> But there may be cases where a startup either
wouldn't want to grow faster, or outside money
wouldn't help them to, and if you're one of them,
don't raise money.
Having the essay earlier would have saved me a lot
of time and effort. For my startup, I tried for a
long time to raise money, and as in the essay it was
a huge distraction from the real work. Eventually,
at absurdly high cost in time and effort, I
concluded the more common half of what is in the
essay.
Since I wanted to try hard to crack the nut of fund
raising, I kept at the effort until I got some
decent understanding.
Also I had to conclude that VCs and I do projects
and project planning and evaluation in very
different ways. Since it was quite a while ago that
I was 20 years old, and I've done a lot of projects
and seen a lot of business, I prefer my approaches
to project planning and evaluation. Also, for my
project, my technical background, in applied
mathematics, is far above that of all but maybe 10
VCs in the country. There is likely not a single VC
in the country who could understand the crucial core
of my project, some original applied math I derived,
and only a few VCs who could even direct a competent
review of that crucial core. So, I just can't be
impressed by what VCs think of the crucial core of
my project. When I was fund raising, I wondered how
the VCs would evaluate my work; the answer is, they
wouldn't! So, they don't have a clue about what
they are missing.
So, net, VCs will evaluate my project based on
traction which should mean that, for me, a solo
founder with meager burn rate, by the time a VC
wants to write a check, as in the quote above from
the essay, I will no longer be willing to accept
one.
After the fund raising effort, I settled on the line
in the essay I quoted above: For me, and as often
in the essay, the VCs are just too much trouble to
work with to be worthwhile. Yes, the VCs are
trouble in fund raising, but also the VCs will bring
Board overhead, more time/money with lawyers and
accountants, and, then, in case of the success they
want, an IPO with all the Wall Street and SEC
nonsense. Handling all that would be a full time
job for me, the CEO of my company; that's not the
kind of work I want to do; and my hands would be
taken from actually building and running my company.
I see another point: In the US, businesses are
started and succeed coast to coast in big cities
down to crossroads by solo founders by the millions
each year. Such a business might be a pizza shop,
auto repair shop, landscaping service, big
truck/little truck business, etc.
My startup, with me as solo founder, is in
information technology (IT) which should be a huge
advantage: E.g., my first server farm will cost
less than the truck and lawn mower of the guys who
cut grass in my neighborhood, and the Internet
connection I need will cost less than $100 a month.
Moreover if I half fill the Internet connection,
then from simple arithmetic my revenue and earnings
in one year will be quite comparable with funds from
a Series A.
So I just view my startup as a one person pizza
shop but with some big advantages from IT; e.g., a
pizza shop owner needs to be in the shop for each
dollar made, and my server farm can be making money
while I sleep.
For PG's definition of a startup in terms of very
rapid growth, so rapid that VC funds become
important, that's not important to me. I need a
nice business; I don't have to shoot for another
Google and wouldn't want to manage anything that big
anyway.
A recent remark of Mark Andreessen is that there are
only about 15 startups a year that deserve a Series
A. So, the essay is talking about only about 15
startups a year and, thus, I am not disappointed the
essay is not talking about my startup.
The VCs and I will have to disagree on how to plan,
evaluate, start, and build a company. If I am
successful, then likely that disagreement will have
been a big part of my success.
The VCs remind me of the Mother Goose story The
Little Red Hen when she could get help only when
she had fragrant, hot loaves of bread coming out of
the oven and customers lining up to buy and no
longer needed any help.
For me, one really serious turnoff of VCs is that,
since they have really no chance of understanding
the crucial core of my business or how I do
projects, no way would I want to report to a Board
with VCs. Vinod Khosla has some recent remarks on
how helpful Board VCs are!
Another big turnoff of VCs is that, as reported on
Fred Wilson's blog, on average over the past 10
years, the VC ROI has been poor. Net, VCs do not
have a lot of credibility in business.
Another big turnoff is that too many VCs were not
STEM majors and have written little to no code.
Another big turnoff is that my startup, as is
recommended for startups, is doing work that is new;
well, there is some education for how to work
effectively with things that are new, a Ph.D.
degree; I have an appropriate one from a famous
research university, and nearly no VCs do. I will
have a tough time viewing a VC as a helpful
colleague in the crucial core of my business.
I can relate to most of what you're describing but wanted to point out that your business (any business) is a lot more than "core" of your business. If you're content with the rate of growth, you are already profitable or don't need additional funding etc. than you may not need the VCs. PG's essay repeatedly states not to raise money. But if you do want to make strategic investments, accelerate growth, etc. you will need to do many things that are outside the "core" of your business. In that case you may try to find VCs that have experience doing that, or at least can open doors for you so that you can find the right people to help you get there, etc.
>
I can relate to most of what you're describing but wanted to point out that your business (any business) is a lot more than "core" of your business.
Yes, but I've been a B-school prof, and last month got
a lesson in business: A house in my neighborhood
in NY USA had
the shrubbery too tall, and a crew was hired to come in
with a chain saw and cut back the shrubbery. They had
a nice new truck. My guess is that they were recently
from Mexico and that the lead guy was there running all
his business. And he was doing fine without an MBA
or VC!
Basically, for millions of businesses in the US, the
non-core functions get handled plenty well enough by
just the founders without help from an MBA or VC.
I did mention Khosla's recent remark on
how much VCs help founders run their businesses.
Your point about "strategic investments" may be correct:
Sure, a standard PE idea is a roll-up. However,
I'm not sure that really VC capital is the best
for such investments, but in some cases maybe it is.
For "growth", I don't see the crucial need for VC
given that the VCs want to see a lot in traction,
at Series A and certainly for a growth round
after a Series A. It seems to me that
a founder should just let the
revenue from the assumed traction fund the growth.
Lots of businesses, pizza shops to auto body shops,
do, and an IT business should have an advantage.
Besides, some of PGs growth timing looks fishy
to me, especially get a VC round, hire people,
and show big results in 18 months. Maybe can
do that work and get the additional revenue
in the 18 months, but I'd have a tough time
believing that could get a good team built
-- advertize, interview, select,
move, house bought, kids in school,
spouse in a job, introduced in the office,
familiar with the office procedures and
tools,
train, build team -- in 18 months.
Seems to me that the growth bottleneck is
team building, not funding.
Just to provide a counter example to balance your assessment of VCs: Our lead investor has a Ph.D. in EE from Stanford. Our secondary investor has an engineering degree from MIT and is a serial entrepreneur. They have been very helpful in terms of advice and support.
I made two points, that likely the VCs
could not evaluate my project and likely
only a few VCs could direct an evaluation.
For the first of these two, a
EE Ph.D. very likely would not understand
the crucial, core applied math of my startup
due to not taking the right prerequisite
courses in graduate school. If they studied
from Luenberger at Stanford, then maybe they
would have some of the prerequisites!
For the second,
directing a competent review of my work, a
EE Ph.D.
would likely be able to do that, especially
once I gave them a list of reviewers, and I
did indicate that a few VCs could so direct
a review.
There is a huge problem with VC: Necessarily
they are looking for exceptional cases. So,
what the average deal looks like provides poor
guidance on what a really desirable deal would
look like. And since the VCs are also looking
for things that are new, what the best deals
of the past 10 years looked like also provides
little guidance.
There are ways to know that something really is
exceptional and powerful early on, and the US
DoD has provided a long list of examples for
the past 70 years or so. E.g., the first GPS
was done by the US Navy for the SSBNs, and the
crucial, core work started on the back of an
envelop at the JHU/APL. The planning document
was enough to remove risk, and the rest is
history. Early in my career, I wrote software
in the group that did the software for the
continually updated orbit determination
calculations for that Navy system and heard
the stories about how the system was invented
and pushed forward. It really is possible to
evaluate projects on paper and confirm that
they are powerful and exceptional; results
on paper are how nearly all of research works,
and the work really can be evaluated and seen to
be powerful if it is; but nearly no VCs can
evaluate projects on paper, and maybe their
LPs wouldn't let them fund on that basis
anyway.
So, the VCs are looking for exceptional
projects, and there are ways to create,
present, and evaluate such projects, but
VCs don't do or pay attention to
those things. This situation is so
incredible that it took me a while to
believe it. No wonder their ROI is low.
> But there may be cases where a startup either wouldn't want to grow faster, or outside money wouldn't help them to, and if you're one of them, don't raise money.
Having the essay earlier would have saved me a lot of time and effort. For my startup, I tried for a long time to raise money, and as in the essay it was a huge distraction from the real work. Eventually, at absurdly high cost in time and effort, I concluded the more common half of what is in the essay.
Since I wanted to try hard to crack the nut of fund raising, I kept at the effort until I got some decent understanding.
Also I had to conclude that VCs and I do projects and project planning and evaluation in very different ways. Since it was quite a while ago that I was 20 years old, and I've done a lot of projects and seen a lot of business, I prefer my approaches to project planning and evaluation. Also, for my project, my technical background, in applied mathematics, is far above that of all but maybe 10 VCs in the country. There is likely not a single VC in the country who could understand the crucial core of my project, some original applied math I derived, and only a few VCs who could even direct a competent review of that crucial core. So, I just can't be impressed by what VCs think of the crucial core of my project. When I was fund raising, I wondered how the VCs would evaluate my work; the answer is, they wouldn't! So, they don't have a clue about what they are missing.
So, net, VCs will evaluate my project based on traction which should mean that, for me, a solo founder with meager burn rate, by the time a VC wants to write a check, as in the quote above from the essay, I will no longer be willing to accept one.
After the fund raising effort, I settled on the line in the essay I quoted above: For me, and as often in the essay, the VCs are just too much trouble to work with to be worthwhile. Yes, the VCs are trouble in fund raising, but also the VCs will bring Board overhead, more time/money with lawyers and accountants, and, then, in case of the success they want, an IPO with all the Wall Street and SEC nonsense. Handling all that would be a full time job for me, the CEO of my company; that's not the kind of work I want to do; and my hands would be taken from actually building and running my company.
I see another point: In the US, businesses are started and succeed coast to coast in big cities down to crossroads by solo founders by the millions each year. Such a business might be a pizza shop, auto repair shop, landscaping service, big truck/little truck business, etc.
My startup, with me as solo founder, is in information technology (IT) which should be a huge advantage: E.g., my first server farm will cost less than the truck and lawn mower of the guys who cut grass in my neighborhood, and the Internet connection I need will cost less than $100 a month. Moreover if I half fill the Internet connection, then from simple arithmetic my revenue and earnings in one year will be quite comparable with funds from a Series A.
So I just view my startup as a one person pizza shop but with some big advantages from IT; e.g., a pizza shop owner needs to be in the shop for each dollar made, and my server farm can be making money while I sleep.
For PG's definition of a startup in terms of very rapid growth, so rapid that VC funds become important, that's not important to me. I need a nice business; I don't have to shoot for another Google and wouldn't want to manage anything that big anyway.
A recent remark of Mark Andreessen is that there are only about 15 startups a year that deserve a Series A. So, the essay is talking about only about 15 startups a year and, thus, I am not disappointed the essay is not talking about my startup.
The VCs and I will have to disagree on how to plan, evaluate, start, and build a company. If I am successful, then likely that disagreement will have been a big part of my success.
The VCs remind me of the Mother Goose story The Little Red Hen when she could get help only when she had fragrant, hot loaves of bread coming out of the oven and customers lining up to buy and no longer needed any help.
For me, one really serious turnoff of VCs is that, since they have really no chance of understanding the crucial core of my business or how I do projects, no way would I want to report to a Board with VCs. Vinod Khosla has some recent remarks on how helpful Board VCs are!
Another big turnoff of VCs is that, as reported on Fred Wilson's blog, on average over the past 10 years, the VC ROI has been poor. Net, VCs do not have a lot of credibility in business.
Another big turnoff is that too many VCs were not STEM majors and have written little to no code.
Another big turnoff is that my startup, as is recommended for startups, is doing work that is new; well, there is some education for how to work effectively with things that are new, a Ph.D. degree; I have an appropriate one from a famous research university, and nearly no VCs do. I will have a tough time viewing a VC as a helpful colleague in the crucial core of my business.