It's interesting that of the many friends I have who started companies (10 - 12), only two of them didn't receive funding. Both businesses built from scratch and now have a revenue somewhere in the neighborhood of $1m a year after two years. That's honestly pretty good IMO.
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
I think startups die because they are pressured to spend a dollar or more for every dollar that comes in.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
> These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate
Heavily depends on the business. Banks absolutely hate to lend to businesses with few or no assets. It's not enough to just be able to cover the payments because of your MRR. The bank wants something to seize if you implode. For the bank it's a simple calculation: how do we get our money back, if your business turns south?
If you're an asset-light Internet company, SaaS, etc., you are not easily getting a bank loan just because you can meet the loan payments. It'll be almost impossible to get a traditional bank loan in fact.
> Banks absolutely hate to lend to businesses with few or no assets
Pretty much! My tech startup couldn't raise funding, morphed into a consulting business, and couldn't borrow money. We had to grow entirely out of cash flow, which was both liberating and terrifying. The only credit available to us was personal credit cards. We might have been able to get approved for a small line of credit, but it wouldn't have been large enough to make a difference, depending on it would have been risky.
A few thoughts on trying to cash when you're bootstrapping:
- if you've got personal assets & a willingness to put them up as collateral, you can do that
- you can borrow against accounts receivable, so if you're always sitting on $100,000 worth of A/R, a bank might lend you some percentage of that amount
- having someone on your team develop a relationship with a regional bank can help, because although they can't offer you any sort on liberal financing, they can tell you what you need to do to get it eventually (unlike a mega-bank, which usually doesn't have much of an imagination when it comes to offering you financial products to choose from
My personal credit was not optimal, I had no personal assets to speak of, and the business was too new/unstable to pitch a good "lend moneyz pleez!" story. Traditional lending channels were not available to me. I'm sure someone somewhere would have floated a loan, but I eventually chose to just work harder. Eventually trying to raise money seemed like more work than earning it.
Maybe the logic is another way around? Companies that have a clear product-market fit and generate enough revenue to self-fund and don't have competition closely behind their backs have much less reason to raise.
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
As a fairly successful bootstrapper, I'd say that it's more likely that taking money generally leads to a "runway" in that you need to be profitable or raise another round by the end of that runway. Many don't succeed in either of those efforts because they tend to take on heavy expenses too early, where a bootstrapper is much more thrifty and mindful of cash flow.
In the early days of my company, I applied to YCombinator, was a 2x Techstars finalist, and pitched Fred Wilson at USV's office. Rejected by everyone - but honestly, if I'd taken their money I probably would have mismanaged it and brought the company to an early end.
No doubt that may be true, but if a company doesn't have a clear market fit, how will more cash solve that? It just extends the opportunity to find such fit.
I don't doubt that investment money thrown at the correct product can spur it along. However, I believe most investors are looking for long shots, or returns better than the stock market. To obtain those type of gains, they will invest in the companies that can go boom or bust.
In contrast, the company that doesn't take money is incentivized to simply not go bust (even if it grows more slowly). They have to be cautious, keep their customers and grow. It's a requirement.
That being said, I don't disagree with you. Perhaps, I'm completely wrong in gneral, but from my circle of friends that appears to be the case.
You may also be missing the fact that VCs need big exits to be successful. It's very possible that the 2 businesses that are successful just didn't have the percieved potential to be unicorns. I keep hearing rumor that the term 'lifestyle business' has started to take on a pajoritive tone in certain circles, and I suspect it has a lot to do with how little interest the owner has is big growth. I personally would probably never try to get VC funding since my goal in business is always to not work, and big growth requires way more effort than it's worth.
How long did your “non-funded” friends put into it before it could pay their own expenses? Unless it was really fast, it’s probably more accurate to call it self-funded or bootstrapped and then compare numbers.
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
It depends how good are you at planning your time/money and what your goals in life are. People in tech tend to make ~2x the median wage, so if you set a goal of scaling down your lifestyle to save enough cash for a personal safety net, it's totally doable. It also doesn't have to be that - you can do consulting in parallel, or find a part-time remote job or whatever.
It's just a totally orthogonal skill set to fundraising. If you're charismatic and can sound confident talking about trendy topics, sooner or later you'll find someone willing to write you a check even if you are crap at planning and delivering.
Self funding amounts and seed funding amounts are generally at least an order of magnitude different, sometimes two. It doesn't really make sense to draw an equivalency between them.
For example, I started my company with 20k of savings. It's not uncommon for seed rounds to be in the 2M and up range now.
I was going to say something like that. There is a tendancy around HN to equate "startup" with: Me, my laptop, and a couple of AWS instances at $0.70/hr.
On the other hand, if "default alive" means paying a pattern shop for a master pattern and buying 1000 aluminum castings to fill in 3% of your BOM cost, most folks need outside money.
The main reason why bootstrapped companies have a better chance is that they grow more naturally/slowly. Once you take VC money you have to go full steam ahead so the investors can exit in 3-4 years. And in most cases that forces you to take directions you don't want to.
I've thought about taking money, not because I need the money, but because I am interesting in tapping some expertise. However, it has always been unclear how much expertise is exchanged for startup capital.
Observing some of the people I know looking for startup funding they are pretty focused on getting funding and less so on having a profitable business. The plan seems to be funding, try to be the uber or blockchain for something then seek more funding. Bootstrapping forces you to look for ideas which are actually cash profitable which may help account for the difference.
And those 8 startups have spoiled the culture. Honestly your 2 bootstrapped startup/friends are lucky to survive but imagine if they had to compete against funded startups? The funded guys will outsmart them with money muscle and might eventually crash themselves ruining it for everyone..
When the top comment is (at least partially) made-up anecdata, it deserves calling out, even if the tone could use some work. Perhaps next time I'll quote pg.
It isn't a question of 'tone', but of content. If you take out the uncivil and/or empty content and replace it with substance, then you'll be raising the signal/noise ratio instead of lowering it. That's what we're hoping to see.
"Calling out"—sort of a dubious phrase from internet shaming culture to begin with—doesn't really enter into it. Signal/noise ratio does.
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
[1] http://www.paulgraham.com/die.html