Ask HN: If startups are good gamble, why isn't seed capital easily available? | Hacker News Reader

Ask HN: If startups are good gamble, why isn't seed capital easily available?

8 pointsbrainless4 comments

Background:

  * Seed is a gamble, but the return on one unicorn makes the losses on others vanish
  * People with money are always looking for bets to invest on, same with companies with extra cash
  * As a failed entrepreneur and software engineer it is easy for me to get a good job

Problem:

  * I can not sell just an idea well enough, I am not a good salesman
  * Moonlighting is hard
  * I can not finish an MVP along with day job
  * Without a seed, I am really finding it hard to work full time on my idea

Companies are happy to hire me (usually with 6 months probation) and see if they get ROI on their money (my salary). It would be a lot more motivating for myself if I could work on something I want to solve. Sure just software does not sell itself, but we all have to start somewhere.

So if I am worth someone else's money to try on their company and perhaps be not worth it, then it should be easier for me to just apply and get a 6 months paycheck to work on something I am intrinsically motivated about, right?

I think it's not always a good gamble. Sometimes what they initially gamble on transforms into something they would not expect or consider as an investment. For the few success stories we hear, we never hear of the countless failures. The idea of most startups achieving some successful status is a faulty generalization. You are cherry picking the successful startups and generalizing based on survivorship bias.

This happens to all of us and it is hard to truly reflect on what makes a successful startup. If there was a recipe we would hear of many successes, frankly investments would stop elsewhere and just concentrate on startups, if that was the case.

Whenever I hear of crazy returns, I try to reflect on the fact that if it was common, why wouldn't those who make such crazy returns not just borrow more money and wash, rinse, repeat. I think there is a point were those making such returns realize the success was due to mere chance or some other combination of timing, investment, people that could not exist again. There is also a point where you have to wonder why those making such great returns do not keep trying to do the same. There must be a level where crazy profits/returns would allow some self sustaining regenerative business. I think that level does not exist. When investors do think such a level exists, they are usually being swindled.

I think there are several connotations to 'startup' in play here. One connotation is that a 'startup' is the sort of company that is attractive to angel/venture capital another connotation is a 'startup' is more or less any new company.

The first connotation is a bit circular, but it has the feature that startups are companies that might have some plausible avenue to becoming a unicorn. Some sort of new software as a service (SSSAAS) might be a startup under this connotation but a new Chartered Accountancy firm most likely not (even if people in Topeka, Kansas will refer to the new Chartered Accountancy firm as a 'startup').

Angel/Seed/Venture capital doesn't make money by funding SSSAAS startups (in the second connotation) at random. It bets on the SSSAAS's that seem most likely to become unicorns. Angel/Seed/Venture capital looks at staff and track record and the business model: the one that is easiest to change is business model and another name for business model is idea because from the point of view of capital, a SSSAAS isn't a technology it is a business.

Your assumption is 1) You currently return an ROI to a company plus 2) motivation/interest makes you a good bet. 3) You alone make a complete business.

These dont have to combine in that way. Points;

1) there can be significant dead weight in larger salaried roles. Salary existing doesn't always equate positive ROI. And someone one can be very good employee in a structured enviroment and not in a more open startup enviroment.

2) motivation doesn't equate success, sometimes the opposite as people pursue the interesting vs the economically realistic.

3) As a salaried person you come as a team. You alone are likely to be missing required parts for a functioning business, kinda like buying tires and wondering why the car doesn't run.

it doest matter if you can make water into gold. investors are more picky then that. yet only 1/10 of their investment give returns.

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