Comment by 20yrs_no_equity | Hacker News Reader

Comment by 20yrs_no_equity | Hacker News Reader

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20yrs_no_equity

No it's still a startup. It can be a very high growth startup, shooting to a $100M valuation.

It's just not the wannabe unicorn that VCs want.

There's a HUGE gap between what VC wants and a "lifestyle business" (I hate that term, thanks for not using it.)

Redefining startup to be this very, very narrow set of "businesses that will be over $1B in valuation within 5 years" is wrong, it's silly, and it's getting worse.

9 years ago on Hacker News the difference between "lifestyle" and "startup" was "businesses that will reach over $100M valuation in 10 years."

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Reply to @danieltillett because HN won't let me submit 4 posts in an hour!

Put another way, I would take a %10 chance of having a $100M business over a %0.1 chance of having a $1B business. (assume in both cases you end owning %5 of the stock at exit, though realistically without VC money you'd likely own more equity percentage at $100M than at $1B)

VCs generally want you to take the second bet, even though the statistical value is 1/10th as much for you!

Worse, you can only found one business at a time, while the VCs can invest in dozens at the same time. So your risk is much higher (not even mentioning that they are investing OPM)

VCs interests are not aligned with founders.

Your numbers are tautological. Everyone including your straw man vc would take 10% of 100 instead of 0.1% of 1000. 10 > 1, qed, but you don't get any points for that observation.

(yes, there are situations where taking investor capital leads to divergent interests between investors and managing founders. But not gross arithmetic differences.)

Obviously if the expected value of the smaller sized business is greater, you choose that one. The only time these questions (whether to take capital/shoot the moon) is when the expected value of the larger business is greater. So to refactor your example, what about 10% chance at 100, or a 1% chance at 2000? Now you have more of a real question on your hands.

Much more interesting when contemplating whether to go big or stay small is the notion that there are invariant personal "fixed costs" regardless of the size of the opportunity you're pursuing. Meaning, you can overwork yourself and burn out on a $100k/year business as surely as a 100 M/ year business. So if you are going to give something your all, just make sure the expected payoff is worth it.

That's my point. You should invest your life in something where the value is higher. VCs would rather take a much lower chance at a higher payoff because they spread their risk around more, you cannot do so.

My numbers are hypothetical, but they are not tautological. That's my point- the VCs will take the lower expected payout, whether this is because they are bad at estimating risk or not I cannot say. I can say this is how they operate, because I've seen it, in every single startup that took VC investment.

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