Ask HN: Do you regret taking investment?
66 comments
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.
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!
Obviously the goal is to develop both!
The best technology where "best" means it actually does something useful for people, rather than whatever we, engineering types, think it is.
I find it interesting that this is the first answer, so I started an alternate Ask HN: Do you regret not taking investment https://news.ycombinator.com/item?id=14258278
Interesting -- what company was this for? Maybe you can market it on HN :)
BitMover/BitKeeper. Nice idea but too late, the market has gone to git.
Which chaps my hide, git is an awful design, it's a tarball server pretending to be a source management system. Source management is basically an accounting program for programmers, it's suppose to faithfully log what you do. How does git do that when it has no concept of a file? Answer: it guesses about renames. And blame is slow because there are no file create or file delete events.
It was trivial for us to create a bk fast-export command and make it work incrementally. It's next to impossible to do it the other way incrementally because git doesn't have a versioned file object.
It's like a file system that has no inodes. To me, it makes no sense. But it won. Yeah. Not.
Which chaps my hide, git is an awful design, it's a tarball server pretending to be a source management system. Source management is basically an accounting program for programmers, it's suppose to faithfully log what you do. How does git do that when it has no concept of a file? Answer: it guesses about renames. And blame is slow because there are no file create or file delete events.
It was trivial for us to create a bk fast-export command and make it work incrementally. It's next to impossible to do it the other way incrementally because git doesn't have a versioned file object.
It's like a file system that has no inodes. To me, it makes no sense. But it won. Yeah. Not.
Thanks for the background. There are indeed awful things about git's design, but I think it would have been very hard to out-market git.
Git is both free AND viral. It's viral because if you want to use someone else's code, you have to use their source control system. Linux using git is a big deal in that respect (and yes I realize the kernel used BitKeeper :) ).
Also, Github as company and git the open source project are pretty complementary. It's hard to house both entities under the same roof, and you need that for ecosystem to succeed. Github is basically a UI/app company, and git is systems plumbing.
It's analogous to some PaaS companies wanting to make their own web framework. No actually that's a huge amount of work and you underestimated it. For all its faults, rewriting Rails is not something anyone can do. Heroku ended up being one of the early success stories because they just took your rails app and ran it.
Likewise everyone thinks they can rewrite Github, but that's pretty hard. It's at least 10x more work than you think, and you can get it wrong. If a tool isn't open source, there's much less incentive for a company like Github to come around and "popularize" it.
It seems like it's very hard to make money in developer tools in general, because so much is open source. And honestly they should be -- I would be a hypocrite if I said I didn't choose tools because they are open source. I guess Github and Atlassian are the outliers.
Anyway, my overall point is that I wouldn't necessarily chalk it up to marketing :) I do think open source got much bigger in the last decade, and it's hard for me to imagine that it wouldn't be built around an open source VCS.
Git is both free AND viral. It's viral because if you want to use someone else's code, you have to use their source control system. Linux using git is a big deal in that respect (and yes I realize the kernel used BitKeeper :) ).
Also, Github as company and git the open source project are pretty complementary. It's hard to house both entities under the same roof, and you need that for ecosystem to succeed. Github is basically a UI/app company, and git is systems plumbing.
It's analogous to some PaaS companies wanting to make their own web framework. No actually that's a huge amount of work and you underestimated it. For all its faults, rewriting Rails is not something anyone can do. Heroku ended up being one of the early success stories because they just took your rails app and ran it.
Likewise everyone thinks they can rewrite Github, but that's pretty hard. It's at least 10x more work than you think, and you can get it wrong. If a tool isn't open source, there's much less incentive for a company like Github to come around and "popularize" it.
It seems like it's very hard to make money in developer tools in general, because so much is open source. And honestly they should be -- I would be a hypocrite if I said I didn't choose tools because they are open source. I guess Github and Atlassian are the outliers.
Anyway, my overall point is that I wouldn't necessarily chalk it up to marketing :) I do think open source got much bigger in the last decade, and it's hard for me to imagine that it wouldn't be built around an open source VCS.
>Git is both free AND viral. It's viral because if you want to use someone else's code, you have to use their source control system. Linux using git is a big deal in that respect (and yes I realize the kernel used BitKeeper :) ).
And BK is (was, until last year [too late]) closed software that requires a paid commercial license to use. Pretty much a show stopper for open source contributors donating their free time.
And BK is (was, until last year [too late]) closed software that requires a paid commercial license to use. Pretty much a show stopper for open source contributors donating their free time.
Yeah, too late. Shoulda, coulda, woulda. There's some nice code in there though, I wish people would steal our libc stuff. Some really nice ideas in there. And a pleasant license so you can use it where ever you want.
I believe you. I've never used BK, but I did do some research before posting my comment. Couldn't find a single complaint on the technical end of things. Literally not one.
It would make it much easier to steal if you mention (that is, market) which ideas in there are worth stealing ;)
I've long thought I should do a blog on it and submit it here, just haven't gotten around to it. Until then...
The "lines" data structure. This is a list library that scales down to a very small thing and up to pretty decent sized things. Think perl arrays and the ops on them. lines.h snippet below.
The result to a user is if they
It gives you compression and hardened files under the stdio API and it's super fast. Like GB/sec fast.
There's other stuff as well, like the spawn() code (I haven't called fork() in a decade or more) that brings a form of Windows spawn to Unix (since you can't make fork() work well on Windows). All of the code is Windows/Unix portable.
The "lines" data structure. This is a list library that scales down to a very small thing and up to pretty decent sized things. Think perl arrays and the ops on them. lines.h snippet below.
/*
* liblines - interfaces for autoexpanding data structures
*
* s= allocLines(n)
* pre allocate space for slightly less than N entries.
* s = addLine(s, line)
* add line to s, allocating as needed.
* line must be a pointer to preallocated space.
* freeLines(s, freep)
* free the lines array; if freep is set, call that on each entry.
* if freep is 0, do not free each entry.
* buf = popLine(s)
* return the most recently added line (not an alloced copy of it)
* reverseLines(s)
* reverse the order of the lines in the array
* sortLines(space, compar)
* sort the lines using the compar function if set, else string_sort()
* removeLine(s, which, freep)
* look for all lines which match "which" and remove them from the array
* returns number of matches found
* removeLineN(s, i, freep)
* remove the 'i'th line.
* lines = splitLine(buf, delim, lines)
* split buf on any/all chars in delim and put the tokens in lines.
* buf = joinLines(":", s)
* return one string which is all the strings glued together with ":"
* does not free s, caller must free s.
* buf = findLine(lines, needle);
* Return the index the line in lines that matches needle
*/
The result to a user is if they
fpush(&f, fopen_crc(...));
It gives you compression and hardened files under the stdio API and it's super fast. Like GB/sec fast.
There's other stuff as well, like the spawn() code (I haven't called fork() in a decade or more) that brings a form of Windows spawn to Unix (since you can't make fork() work well on Windows). All of the code is Windows/Unix portable.
you probably could have captured a significant commercial marketshare but i highly doubt you could have beaten git in the open source world, since it was created by your highest profile customer who also happens to be the highest profile open source author (linus torvalds) in direct response to your licensing situation.
Yeah, well. We did what we could. I've been beat up about the licensing and eventually saw the light, the whole thing is open source under the Apache v2 license.
As to the "direct response" stuff, so do you have that straight from Linus? Because that's not what he said to me and we were very close at the time, emailed or got on the phone daily.
I'm a little tired of the licensing stuff. It wasn't as bad as people made it out to be but I get it, it's a more fun story when someone is the bad guy. Can I ask you to let it go or is that too much?
As to the "direct response" stuff, so do you have that straight from Linus? Because that's not what he said to me and we were very close at the time, emailed or got on the phone daily.
I'm a little tired of the licensing stuff. It wasn't as bad as people made it out to be but I get it, it's a more fun story when someone is the bad guy. Can I ask you to let it go or is that too much?
no, of course not. i'm a nobody. but that's the impression that's out there. i don't really care, tbh, it seems like it was just bad timing.
anyway, glad to hear you are retired by the sea in norcal, that's not exactly a sob story, which is why i feel comfortable commenting about it (and you're on a public forum).
anyway, glad to hear you are retired by the sea in norcal, that's not exactly a sob story, which is why i feel comfortable commenting about it (and you're on a public forum).
I was a nobody and am again. Don't sell yourself short, if you are hanging here and you know the licensing stuff you are paying attention. With that much energy my feeling is you can do stuff. Go do it. If I can help let me know.
What I wrote is going to be super harsh but I'm being purely analytical and this is not to be taken personally:
You definitely don't sound confident at all and I feel like your problem is much deeper one where taking VC money or not isn't the issue.
It's clear from reading you would've spent the money on non-marketing as the hindsight speaks for itself.
Marketing is a small part of the equation but shouldn't be most of the funding goes. Depending on your business and industry, it will vary greatly.
I really don't see any negative impact on you. It might feel that you missed out but maybe it was never a good fit.
Of course, today, you are wiser and know exactly what to do with it, so consider it a lesson that can't be taught in schools.
You definitely don't sound confident at all and I feel like your problem is much deeper one where taking VC money or not isn't the issue.
It's clear from reading you would've spent the money on non-marketing as the hindsight speaks for itself.
Marketing is a small part of the equation but shouldn't be most of the funding goes. Depending on your business and industry, it will vary greatly.
I really don't see any negative impact on you. It might feel that you missed out but maybe it was never a good fit.
Of course, today, you are wiser and know exactly what to do with it, so consider it a lesson that can't be taught in schools.
> so consider it a lesson that can't be taught in schools
You do realize you condescend Larry McVoy, right?
You do realize you condescend Larry McVoy, right?
I think you mistook me for someone else. My name is not Larry McVoy.
No, that's me. Maybe I should change my login.
Naw, keep it, it's a cool handle. Maybe just add your name to your profile (I know who "BitKeeper Guy" is, but there are almost certainly some users on HN who are literally younger than Git).
Wow, way to make me feel old (reality sucks). But you are right, took your suggestion. Thanks.
I'm plenty confident, in fact, too much perhaps. After all, I founded a company that has lasted 19 years (and technically still exists, we have some money in the bank).
That company changed the world. No, we didn't win, but all the distributed source management systems came after us, we were first, they are copies of our model. We invented that space, clone/pull/push/commit are our verbs. We invented, in effect [1], the concept of a changeset. Before us, there was CVS. No binding of a set of related files in a commit. I'm good with that, we changed the world for the better. If you are a programmer your world is better on a daily basis because of us.
As for "my problem being much deeper", not sure where you get that from. I'm retired, I'm fine. Do I have some regrets? You bet.
- I wish Git, since it won, was a pure clone of our stuff, we have a much better architecture, both for accuracy and for performance (try running Git on NFS, then try our stuff. Try running Git with a 4GB repo and then try our stuff.)
- I wish I had made enough money that my team could also retire.
Other than that, I'm good. I've got 4 dogs that I love, live in the Santa Cruz mountains with an awesome family that I also love, I've got nothing to complain about. Well, maybe some health stuff but I'm old so that is par for the course.
[1] One of my guys, Rick Smith, knows way more about this stuff than I do, and he tells me that Aide-de-camp had some sort of changeset concept. So perhaps we were not first. But nobody knew about it. Back when dejanews was a thing you could search usenet in a time range. I remember searching going backwards from the time that we introduced the changeset concept, there either 6 or 9 hits in over 2 decades of Usenet posts. The fact that everyone knows what a changeset is traceable to us far more than Aide-de-camp.
Edit: formatting
That company changed the world. No, we didn't win, but all the distributed source management systems came after us, we were first, they are copies of our model. We invented that space, clone/pull/push/commit are our verbs. We invented, in effect [1], the concept of a changeset. Before us, there was CVS. No binding of a set of related files in a commit. I'm good with that, we changed the world for the better. If you are a programmer your world is better on a daily basis because of us.
As for "my problem being much deeper", not sure where you get that from. I'm retired, I'm fine. Do I have some regrets? You bet.
- I wish Git, since it won, was a pure clone of our stuff, we have a much better architecture, both for accuracy and for performance (try running Git on NFS, then try our stuff. Try running Git with a 4GB repo and then try our stuff.)
- I wish I had made enough money that my team could also retire.
Other than that, I'm good. I've got 4 dogs that I love, live in the Santa Cruz mountains with an awesome family that I also love, I've got nothing to complain about. Well, maybe some health stuff but I'm old so that is par for the course.
[1] One of my guys, Rick Smith, knows way more about this stuff than I do, and he tells me that Aide-de-camp had some sort of changeset concept. So perhaps we were not first. But nobody knew about it. Back when dejanews was a thing you could search usenet in a time range. I remember searching going backwards from the time that we introduced the changeset concept, there either 6 or 9 hits in over 2 decades of Usenet posts. The fact that everyone knows what a changeset is traceable to us far more than Aide-de-camp.
Edit: formatting
Hi Larry,
I for one thank you for your contribution. Hacker News can be a bunch of jackasses at times.
You are absolutely right: distributed version control led to git, which completely changed programming. And though Satoshi didn't cite it by name it was almost certainly also part of the inspiration for Bitcoin and the blockchain, which has led to another $30B in collective market cap.
If you want a suggestion for what to do next, or what to advise, you can probably have a lot of impact (and make money) by getting involved in some of these new distributed ledger/ICO projects. You have the technical ability and it's now possible to monetize at the protocol level. Here are some links if you're interested:
https://www.smithandcrown.com/icos/
https://startupboy.com/2014/03/09/the-bitcoin-model-for-crow...
http://www.usv.com/blog/fat-protocols
I for one thank you for your contribution. Hacker News can be a bunch of jackasses at times.
You are absolutely right: distributed version control led to git, which completely changed programming. And though Satoshi didn't cite it by name it was almost certainly also part of the inspiration for Bitcoin and the blockchain, which has led to another $30B in collective market cap.
If you want a suggestion for what to do next, or what to advise, you can probably have a lot of impact (and make money) by getting involved in some of these new distributed ledger/ICO projects. You have the technical ability and it's now possible to monetize at the protocol level. Here are some links if you're interested:
https://www.smithandcrown.com/icos/
https://startupboy.com/2014/03/09/the-bitcoin-model-for-crow...
http://www.usv.com/blog/fat-protocols
Hacker news hasn't cornered the market on jackasses, my opinion is that this place has one of the least amounts of jackasses. But yeah, I get your point.
I'm pretty retired but I'll check out your links. I kinda feel like a useless dinosaur but if there are places where I can help move things forward I'm 100% up for that. I just don't feel like I have that much value to add at this point.
Edit: one thing I really wish would happen, and if I could help with this I'm in, is /etc and any other config file is under version control. 3-way merge/3-way diff and merge is way way better than 2 way.
For that matter, I wish drop box was versioned. Same reason. It's always blown my mind that nobody has done a file system that was versioned so you could merge stuff. Maybe that's because BitKeeper merges so much better that the others. It's possible to automerge a lot more if you have the history.
I'm pretty retired but I'll check out your links. I kinda feel like a useless dinosaur but if there are places where I can help move things forward I'm 100% up for that. I just don't feel like I have that much value to add at this point.
Edit: one thing I really wish would happen, and if I could help with this I'm in, is /etc and any other config file is under version control. 3-way merge/3-way diff and merge is way way better than 2 way.
For that matter, I wish drop box was versioned. Same reason. It's always blown my mind that nobody has done a file system that was versioned so you could merge stuff. Maybe that's because BitKeeper merges so much better that the others. It's possible to automerge a lot more if you have the history.
>>>For that matter, I wish drop box was versioned. Same reason. It's always blown my mind that nobody has done a file system that was versioned so you could merge stuff. Maybe that's because BitKeeper merges so much better that the others. It's possible to automerge a lot more if you have the history.
https://en.wikipedia.org/wiki/Files-11
(A little facetious here...no merging, but come on, it was the 1980s.)
https://en.wikipedia.org/wiki/Files-11
(A little facetious here...no merging, but come on, it was the 1980s.)
VMS style versioning is not at all what I meant. What I meant is the OS implements the inode just like a versioned file in an SCM.
Consider the /etc stuff. You wack apache's config, so does debian, you do an apt-get upgrade and it either automerges or you get presented with the 3 way merge in $EDITOR or our graphical file merge.
In many cases, the system can just automerge it (BitKeeper has a pretty sophisticated way of doing, it's better than other answers in a lot of cases) and when it can't you get access to the full DAG and can use all the SCM tools to merge.
Consider the /etc stuff. You wack apache's config, so does debian, you do an apt-get upgrade and it either automerges or you get presented with the 3 way merge in $EDITOR or our graphical file merge.
In many cases, the system can just automerge it (BitKeeper has a pretty sophisticated way of doing, it's better than other answers in a lot of cases) and when it can't you get access to the full DAG and can use all the SCM tools to merge.
I meant more from the investors angle. I definitely don't get any sense of confidence from the business point of view but I can see there is little doubt in your technical execution.
But there lies the problem. You are deeply attached with your ideas and product. You said yourself, you spent 19 years changing the world in this area but not satisfied. It makes sense why you would point to marketing as being the fault. I hope you can see it from a passerby's point of view and not take offense at what is being said like the other guy below reacted.
When I spent a good chunk of my 20s writing software that I thought would change the world, I was defensive, had a huge ego ("My idea changed the industry and I feel like others with VC money have stolen the lime light"), and just refused to let things fail.
I admire that you've found happiness in life. There's more to life then just running a business and making money. I think it's definitely ignored in our world.
But there lies the problem. You are deeply attached with your ideas and product. You said yourself, you spent 19 years changing the world in this area but not satisfied. It makes sense why you would point to marketing as being the fault. I hope you can see it from a passerby's point of view and not take offense at what is being said like the other guy below reacted.
When I spent a good chunk of my 20s writing software that I thought would change the world, I was defensive, had a huge ego ("My idea changed the industry and I feel like others with VC money have stolen the lime light"), and just refused to let things fail.
I admire that you've found happiness in life. There's more to life then just running a business and making money. I think it's definitely ignored in our world.
So we did pretty well on the business side. We were first, or very darn close to first, to realize that leasing software is smarter than selling it. That was me, that's my confidence.
I did all the sales for the first ~8 years, 16 hours a day on the phone. During that time I ran what I called "Larry's dating service" which was when I was talking to someone crazy smart I would go "Do you know ...." and then hook them up. It's not Tinder but I made a pile of really smart people get to know each other. That's confidence. I think.
Etc. I get that you are trying to tell me something but I'm not sure what it is. If I've come off as not confident that's sort of a mistake, there was a time when I was in my groove and I felt like Steve Jobs, I knew what the world wanted before they knew it. I had to push to get that stuff done, everyone said they didn't want that stuff and then they did. That takes a shitload of ego to keep going.
I'm just not sure where if I were more confident we would have been better. I suspect if I had been less confident we might be better. So I am not arguing with you or trying to disrespect you, I just don't get the not confident thing.
I did all the sales for the first ~8 years, 16 hours a day on the phone. During that time I ran what I called "Larry's dating service" which was when I was talking to someone crazy smart I would go "Do you know ...." and then hook them up. It's not Tinder but I made a pile of really smart people get to know each other. That's confidence. I think.
Etc. I get that you are trying to tell me something but I'm not sure what it is. If I've come off as not confident that's sort of a mistake, there was a time when I was in my groove and I felt like Steve Jobs, I knew what the world wanted before they knew it. I had to push to get that stuff done, everyone said they didn't want that stuff and then they did. That takes a shitload of ego to keep going.
I'm just not sure where if I were more confident we would have been better. I suspect if I had been less confident we might be better. So I am not arguing with you or trying to disrespect you, I just don't get the not confident thing.
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.
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?
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?
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.
Thanks very much!
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.
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.
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.
Totally fair.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 ;)
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 ;)
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
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.
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.
"most startups today go out of business because they raised money" citation please.
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.
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.
Maybe a better way of phrasing it would have been "most startups that raise money still go out of business"
Maybe what the parent comment said was an over simplification. I would say most startups today go out of business because of poor spending choices, bad oversight be investors and board members, poor management in general (though financial management is the highest among the issues I see), and poor product market fit. Is this because of investment? I would argue yes it is. You learn far better financial practices when you have no cash on hand. Investors and VC's honestly aren't always the best board members and don't always help. Product market fit can be masked by investment money. My comments are all anecdotal however I do work as a consultant for VC's who invest in or purchase startups. So there is that.
One other area in which people will regret taking investment money if they are not careful is at the time of exit. Many company owners who seek investment money don't realize just how quickly they are dilute themselves. While this won't put the company out of business, it may put an individual out of the business of running a second startup. It is wise to be careful taking investment money.
One other area in which people will regret taking investment money if they are not careful is at the time of exit. Many company owners who seek investment money don't realize just how quickly they are dilute themselves. While this won't put the company out of business, it may put an individual out of the business of running a second startup. It is wise to be careful taking investment money.
Read between the lines. He meant "many."
I read Alex3917's comment as essentially saying that regret and blame are eternal. Failures happen, and there is a tendency to explain it by whatever conditions were prevailing.
Definitely not. I've got kids and was only able to quit my job and start working full time as CTO of my startup after we raised seed funding. That being said, an A,B, and C round is different. Seed should give you enough runway to see if your initial idea gets product market fit. Future funding is fuel for the rocket ship. It lets you see if you can scale up sales and marketing around the product.
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.
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.
This is an excellent comment when it comes to building up a hw/sw company. I went through the same steps with my startup. Knowing most of the details from tooling/cost/inventory/CM I still keep coming back and thinking what other ways are there to build a hw/sw product company without these major investments upfront. The idea is to verify the a product-market fit for a solution before you sink in all the expenses, basically on a smaller scale. So far I have not found a fundamentally different approach other than small cost reductions like not using a polished steel tool etc.
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?
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'
Very good comment, thank you.
You are exactly correct on the tooling costs, except there is no limit to the high end. Ford might spend many millions on tooling for a new car at the extreme end of the scale, for example. I think all tool and die makers are way to used to saying "$10,000 and up" anytime you ask them about die costs.
We often employ ghetto-tools when doing small runs. This means a tool carved out of cheap A36 steel that will only last a few hundred uses, or layers cut out on the laser and stacked up to make functional-but-ugly tool. Tools like this can be made from scrap laying around and some machine time - essentialy free since the costs were already sunk. Its a great way to see if an idea will work, or to make something in small runs of 10 or 50. A $10,000 tooling cost is non-starting if the total sales expected is measured in a few thousand dollars.
This is why flexible tools like laser cutters are so popular. No special tooling to buy, the laser does it all. The high price of tool and die making has put most of those shops out of business or moved it offshore to Asia. What little we do for my company we do inhouse now. The problem with a laser is that everything starts to look too much 2D and too boring. "When everything is a hammer ..."
Flair.co looks like neat stuff. I should count how many I need for my old house that is always the wrong temperature somewhere, with two heat/ac systems and Arizona weather :)
You are exactly correct on the tooling costs, except there is no limit to the high end. Ford might spend many millions on tooling for a new car at the extreme end of the scale, for example. I think all tool and die makers are way to used to saying "$10,000 and up" anytime you ask them about die costs.
We often employ ghetto-tools when doing small runs. This means a tool carved out of cheap A36 steel that will only last a few hundred uses, or layers cut out on the laser and stacked up to make functional-but-ugly tool. Tools like this can be made from scrap laying around and some machine time - essentialy free since the costs were already sunk. Its a great way to see if an idea will work, or to make something in small runs of 10 or 50. A $10,000 tooling cost is non-starting if the total sales expected is measured in a few thousand dollars.
This is why flexible tools like laser cutters are so popular. No special tooling to buy, the laser does it all. The high price of tool and die making has put most of those shops out of business or moved it offshore to Asia. What little we do for my company we do inhouse now. The problem with a laser is that everything starts to look too much 2D and too boring. "When everything is a hammer ..."
Flair.co looks like neat stuff. I should count how many I need for my old house that is always the wrong temperature somewhere, with two heat/ac systems and Arizona weather :)
I actually regret not taking investment.
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).