a company you are majority shareholder
of; the temptation is to do what you are good at and hire people who are
better than you to do the things you aren't good at. When the industry moves,
and the thing you are good at are no longer really in demand? well, you have a
retraining problem, one you probably wouldn't have had if you had been working
as an individual contributor during that time.

>I don't know you, but I'm wondering if this is more about your perception
being off about what's making this next step (i.e. interviews and selling
yourself) challenging for you. If it is off, maybe you're overlooking
something else that is really the root cause of it, preventing you from
addressing it or even asking the right questions of yourself or the community.

eh, that's possible. You could argue that my biggest problem right now is
mentality. I was defeated, I _feel_ defeated. And now I'm back contracting,
which pays way better than working for a small company, and better than any of
the jobs my contacts offered me, but it doesn't feel like success for a bunch
of reasons; The role itself looks like what I did when I was 17 (It pays a lot
better than what I did when I was 17... but it's about the same work) and it
is still 1/2 to 2/3rds total comp for direct hires at places like amazon and
facebook.

That's the thing, if I want to work for startup wages, sure, I could get a lot
of jobs. no problem. But that's not a step up from where I was before I
started this company. Hell, if I wasn't depressed as fuck, I would probably
have a shot at being a co-founder somewhere funded, which possibly could be a
step up, but I _am_ depressed and exhausted and so that's not really an option
right now.

I mean, as others have pointed out, I have it okay now. bills are getting
paid, etc, etc, and why should I be unhappy about my current situation? Lots
of people would be happy to have my job. I feel bad for feeling bad about it,
you know?

but... my point that running a business (vs. working as an ambitious
individual contributor) doesn't move your career forward as working as an
ambitious individual contributor would, or at least that it hasn't moved _my_
career forward.

(And yes, I'm sorry for sounding so self-pitying and bitter. That's how I feel
right now; it will pass. Either I will retrain and continue my upwards career
path as an individual contributor, or I will become accustomed to, you know,
that path not always leading upwards. Either way requires time.)

Re-reading this... I'm painting a pretty unsympathetic picture of myself. The
fact that I've spent a lot of effort on non-technical things (that, turns out,
I'm not so great at) rather than moving my technical skills forward almost
certainly has a lot to do with me not being able to get technical jobs that
are as good as I'd like. Shock! surprise! I mean, that seems pretty obvious,
no? I took a risk. I thought I could become good at business. Turns out? it's
harder than it looks, and progress in that field is way harder, for me, than
progress as a technical individual contributor. Now, I'm complaining because
that time away from the things I'm good at is now slowing down my career
progress. I reached a little too hard for that brass ring, fell off and am now
whining about my bloody nose.

I'm still arguing, though, that there are costs to your technical career to
taking time to try to go into business.

------
AndrewKemendo
This all makes sense, if your only goal as a founder is to get rich.

I can only speak for myself, but to me, getting individually rich is not the
goal. Having a quick exit isn't the goal.

The goal is to make a huge company that shifts the way people behave in a way
that I think will make them better off and "build a world I want to live in."

The reality is, for big moonshot things (AI, Nano, Genetics, AR), you can't
bootstrap them with revenues - you need a shitload of high risk money to
build, grow & scale. That's what Venture money is for.

If you get venture money, make some waves and flame out or acquihire before
the unicorn exit and see it as a loss, then I don't really know what you were
working for. Think about it like a PhD on steroids - if you do it right, no
matter the long term outcome you are making a dent in the market.

~~~
nostrademons
Many things that end up changing the world start out very small. Think about
the Altair (hobbyist kit), Microsoft (dorm-room project), Linux (grad student
project), Facebook (dorm-room project), Google (grad student project), Twitter
(weekend project), the WWW (CERN project), penicillin (moldy petri dish),
saccharin (unusually sweet bread), radioactivity (a cloudy day), etc.

Many other things that promise to be huge moonshots end up being huge fizzles
instead. Think about AI the first time around, VR the first time around, pen
computing the first time around, flying cars, supersonic transports, and of
course the literal moonshot, which got us to the moon 6 times and then we
never went back.

I'm sure many smart people will disagree with me on this, but when I see lots
of money invested in a moonshot, I usually think "That's an awful lot of
people who are about to spend years of their lives chasing an _image_ of what
the future looks like rather than discovering what the actual future will look
like."

~~~
AndrewKemendo
None of these contradict my point though. You only mention where those
started. They wouldn't be where they are today without outside investment.
WWW, penicillin etc... are great examples of significant investment before
there was a tangible way to afford growing and scaling distribution through
revenue/bootstrapping.

It's hard for frontier technology projects (ML/AI, AR/VR, Genetics, Robotics
etc...) to even get out of the lab without significant investment, as the
personnel needed have so many lucrative options and they are generally done by
older people with relatively high personal burn rates (kids, mortgage etc...).

 _chasing an image of what the future looks like rather than discovering what
the actual future will look like_

That doesn't make sense. By definition you have to blaze a trail in new
technology/markets - you don't chase an image. The image you have is the the
world you build - and hopefully people respond.

~~~
nostrademons
The difference is in the feedback cycle. Innovations in the first category get
released in a minimal form, exposed to real users, receive input from a
variety of sources, and only then get capital to expand. Innovations in the
second category are a "big idea", get lots of capital to build it out...and
then very often, miss the mark when it comes to having a lasting effect on
society, because without that feedback cycle, they don't fit into everyday
life in a useful way.

It's not a matter of "hopefully people respond", except for the initial first
draft (which, if you're smart, you'll make as simple and minimal as possible).
It's a matter of testing things out and then observing what people _do_
respond to, then going down that path. Once you've validated the business
model, you can take capital to bring it to more people, but taking capital
itself does not help you identify that model any faster.

~~~
AndrewKemendo
We're saying the same thing. I don't even reference the first example because
those aren't really in the ballpark I'm talking about. Lean principles still
apply to moonshots IMO.

------
tedmiston
The author talks about why founders should be more critical about taking
venture capital, and how it polarizes the possible outcomes of the company.

I think Eric put together a strong piece that missed commentary from being
published on Friday.

~~~
replicatorblog
Totally agree—this is a well considered post that provides a counterbalance to
the conventional wisdom.

~~~
tomc1985
Even more surprising... it's posted at TechCrunch

~~~
replicatorblog
People crap on the "Crunch Network" quite a bit, but there are some real gems
in there. Take "The Stack Fallacy," a solid post that might have gotten 20
hearts on Medium, but TC helped elevate the idea to the point that the WSJ
picked up on it.

Granted, there's some dross in there, but like it or not, it's tech's paper of
record.

[https://techcrunch.com/2016/01/18/why-big-companies-keep-
fai...](https://techcrunch.com/2016/01/18/why-big-companies-keep-failing-the-
stack-fallacy/)

~~~
tedmiston
> In a surprising way, it is far easier to innovate down the stack than up the
> stack.

That was quite unintuitive to me on the surface, but the examples provided
really drove it home.

------
DavidSJ
_Viewed probabilistically, the most likely positive exit for a startup is an
acquisition for less than $50 million. This outcome has little benefit to VCs,
and they will happily trade it for an improbable shot at a higher outcome._

Am I misunderstanding something, or is the author asserting that VCs regularly
make the sunk cost fallacy?

~~~
tedmiston
I think he's referring to the distribution of VC-backed companies: since most
will fail, the ones that win have to win really big.

If all of the winners in a fund get acquired too early (small wins instead of
big wins) it could mean the fund is not actually successful because it's not
enough to outweigh the losses.

~~~
msencenb
This is accurate. Returns of VC portfolios follow a power law distribution.
One or two companies generally return the entire value of the fund, and these
tiny acquisitions are considered 'gravy'.

