
No Venture Capital Needed, or Wanted - tosseraccount
http://www.nytimes.com/2016/06/02/business/smallbusiness/no-venture-capital-needed-or-wanted.html?src=me&_r=0
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nickpsecurity
I'd like to see more of this in tech startups. Especially with all the free
info from groups like Y Combinator that's online to help them. Just people in
college, on summer break, or even retirement just cranking out code for a
platform and doing sales trying to make it work. Should be more success
stories out of it. I think most of these people just try to do too much
themselves without external support both as a sounding board on their ideas
and for how to run a startup. They probably read business books more tailored
to lifestyle businesses and such whereas a startup has different rules.

~~~
cardine
This is exactly what I've been doing. It started with me coding the MVP myself
with a little help from a summer intern and then me aggressively handling all
sales myself until I reached a 5+ figure MRR where I could finally start to
delegate some of that work to others.

Now we are growing like any other startup would, just instead of being fueled
by VC funding, we are being fueled by all of the profits from all of the
selling I was able to do and all of the word of mouth that happened
afterwards.

You've probably never heard of me and no media outlet cares about me because I
started as a not so sexy B2B, but the company and its products are growing
much more ambitious in scope as we are getting the capital to do so, and now
we are in the same position as many other VC funded companies, except I have
100% equity and don't have to worry about searching for a way to become
profitable or running out of money since the second I decide to stop
reinvesting everything into growth the company will instantly be extremely
profitable.

~~~
jacquesm
Fantastic story, really neat to see you making it in this way. That's _real_
entrepreneurship. The only thing that can hurt you is some venture backed
start-up going aggressively after your customers by undercutting you until
they run out of cash.

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dreyfan
I'll share our story and current situation:

We bootstrapped with time (evenings & weekends) until we had enough revenue to
keep the lights on, at which point we quit our full-time jobs and pursued it
100%. We're in our fifth year now and we closed 2015 with $2M in revenue.
Excluding compensation, our operating costs (servers, professional services,
supplies, t&e, taxes, etc) are about $125k.

While things are great, growth has also slowed due to sheer bandwidth
available from only 3 people. We've definitely struggled with hiring. When a
new employee's salary directly comes out of your own compensation, you tend to
become very particular about people pulling their weight, so we've churned
through 10 people so far. I've had a very difficult time competing for top
talent.

At this point I think the networking and advice would be the most valuable
thing a VC could bring to the table, as we have an abundance of cash and
technically a very easy business to scale. Just need capable people who like
to be well-compensated.

~~~
rebootthesystem
> I've had a very difficult time competing for top talent.

The problem is this idea of looking for top talent.

The vast majority of people in virtually any human endevor are mediocre. Be it
an orchestra, army or corporation. Maybe 5% to 10% of an organization is top
talent, the rest are average.

What makes any organization excel is having managers and leadership who can
take a team of average folks and make them produce brilliant sounding
symphonies. Develop THAT skill and you'll have no limits.

~~~
alexqgb
I wish I could upvote this 100 times because this is the absolute honest to
goodness truth. It's not that talent is over-rated so much as really well-run
places are underrated. Perhaps that's because talent is actually a lot more
common, and thus better understood.

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vanattab
I noticed all these entrepreneurs had access to at least 100,000 dollars of
capital and most several times more then that which I think makes such self
funding easier said then done, at least for a large class of Americans. How
much capital does a founder usually bring to the table for the first round of
VC funding?

side note: I also happen to be in the market for a new mattress and was
wondering if anyone has tried these Saatva's?

~~~
smt88
> _at least for a large class of Americans_

The vast majority of Americans can't (and shouldn't) start companies. The risk
far outweighs the reward. Even those who can afford to start companies
overwhelmingly fail.

Starting a company is a luxury of those with lots of cash or lots of
connections (or both). You read articles about teenagers getting VC, but
that's a very small minority of the people who get funded.

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kriro
It is the great irony of our times that a domain that requires so little
working capital to start and grow reasonably well (software) is so hungry for
money infusions. I hear that you need the money to grow quickly and growing
quickly and capturing networking effects is the path to getting a horn on your
horse. I'm not buying it. Being profitable as quickly as possible allows you
to reinvest that money which then multiplies into even more investment
capital.

Getting the know how and connections I can understand but VC for the money to
fuel hyper growth...it sounds like a questionable proposition. Why would I put
off testing the most fundamental hypothesis of my business (can it be
profitable)?

Are there any known companies that explicitly didn't take any money after YC?
It feels like once you take the first bit you're sliding down the slope since
investors are pushing to take further rounds which usually pop up valuation.
YC->bootstrap mode seems like a reasonable approach but the YC program seems
to be built around pitching to the next round of investment (demo day). Has YC
considered an alternate program where the explicit goal is being profitable
after the program (black number day instead of demo day)?

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hkmurakami
I was reminded of 37 signals' "Bootstrapped, Profitable, and Proud" series.

[http://37signals.com/bootstrapped](http://37signals.com/bootstrapped)

~~~
nickpsecurity
That's awesome. Thanks for the link. I particularly like two things here. One
was how the founder bootstrapped the business by straight-up asking old
clients in his network to pay him enough to get started. You don't here about
that much in HN writing on startups but it's extremely common in consulting
with untapped potential outside of it. The other was this quote:

"It's difficult for inexperienced merchants to recognize value. We'd spend
countless hours trying to explain 'pain' and our cure but some just didn't
care because they handn't felt it yet. With our limited resources, we had to
figure out a way to only work with those who valued the medicine we were
offering."

That's brilliant. It's brilliant because it might be the trick to getting more
uptake in my niche, high-assurance systems. They cost more with some
sacrifices to use. Most won't buy them since they don't see the benefit. Yet,
such methods are utilized in railways, airplanes, some industrial controls,
and some defense organizations. They've felt the pain of failure on their
bottom line. So, there's always a niche that prefers paying a bit more to
eliminate lots of risk and uncertainty out of their operations. Plus
headaches. Money you spent upfront isn't pleasing to look at but you can
almost forget about it vs stress of occasional fire-fighting in random places.

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russell_h
> In their haste to get financing, start-up founders often fail to read the
> fine print and later discover that they have signed away huge shares of the
> profits.

Does this actually happen?

~~~
TeMPOraL
Yes, and AFAIK it's a known business advice - if you want to build a
sustainable company and get rich off it, the most valuable thing for you is
ownership. Taking VC money is signing off some degree of ownership - you get
some cash now, but seriously limit your potential value later.

But most startups are not built with sustainability in mind. They're a get-
rich-quick scheme.

~~~
cortesoft
Yeah... the ones that aren't a get-rich-quick schemes are called 'small
businesses'

~~~
ascendantlogic
Or if you're not taking a moonshot you will hear the derisive term "lifestyle
business" from people who turn up their nose at things like "profitability"
and "life/work balance" and other things that don't make VC's 3 to 5 to 10x
returns because that's all that matters in life, right?

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hobarrera
> [...] took $350,000 of his own money to write a business plan.

That is by far more money than I've seen in my entire life. Of course you
don't need money for your startup if you're already rich.

~~~
AndrewKemendo
I'm not sure how they seriously wrote this story with that as the lede.

 _“I’m much more meticulous and efficient. I might go a little slower, but in
the end I believe I win.”_

Slow is not how you win.

I think this article fundamentally misunderstands the goal of VC backed
companies: Billion dollar exits and paradigm shifting technologies. That's not
for every company.

~~~
rpedela
Fast is not how you win either as shown by the recent unicorns. The truth is
that sometimes you need to go slow and sometimes you need to go fast. Actually
I don't really like the term "slow" because it suggests laziness, bureaucracy,
or decision paralysis. I like the term "patience" better. Be diligent and
efficient, but not hasty and if you get a bit of good luck (e.g. being a Parse
competitor when Parse announces it will shutdown) then move really fast to
capitalize on it.

~~~
AndrewKemendo
Depends on what you're measuring.

Fast is absolutely how you win - but it matters when you are fast. That's the
whole point of Venture money, to go fast aka "Growth Capital". You don't do
that in the beginning, you are patient but if you want to grow, you have to
grow quickly, otherwise you get taken out by a larger competitor who can get
to market faster. Failed unicorns put growth capital before they have a solid
market position.

[https://en.wikipedia.org/wiki/Growth_capital](https://en.wikipedia.org/wiki/Growth_capital)

~~~
sangnoir
> if you want to grow, you have to grow quickly, otherwise you get taken out
> by a larger competitor who can get to market faster.

This only applies if you're in the pre-launch phase and you haven't gotten to
market yet. For those organizations that are already on the market, how fast
your ramp up does not always mean you will win. The inherent risk of VC-
fuelled fast growth is that the excessive funding will overshoot the actual
value _very quickly_ \- and suddenly what was supposed to be a healthy $1B
business becomes a "$30B" (on paper) series-J failure with no hope of getting
a reasonable exit. In that case, I feel the slow/patient growth to $1B is far
better for everyone involved (except VC).

There is a long list of (ex-)startups that make me scratch my head: in what
parallel-universe could they possibly be worth _$X_ \- which ever way you
slice it - their revenue cannot support the exuberant valuations.

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gkanai
In Japan, Start Today Co. Ltd. (better known as Zozotown, a popular online
apparel retailer) went public this year without having raised any venture
capital. $5B mkt cap at this time. Founder also owns way more than 50% of
shares and recently bought over $100M USD of modern at at auction.

[https://www.google.com/search?q=TYO:3092](https://www.google.com/search?q=TYO:3092)

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agentgt
I have noticed there are a lot more companies on the east coast (including my
own company) that are like this. Yeah I won't be a billionaire but I think you
can make a pretty darn good living with lifestyle businesses.

I have wondered if it's a cultural thing or just that there is more
money/investors/people willing to take/give money in California.

~~~
DTrejo
Smart move on bootstrapping! I think people take funding for a few reasons

1) glitter or brainwashing 2) they don't know how to sell before they build
(you're guaranteed a business if you have paying customers/clients)

Also, it's a business, no lifestyle about it. Almost all businesses are
bootstrapped (just like most businesses are not in the valley).

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Lordarminius
One thing I haven't seen mentioned yet in all the comments (or maybe I just
missed it)is that a capital infusion can allow you buy talent and expertise
which in turn permits you to grow faster.

In the article Rudzin worked for 20 years within the industry and he surely
within that time had accumulated a lot of niche knowledge which helped him
succeed.

Say X is a high school teacher with an insight that a better mattress is
needed in the marketplace. She follows up on this and goes on to start a
company that initially shows traction. X after a while will discover that her
lack of knowledge in finance, distribution, negotiation, HR, legal etc (in a
general sense, and on an industry-specific level) is a barrier to her companys
development. Capital will help solve this problem by allowing her 'buy' and
domesticate expertise within the company and and use same for expansion and
growth.

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lowglow
I'd like to see more companies bootstrapping with help from their communities
they build that see real value in their products. Building a transparent and
open product with community feedback around things that work is the core of
what we're trying to facilitate with Baqqer
([https://baqqer.com/](https://baqqer.com/)). I believe this builds strong,
robust products that aren't built in a silo and launched without an audience.

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akhilcacharya
>When he created Spokeo with three college buddies from Stanford University in
2006, he tried to get equity financing, but was turned down by more than six
angel and venture capital investors.

Maybe my perception is warped but is this even _possible_ today, or during the
peak a year or two ago?

~~~
ben_jones
Unless you're shaking and stuttering during the pitch it would probably be
impossible not to get a pre-seed investment with that much Stanford glitter
all over you.

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danieltillett
This is the money quote.

“I don’t remember seeing a company going public on the Nasdaq in the last 20
years who arrived at the I.P.O. with only management owning the company,” he
said. “It’s almost a rite of passage.”

Why would you sell a business that you owned 100% of that was able to be
bootstrapped to $100 million in revenue. What possible business that you could
invest the proceeds in that would be better than this?

~~~
mathattack
It can also be about funding growth. (Getting more money to invest in your
awesome business)

Let's say you can get to $100mm in recurring revenue, and your company has
$95mm in costs. Let's say that you know that every $1 in cash that you invest
in Sales will generate $1 in new business every year from here on out. (This
is a good business after all!)

If you don't take any VC money, your business will grow as follows: 100M ->
105M (100+100-95) -> 115M (105+115-95) -> 135 (115+115-95)

Now let's say you take $20mm from a VC, or the public markets. You now are
investing $25mm in the base year, from which to grow.

Your revenue stream would be 100M -> 125M (100+ 120 - 95) -> 145 (125 + 125 -
95) -> 185 (145 + 145 - 95)

So you have a 185mm revenue company rather than a 135mm company on the back of
the investment. If your company trades at a $5x revenue multiple (similar to
what Qlik traded at today) you have increased the value by $250mm for the
$20mm initial investment.

The math is a little fuzzy, but the general idea is as long as you can use the
money smartly to increase your rate of growth faster than the VC (or public
market's) required return on capital, it's worthwhile for all parties.

~~~
beambot
The VC model isn't the only game in town. If the revenue was predictable and
stable, you could just as easily obtain a line of credit (debt financing)
without giving up any equity a la VCs.

~~~
mathattack
Reasonable point. There are lower cost sources of capital. My impression is
that many banks are still nervous about lending to SaaS startups if the GAAP
metrics don't look great.

This may be why PE companies are getting into the game lately.

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jerryhuang100
i'm surprised chobani is not listed here as it's one of the most successful
story of entrepreneurship with personal funding (+ small business loan)
lately.

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hoodoof
Venture Capital is needed to establish a ponzi-scheme like escalation in
value. Multiple parties agree over a period of time that the company has
increased in value, the most recent party making it true by handing over some
money at the largest valuation.

No less than Steve Blank puts forth this idea: [http://www.inc.com/zoe-
henry/steve-blank-tech-bubble-burst-p...](http://www.inc.com/zoe-henry/steve-
blank-tech-bubble-burst-ponzi-scheme.html)

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kfox2010
garbage

