
More founders reject VC money - dpapathanasiou
http://www.crainsnewyork.com/article/20130227/TECHNOLOGY/130229888
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pg
This is sort of true, but what it misses is that money and power are only
loosely coupled. The real story is that VCs have decreasing power over the
companies they fund, regardless of the deal size. For example, it is now the
norm among YC startups for the founders to retain board control even past the
series A round (which itself is increasingly a de facto series B).

Curiously, one reason this is happening is that VCs are realizing that they
didn't need as much power over founders as they had. All the returns come from
the big winners, and the big winners don't need to be told what to do.

VCs may well make higher returns with less power.

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AdamFernandez
Do you sense this is a philosophy that is taking hold with most VCs currently?

~~~
pg
Like most trends among VCs it has started at the top. The top west coast firms
are the most willing to concede power to founders. Lower-tier firms, and firms
in other places, are less willing to, largely because in this as in other
respects they're always a few years behind.

I say largely because lower-tier firms have a different and less trusting
relationship with companies they fund. They assume that if a company had to
resort to raising money from them, it won't be one of the big successes. They
are the hotel where the TV is bolted down so the guests don't steal it.

~~~
AdamFernandez
Thanks. I like the analogy.

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speeder
My cofounder refused the idea of seeking accelerators (even YC, at least for
now) for more or less that reason. He (and the seed investors) agreed that the
company will do what we wish only.

We are now happily seeking investments that are bigger than an angel, but
smaller than VC, specially from private individuals, in a way to not be
pressured into the classic VC model (ie: not having to exit, or return the VC
investment in 5 years and so on)

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kayhi
"Everyone says it's cheaper to build and launch things, but it still costs the
same to market it worldwide and get customers," said Bob Greene, managing
partner of Contour Venture Partners and chairman of the New York Venture
Capital Association.

I would say that the cost of reaching customers is rapidly decreasing. The
popularity of various distribution platforms (Facebook, Search, Adwords, App
Store, LinkedIn, Email, etc..) are allowing customers to be reached more
efficiently.

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yesimahuman
Yea, that quote read like a blatant "we are still important!" cry.

My startup bootstrapped to over 100k users all from Twitter and inbound
marketing. We spend $0 on marketing. That's real.

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NonEUCitizen
Have you written this up (bootstrapped to 100k users) in more detail on your
blog or elsewhere? Please provide a url (and if you have not, please write it
up and share on HN).

~~~
yesimahuman
Not yet, but I should. Thanks for reminding me!

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snydeq
How do folks see crowd-funding platforms like Kickstarter having a longer-term
impact here?

The promise of sustainable incubation without ceding control seems real using
this model, but it might add overhead in areas where fledgling "companies" or
projects might not have the time or bandwidth to steer.

Plus, I suppose, there's the question of the VC's rolodex vs. the "networking
effect" of the crowd.

Arts organizations seem to rely on this model fairly regularly, but as much as
one might want to be idealistic in suggesting that it is about "maintaining
aesthetic independence" from monetary influences (big donors, government
grants, "selling out" to the market), the drying up of funding in traditional
areas is a prime motivator here as well.

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r00fus
KS makes a huge amount of sense in that it's both a publicity channel as well
as a funding mechanism. If you can successfully handle a KS initiative to
create a meaningful investment "round" and then deliver on some product (with
adequate margins) or MVC design that the funders receive well, you will both
have some working capital and social proof in one go.

That said, it seems like a daunting challenge for technical-oriented folks -
this is exactly where a paired business/technical co-founders model should be
very useful.

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jaxytee
The biggest weakness I find of the VC funded route, is it's accidental "Let's
get more money so we can build more product" effect. It can delay the all
important moment of asking someone give you money for your product's created
value. I once worked at a 1 year old company with ~$2 Million in the bank and
a fledging product in production. Our board wanted to raise more money to hire
more engineers. We didn't need more engineers. We needed a product people
wanted to use.

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tmflannery
Fundraising 101 is don't fundraise. Any investor worth his salt says don't
raise money unless you have to. You need some damned good reasons to give up
your equity/control. I don't get why this is a big deal. This article should
have focused more on the changing VC model then illustrate the basics of
bootstrapping.

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pclark
What power do investors have if they don't have board control? All the
percentage equity stuff seems irrelevant.

~~~
spodek
There are many ways to have influence. A few, for example

\- They can limit the company's ability to raise future funds

\- They can convert equity to debt if it's convertible. If the company can't
pay back the debt they can gain more control

\- They can have rights to control hiring and firing

\- They may have voting rights with the equity

\- They have a voice with the public, press, customers, hiring candidates

\- They have rights as minority shareholders

\- Various clawback and other provisions may raise or lower their equity
stakes, giving them more or less control

\- They have access to information they wouldn't have otherwise

Besides contractual and legal rights, they have relationships with management.
Presumably they can just talk to management and influence them that way.

Also, power can also be used to act in concert with the company, which is
augmented by their inside information and made more credible by their shared
interest. They can

\- Recommend candidates for hiring

\- Recommend clients

\- Inform about competition

\- Advise

\- Reinvest

\- Recommend other investors

Etc etc

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kaa2102
I think that entrepreneurs should build to ship to customers rather than to
court VCs.

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dougabug
Welcome to the post-VC era.

