It would've been great if an explanation was given for this opinion. Why wouldn't this work? From my limited experience it works fairly well.
Seed money buys time for small team to find product/market fit, and growth money for customer acquisition with a delayed payback period... and the ceiling is how reality-distorting your CEO is.
Consulting is limited by your hours, and likely takes away from your experimentation, product refinement, customer success, and marketing $ + hours. In addition, it biases the product/processes towards the service as consulting immediately makes serious money and saas takes months/years to make even $100/mo. The only exception we did was limited consulting around customer success and co-design of features already on our roadmap. Super painful decision, revenue-wise!
Despite strong interest, we resisted consulting services for our GPU visual graph intelligence platform for years to avoid the misalignment. Due to the recent demand for graph AI for analyzing problems like security /fraud / customer behavior / digital twins, and our interest in bundling those capabilities into our platform yet realizing we need to learn alongside our users, we flipped that decision. However, we have a base product, are being super picky on projects aligned with graph AI, and our clients also want that product goal realized long-term (vs more consulting.)
How do I know? I raised some funding for our startup (3yrs full-time) but bootstrapping further was unsustainable vs competitors who were fundraising. VC funded competitors could hire more, sell more, compensate more. The market becomes skewed.
Is it good for the VC-backed competitors? Sort of. They survive. They have longer stories. But they get diluted. Many die as they try to swing for the fences (as VCs want, power law and all...) Some get fired by VC-dominated boards. Some are sent on wild goose chases by outsider funders. This probably happens less-so with better VCs.
Fyi... Google got VCs Sequoia Capital & KPCB $25 million around June 1999 which was about ~9 months after they started in Sept 1998. Before the VC funding, they also got a group of seed investments from Stanford professors and other individuals (Andy Bechtolsheim, Jeff Bezos, NBA star Shaq, etc.)
I don't see how "$25 million from a VC" would be interpreted by outsiders as inspiration for bootstrapping. Doesn't "bootstrapping" mean self-funding from revenue instead of investors? Google didn't have meaningful revenue & profits until 2002.
I think the best way to apply "bootstrapping" (the way most people think of that term) to Larry & Sergei would be the early phase of 1996 to 1998 where they used Stanford's computers & datacenter for $0 cost to build a MVP search engine "Backrub". But a lot of startup founders can't apply that to their situation because they are not in PhD programs with the university providing a "pseudo AWS" for $0. (Stanford did share credit in the pagerank patent so they got license $$$ from Google in return.)
EDIT reply to: >, and realized that Google did not actually need the money.
What do you mean by they "didn't need the money"? How would the early Google survive for 3+ years with no revenue?
Immediately after the June 1999 $25 million, they hired an ex-Grateful Dead celebrity chef to cook free meals for their employees and rent datacenter space. If Google didn't have any revenue, what money is there other than that $25 million to pay salaries of the chef, the employees, food, datacenters? That's the opposite of "bootstrapping". Are you using that word in a different way?
Yes, outsiders might not see it. At the time, insiders saw the percentage the company retained, and realized that Google did not actually need the money. It opened quite a few eyes.
Reply to your edit:
> How would the early Google survive for 3+ years with no revenue?
That was the point: They had revenue, and at a level that they did not need the VCs, which enabled them to negotiate the A round of $25M as well as they did. It would be difficult to pull that off with hardware.
https://www.crunchbase.com/organization/google/company_finan...
Stanford had functioned as an incubator, and the project had received government (NSF) funding. Indeed the Page Brin page-rank patent was assigned to Stanford. It was filed Jan 8, 1998 with priority to 1997-01-10. Stanford paid for that and Stanford legal was going to defend it.
https://patentimages.storage.googleapis.com/37/a9/18/d7c46ea...
To me the lesson of Google is early profitability gives you immense leverage with VCs. They had $220,000 of revenue in 1999. Revenue is good.
But Google didn't have profits in June 1999. They were hoping for VCs Mike Moritz @ Sequoia and John Doerr @ KPCB to bring them revenue because those 2 partners were on the boards of AOL and Yahoo. They wanted to try and sell their tech to those companies. (They eventually did do deals with both of them.)
Later interviews with angel Ron Conway and Sequoia said Larry's slidedeck for investment didn't have a revenue plan.
The "leverage" that Larry & Sergei had was that their search engine worked better than competitors such as AltaVista and Yahoo.
EDIT reply to: >But it's on record that Google had $220,000 in revenue in 1999.
But did they have that revenue before June 1999? Maybe everybody's memory is fuzzy but in the books and recollections from interviews of that time period, Google didn't have meaningful revenue so it wasn't a point of leverage. But another leverage they had besides the best-in-class search engine was that angel Ron Conway was willing to quickly assemble a consortium of investors in a few days to bypass Sequoia & KPCB. It was that threat of VCs losing the the deal was what finally got them to pull the trigger. Until then, those 2 VCs were sitting on their hands for weeks. Google's 1999 revenue was never brought up as leverage. Do you have insider information that contradicts that?
>Revenue and early profitability is good thing for founders but not VCs.
100% agree about the principle in general -- but I don't think Google situation in 1999 is a case study of that.
Profit isn't revenue and visa versa. But it's on record that Google had $220,000 in revenue in 1999.
Yahoo contracted out their search back then; they started as a directory and they believed in that. It's not clear exactly when the Yahoo search deal started. But it is clear when the Yahoo investment was made (which was after Series A).
Yahoo also used Inktomi and Google's leverage with Yahoo was that they were better than Inktomi or Altavista. But their leverage with VCs was that they had revenue and it was going up and to the right.
Sun was another company with early profitability, very early in Sun's case. That's my main point. Revenue and early profitability is good thing for founders but not VCs.
It almost always is. The VC "industry" is all about FOMO.
Hard to focus on two things. Get cash today usually outweighs the long term building. On a macro level this is why so little software innovation comes from Accenture. All their focus is on billable hours.
It’s possible, just hard.
Wasn't it Reid Hoffman who wrote a long article or a book about this?