Not a judging question - I understand the value of a good investor's due diligence and backing in improving the odds of sane leadership. But it's interesting to think how that can impact a successful, self-funded copmany's access to talent.
But as a candidate I’d be cautious about taking a job at a self funded startup. They’re probably cash constrained so the base salary might not be as much. And if there is equity, I would want management beholden to people expecting 10x growth.
As an engineer, this does hit the paycheck directly - if they go hire more devs to speed product features to market while at the same time increasing sales and marketing... it can change from a bootstrapped model with no end to the runway into a situation where you do have a runway, and it is counted in months, not years. Instead of steady pay with plenty of time to deliver new product, I'm being pushed to deliver quickly, and if we fail, we're unemployed.
And yes, we probably get lower salaries for that model because we are taking less risk. But steady, lower stress work is desired by some of us, and a small bootstrapped group delivers it better than a VC.
Like, for some reason, I criticized and looked down on a company for having a convertible debt round instead of a "real Series" where they sold equity.
Or I criticized a company for not having X, Y, Z investors closing rounds.
The reality is that I found myself in situations, as an employee, where I had to actually explain myself to founders about my thoughts on why revenues were important. That particular startup failed to sell more equity in the necessary time period and closed up shop.
In more broader circumstances, the dilution and liquidity preferences are more harmful to founders and employees.
And as a founder, I specifically do non-dilutive things, such as doling out %'s of specific revenue streams or % of products created. Obtaining the same support and sometimes capital or things booked as unearned income, while keeping much more control or total control and upside.
Of course there's always the other outcome where both of these are just jobs and you are not invested beyond that. Then there's no real difference beyond the economics.
A Founder is playing 1, only one bet. I would rather go with the Founder that can build a strong business with revenue.
VC money means "we throw money at you until we no longer don't" or "we throw money at you because we're in hostile market takeover through price dumping".
Yes. Absolutely. If you're going to pay me in equity, I am an investor. If you can't paint a picture of goals, timelines and a sense of what an exit looks like - I'm not joining you.
If you're paying my comp in cash, then you can do whatever you want. But know that the cash comp will have to be very high to convince me - probably too high for a bootstrapped startup.
If you are a gambler, VC equity is best. If you want to maximise your expected returns, equity in a bootstrapped company is better IMHO.
VCs have their risks spread across multiple investments, where you will only be able to work for a limited number of companies before burnout or ageism hits you (if you don’t win a D10 die roll). Also VCs get liquidation preferences. Finally, when younger we undervalue money in our wallet and the value of our own time: $200k at 20 (if invested) is often worth a lot more to you than $x at middle age; and as you get older you tend to start valuing your vacation time very highly!
Work through the numbers for your time investment (time is your pot because we all only have x years) using the Kelly Criterion[1] and you will be surprised to see what drops out as the optimal strategy. I would be interested to see a Monte Carlo simulation of outcomes where we can choose different strategies.
Edit: many people seem to be chasing money and joining the cult of startup to achieve high status. If you care about status, there are far more optimal paths than chasing a big equity payout. One thing I notice as I get older is that money is a very poor proxy for status, and that you tend to find your peer group earns about the same regardless of earnings, so chasing $ for status is loser’s race. Disclaimer: I just want to not work if I don’t have to and to be able to spend my time on my own goals. That requires enough $ for a nice house, some fun, and a comfortable retirement - and it appears I have got that via being a cofounder of a bootstrapped company.
Edit 2: The IRS would have the stats on actual returns for startup employees over the whole sample population. That would be fascinating to know!
edit: This is explicitly about employees at these companies rather than founders.
People joining or founding a startup business also tend to extremely overestimate their ability to pick a winner. You have to be smarter or luckier than a VC.
The point of a bootstrapped business is to be making enough money within a short period to know you can pay fair wages. Derisking. If a business isn’t paying wages and doesn’t take VC money, then it shouldn’t be called bootstrapped, it is still a startup (with sweat equity and opportunity costs instead of VC).
Also it has been my experience that successful bootstrapped businesses are usually started by people that have worked in an industry, then founded a new business starting with the best people they had worked with. That is a good strategy. Edit: https://hbr.org/2018/07/research-the-average-age-of-a-succes...
In my experience in Christchurch New Zealand, watching founders and first employees for startups that have taken VC cash, the expected return on equity is very low for them.
I see massive winners’ bias in most thinking and media.
Getting in to YC validates something that an individual cannot easily determine: what are my own chances of winning the startup lottery? If YC picks you, that is a strong signal that you have the right skills. The signal is extremely noisy though (fail after accepted, succeed although rejected). Edit: anecdotally I saw a young founder with what I thought was a good bootstrap opportunity in NZ get accepted into YC where he promptly crashed due to lack of knowledge of the US market and culture.
They also get the opportunity to take outside money from a position of far greater power for things like paying out strategic early employees vs.v keeping the lights on. I've been involved with 2 companies that took private equity instead of IPOs because of the operational changes that a public listing entails. It takes longer to grow to this point, but the deals were substantially easier and quicker.