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Comment by IgorPartola | Hacker News Reader

Police to bank robber: “why do you rob banks?”

Robber: “that’s where the money is. What, do you want me to rob libraries?”

VC have money. Spending other people’s money is a frequent pastime. If SoftBank is willing to give you $100m to expand the reach of your IRC replacement, why wouldn’t you take it? Combine this with companies that are built to be sold to one of FAANG (ones that try to solve an actual customer’s problem but mostly just enough to catch the eye of a giant and sell to them) and you have SV.

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What if I don't feel like building an irc replacement? There's real problems that don't have a potential for multi billion users. For example, working on problems that working scientists face: there's a potentially huge second order impact, but a small potential user base and not necessarily a lot of cash floating around.

Let's not forget that vc money is scarce outside of the US. If this is actually better or not is difficult to tell.

> why wouldn’t you take it?

One reason is because of what you're giving up in exchange. Obviously equity, for one. Quite possibly also control, if the investors also get board seats as part of the deal. If they have a different vision for the company's future (not to mention your personal future) than you do, that could create problems.

Yes, this. I get the impression that VCs are mostly looking for either ultra-growth no matter the risks or a high-value buyout by one of the tech majors. If you want steady growth and modest profit, your interests will be misaligned and there will be trouble. I'd say, don't take investment unless you have both a plan for exactly what you want to do with the money, and a vision for the company's future that's well-aligned with your investor.

Well of course. But between working as a drone for a company and getting VC money to spend (with restriction) on how you see fit, the VC option is pretty appealing.

There is a middle ground - start something yourself, bootstrap, get profitable, spend the revenue how you see fit without restriction, and own it all. And you can still exit down the road if you so choose.

The restrictions, stress, and pressure that comes with VC feels a lot different when you see them on a term sheet you are trying to decide to sign or not after already busting your butt for a long time making something real, vs from behind that desk at a company.

It is a real, and sometimes very undesirable tradeoff. Go big or go home, vs wealthy but not obscenely so through steady effort?

The money added to the company’s coffers gets added to its valuation, so you are not trading equity really unless you are personally selling (a “secondary”). It’s just that the pie becomes larger.

Now, most VCs don’t want to be in the business of management. Each partner oversees 5-10 companies, they do not intend to be managing each. Most intervention comes when the founder is running the company into the ground. I can find many more cases of scandalous compliance by VCs than active intervention. The first thing VCs look at is the quality of its founding team, it’s not for wanting to kick them out.

> the founder is running the company into the ground.

Except that their definition of running a company into the ground is more about whether or not the company is track to be the their 1000x return or not. They push for high-risk, high-return moves, which are not the same thing as striving for a sustainable business. I've seen founders building companies that are stable and growing, and still getting booted by the VCs because they wanted to push for higher returns.

Growing for aggressive returns is the deal you sign up for getting VC money.

That said, I haven’t seen VCs pushing a founder out for this offense first hand, even in companies approaching somewhat of a zombie status. Usually VCs will just divest their attention.

I have seen companies run into the ground with the VCs pushing the throttles forward though.

Sure, but a lot of people would rather own 10% of a billion dollar company than 100% of a 10 million dollar one.

While many others would prefer the other way around.

There's no inherently better model. Someone might prefer flexibility over ambition. Others ambition over flexibility.

I think bootstrapping is overly romanticized. In many cases those entrepreneurs aren’t good at taking feedback or telling their story or have a lousy idea to begin with. Not to say that it’s not going to work or not admirable, but getting VC money is a very early kind of “product market fit” in the sense that you need to sell people your vision in return for money.

I did both bootstrap and VC paths. You can get it wrong in each, but I know that my previous insistence on not taking external money was somewhat rooted in arrogance.

I bootstrapped a SaaS business from my kitchen table...it's now worth just shy of $100M.

I thank the heavens everyday that I didn't go the VC route. I can pretty much do whatever I want without this constant growth at all costs pressure. It also gives us a massive advantage against VC backed competitors. We can make decisions that reap benefits 2-5 years out.

This has created a situation were every competitor follows the same trajectory where it eventually leads to an over-complicated, bloated product that users hate. They come to us and it's like a breath of fresh air.

But now you have to look at the expected value as well.

A 10 million dollar company, lets say at a conservative 5x earnings multiple means 2mil annual profits. At 80% margin that's 2.5mil ARR. For a B2B SaaS product you should be able to get at least $1,000 / customer annually, which means you need to find 2500 customers to own 100% of a 10 million dollar company, which in the age of email and Facebook marketing is very much within reach.

And these are conservative numbers. A strategic buyer might very well pay 10x if you're showing nice growth, margins of 90% are not unrealistic in SaaS, and you could possibly raise prices depending on the value you are providing and who you're selling to.

Now ask how many stars have to align to reach a billion dollar valuation, assuming you haven't been screwed over by your investors by the time you reach that point.

There is actually a very good reason why a VC-backed/VC-backable business shouldn't take 100M from Softbank at a 1B valuation:

Because it removes the possibility of exiting for tens or hundreds of millions--the preference stack will eat up all the equity.

Most VC backed companies that exit do so for far less than a B; if the startup has been responsible about fundraising then a 50M, 100M, etc exit can be life-changing for the founders. Raising too much makes this impossible and turns the whole venture into much more of an all-or-nothing affair.

Of course, the VCs don't care: they make money from the big winners, so they could care less about a 50M exit, but the founders should not.

Softbank et al isn't giving you anything. It's an exchange; and with that comes responsibilities, and so on.

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