[HN Gopher] Raise less, build more
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Raise less, build more
Author : trohan
Score : 77 points
Date : 2023-08-28 18:42 UTC (4 hours ago)
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| duxup wrote:
| Generally shouldn't the motivation to fund the "right" amount be
| with the VCs? Founders are going to ask for whatever they can
| right?
|
| But VCs don't seem to be interested in funding less...
|
| Whatever magical market forces that might change how funding
| works, they don't seem to be at play.
| HWR_14 wrote:
| Well, founders have to give up equity to ask get more money
| from VCs. So, in theory, they should want to raise the least
| among of money at the highest valuation to keep the most amount
| of their company.
| tzhenghao wrote:
| VCs aren't always the best capital allocators - a lot has
| succumbed to the money management + fees disease. They push you
| to raise more, force you to hire and burn when you really
| shouldn't / haven't figured out product market fit yet.
|
| > Whatever magical market forces that might change how funding
| works, they don't seem to be at play.
|
| I think money is scarcer these days, and founders who are
| constantly being burned by VCs will think twice about riding
| the big VC train in the coming years. As a founder myself who
| work crazy hours getting the business going, it's painful / bad
| optics to see full time VCs doing weekend Vegas trips, browse
| art galleries on weekday afternoons and fine dining every
| couple of days, knowing I've sold a chunk of my / my team's
| hard earned equity on that bs. Of course there are great VCs,
| and some businesses needing to be VC backed, but oh boy, are
| there really bad apples out there.
| thsksbd wrote:
| Who thought it was a play on the unix utils "less" and "more"?
| binbag wrote:
| It's mad that this even needs said. A company's aim should be to
| be sustainable and profitable, not to be a receptacle for
| capital. Some companies need external capital to get to that
| point, particularly hardware or those operating in slow-adopting
| markets. If you don't need it, don't take it.
| alex_lav wrote:
| Yeah sometimes it becomes clear founders forget the purpose of
| a company is to make money/turn a profit and not just to
| repeatedly raise money and be famous. I have worked at a
| company that forgot this. It feels kind of surreal sometimes.
| gabereiser wrote:
| You mean like Founder's Syndrome [1]? Yeah, it's exactly like
| that...
|
| [1] https://en.wikipedia.org/wiki/Founder's_syndrome
| reducesuffering wrote:
| Does that happen sometimes? Surely. But more often than
| not, founder led companies who have personal attachment to
| the outcomes deliver far better than some self-interested,
| career stepping-stone, decision-by-committee corporate
| blob. See Nvidia, Facebook, Stripe, and Tesla compared to
| Intel, IBM, GM, and PayPal.
| jandrese wrote:
| That's one view of what a company should do. Another is that
| it should become famous enough to attract the attention of a
| FAANG and get bought out ASAP, making the founders
| multimillionaires before they turn 30. It's the techbro
| lottery. Many will play, few will win.
| [deleted]
| quickthrower2 wrote:
| The company is the product kind of thing. More like
| flipping real estate.
| [deleted]
| JohnFen wrote:
| A couple of lifetimes ago, a business mentor of mine taught me
| a truth that has served me _very_ well.
|
| There is a correct amount of money for starting a business, and
| it's probably less than you think it is. Too much money in a
| startup tends to gum up the works and can kill a business just
| as dead as not having enough. If you have too much money,
| you're not only going to blow it on things that don't matter,
| but when you do, you're likely to do so in a way that incurs
| ongoing costs.
|
| Things like leasing fancier offices than you need (or, in some
| cases, leasing any office space at all), hiring more people
| than you need, etc.
|
| As he put it, if you're starting a business and aren't worrying
| about how you're covering your expenses next quarter, you
| probably have too much money.
| samtho wrote:
| To add on, a company who spends a lot of money on frivolous
| things or over-hires will need to pay the internal cost of
| downsizing when the time inevitably comes. That means
| layoffs, fewer employee benefits for those still employed,
| and general tightening of the belt.
|
| There is a huge cost when you let go of people who would
| otherwise be kept on payroll if you could continue to pay
| them. You will get fewer internal referrals to new hires,
| remaining staff become less engaged in their work, etc. There
| is additional long lasting damage to your staff as a whole
| who survived the layoff this time. The culture at the company
| shifts and never fully recovers.
|
| I don't think businesses always fully appreciate the long
| term cost and damage layoffs do to small and medium sized
| companies, but see headcount reduction as a simple way to
| reduce its own costs.
| jdjdie wrote:
| Plus you will tend to take committing decisions like hiring,
| location, or business goals that will limit how much you
| explore alternative paths. Having a team to manage forces you
| to find problems they can solve, which is not necessarily
| where the money is. You have a css/js developer? Ok I have to
| find frontend tasks now. Etc
| dougSF70 wrote:
| This is us! I couldn't learn the rules of the game "how to raise
| from VC funds" so we built profitable scalable software-led
| business...took us a few pivots but here we are.
| Animats wrote:
| Short version: _" A large, poorly performing fund (1.5x) pays its
| GPs dramatically more than a smaller, higher performing (4x)
| fund."_
| nemothekid wrote:
| Wouldn't getting 50% on a billion be a harder problem than
| getting 300% on 100MM.
| mfitton wrote:
| Isn't this flawed, though? If a venture company has a billion
| dollars in LP funding secured, then instead of having that 1 1
| billion fund, they could have ten of the 100 million funds
| listed in the article. Sure, it's more work, but it's also,
| hypothetically, a vastly larger return, both for GPs and LPs.
| Not to mention, doing the billion dollar, lower-returning fund
| makes VC less attractive to the LPs that put up most of the
| money, as they're paying more in management fees for a lesser
| return.
|
| It seems to me that funds getting larger is driven by a flawed
| expectation from VCs that large funds will perform as well as
| small funds, not based on a cynical extraction of money from
| their LPs, but maybe I'm mistaken.
| pcmaffey wrote:
| This is really nothing new for founders, who have always,
| generally speaking, wanted to optimize for control. And this path
| maximizes optionality. Hell even pg promoted the idea of raising
| a small seed and getting to profitability.
|
| The problem is most early stage VCs don't play this way. Their
| game is all about "selling" their investment to the next round up
| of VCs. Not what makes most for your company.
|
| Maybe in a post-boom era that's going to change. Regardless, this
| blog post isn't for founders. It's for other VCs. So good for
| Terrence Rohan to try and evangelize the idea a little to the
| fast follow crowd.
| djbusby wrote:
| In observing 100s of deals, advisor to dozens of early stage
| businesses I'd add:
|
| So many folk show up asking to raise because they only see how
| their company can work "at scale". They have forgotten to do
| things that don't scale. It's like they skip problem-market fit,
| jump way past MVP (but still call it that) and almost have to
| raise - then try to force the market to exist.
|
| Many (most?) of these companies I've seen could have started with
| a smaller fit. That could test the market theory for cheap (Lean)
| - cheap in terms of time and money. If the fit is good one ends
| up with a small business with medium good margin - and a way
| better idea of what the scaled up universe looks like.
|
| Much easier to raise when you've got a) solid foundation and b)
| actual unit economics. However, now the raise is on real numbers
| - so less likely to be the crazy raise one could do on dreams
| alone.
|
| Like, do you want a 0.01% chance to raise money or a 2% chance to
| build a business that keeps you and a few others well paid and
| perhaps out of the rat-race.
| bsder wrote:
| > Like, do you want a 0.01% chance to raise money or a 2%
| chance to build a business that keeps you and a few others well
| paid and perhaps out of the rat-race.
|
| Or, you do a raise; it keeps you out of the rat race for a
| couple years; and you move on when it implodes.
|
| The problem VCs are having right now is that people have
| figured them out. If I have a business which can throw off
| cash, I don't need VCs unless I have a competitor I need to
| outrun. If I don't have a business which will get to cash, it's
| fine to take VC money to leave them holding the bag if I never
| find a "real" market.
| gedy wrote:
| It sounds cynical, but over the years I've met a lot of folks
| who just want to "build a business", and the actual product,
| MVP, etc is secondary or maybe doesn't even matter? They are in
| to raise money, hire lots, and "go big", etc.
| quickthrower2 wrote:
| > So many folk show up asking to raise because they only see
| how their company can work "at scale"
|
| Maybe that is the optimum way to get investment? Like how
| coders at an interview could talk about how they solve business
| problems with simple solutions, but instead need to talk about
| how they have kubernetes and microservices experience, know
| Martin Fowler's patterns inside out, can recite what the L in
| SOLID means, etc.
| morelisp wrote:
| The L in SOLID is the only useful letter for building simple
| solutions.
| coding123 wrote:
| That sounds like what magic leap was - it will only work if
| everyone has one. Doesn't matter if 10 people are not
| interested. You convince everyone to buy one when everyone else
| has to have one.
|
| But how do you get it so that everyone else has one first?
| bjornsing wrote:
| > A typical venture fund has a 2% management fee...
|
| > A $100M fund which does 4x earns the GPs $80M ($in carry, plus
| $20M in management fees)
|
| Nope. 2% of $100M is $2M, not $20M.
|
| > A $1B fund which does 1.5x earns the GPs $300M ($100M in carry,
| plus $200M in management fees)
|
| Nope.
| trohan wrote:
| Management Fee are paid _annually_ , and typically for 10 years
| if not more.
|
| It's 2M x 10 years (for each year of the funds life).
|
| Ditto for 20M (x 10 years)
| bjornsing wrote:
| Good point!
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(page generated 2023-08-28 23:00 UTC)