Plan B for Fundraising (Guy Kawasaki making sense) | Hacker News Reader

Plan B for Fundraising (Guy Kawasaki making sense)

blogs.openforum.com

73 pointssabat27 comments

This reminds me of the Greg McAdoo vs David Heinemeier Hansson debate at Startup School. It totally polarises 'the VC approach' and 'bootstrapping' and talks in very general terms.

I don't believe there's a right answer to this. Surely the answer is always "it depends". And what it depends on is the interesting part of this whole debate.

I think it depends on your time line and whether you can create a working, valuable website/application/product/whatever by bootstrapping. Some industries you can, some you can't.

We could have easily done http://TicketStumbler.com by bootstrapping, but YC moved our time line up by at least six months to a year, which we deemed very much worth the equity we gave up.

As Guy stated, for most companies, going the YC route qualifies as plan B more than plan A. Two guys living in their parents basement and giving up 6% for 15 - 20k so they can scrape by for six months is a far cry from giving up 30 - 40% for $1-2m so you can hire five people and burn through that money in less than a year building a product for all the users you're sure you're going to get.

I definitely agree. I was responding more to langer's comment than the article itself.

Now the decision is: does the money, leverage and ability to expand faster (in theory) we'd receive from plan A outweigh the amount of additional equity we'd have to give up.

And the time and effort expended in the process of fundraising.

And the enjoyment experienced from all the free breakfasts/lunches/dinners/beers/paint ball outings. :)

I think that there's another question (& I think it's part of the point he's making):

'Is leverage and ability to expand faster, something you want?'

In other words. not can you play the Startup/VC game without a VC but, should you be playing that game at all? One of the points was that 10,000 users was a failure for a VC funded startup. That's not necessarily the case if you don't have an inherent valuation you need to aim for.

"...but YC moved our time line up by at least six months to a year..." - can you explain further - in broad terms of course - was that because of the focus of the YC process; the connections being a YC funded company brought, or something else?

Oh yeah sure - I was able to leave my job and focus on the startup with 100% of my time (instead of say 10-30%). The connections and being able to bounce ideas off of other really smart people was invaluable as well.

What's really hard for many founders (myself very much included) is telling your friends and family you're leaving this good job with health care benefits to do a startup. Having a name behind you makes this a lot easier; the YC money was almost irrelevant.

My suggestion to those thinking about this: do the math. Having just quit my job, I found that health care is cheaper than you'd think. COBRA ensures that you are covered for 18 months under your existing plan.

I can't think of any other benefit I'm missing. It seems to give a warm and fuzzy sense of security to a lot of people.

COBRA was super expensive for me (over $250 a month) luckily we qualified for this young adults program in MA which is ~$130 per month. In the west coast, you can find even better deals. Obviously, this is a much bigger issue if you have a wife and kids.

If you are in any sort of accident, the insurance pays for itself. I had an allergic reaction while uninsured, and it cost me $3700. An old roommate was in a bicycle accident while uninsured, and the bill was close to $18,000.

COBRA is a pretty bad deal though. Mine was almost $250. You can get a good Blue Cross plan for that much, or a simple disaster plan for much less.

I meant that you can keep COBRA if you have any pre-existing conditions that a new insurer will not cover cheaply.

What's a disaster plan? Google was not too helpful. It sounds like what I'd want.

Guy is clearly coming around to bootstrapping. Welcome to the bright side.

Why We Must Bootstrap to Succeed

http://www.lovemytool.com/blog/2008/06/bootstrapping.html

He's not necessarily saying to bootstrap. Only during the initial stages. Lack of money gives you a much more realistic picture of what's going on with your company.

I agree. And that's my view as well. Bootstrapping is not a lifestyle, but a strategy.

Kind of surprised myself by how much I enjoyed this. It's refreshing to see Guy writing in his old style (the way he wrote for his personal blog around 2006). Great storytelling to demonstrate the point: that bootstrapping's the word for serious entrepreneurs.

The best piece of advice comes in the form of VC money for expansion, not creation... it's easy to look at VC as the key to all your grandiose plans, but that's almost never the way things play out. Better to take some or no money, grind away, and only take the funding exactly when (or just before) it's absolutely essential for your survival.

Call me old-fashion but I wholeheartedly agree with Plan B, Plan B focuses on being cashflow positive first before ramping up the growth strategy while Plan A focuses on getting big fast before figuring out how to get to cashflow positive

And that brings me to the point made by Mark Cuban about how the current batch of entrepreneurs are being cheated by the likes of Netscape into believing that you should follow an eyeballs-then-cash strategy, instead of the common-sense cash-over-eyeballs strategy (or what Mark would say Cash-in-the-pocket strategy).

Fame/popularity on the Internet is ephemeral (Geocities? Youtube celebs?) and you jolly well make sure you are bringing in cash fast. Sony wouldn't have bought ClubPenguins for so much if they weren't bringing in USD 80 million in revenue every year. If ClubPenguins had twice the eyeballs but one-tenth of the revenue, the buyout price would be way lower.

That is not to say that the eyeballs-then-cash strategy wouldn't work but it is statistically insignificant when compared to the larger population.

It makes me feel quite a bit more confident about my decision to save first.

http://foohack.com/2008/08/why-im-not-working-on-my-startup-...

Good luck. Make sure you quit and do it, though. There is no better time than the present... with Posterous we could have waited another 6 months to apply to YC, but I have no regret at all that we did it earlier.

Anything can happen, and tomorrow is not promised. So start. =)

This is Grade-A brilliant.

If you liked this, you might also like Seth Godin's Bootstrapper's Bible. It costs two bucks as a PDF on Amazon, but I personally got a lot out of it.

I looked into this -- didn't know Seth wrote a boostrapper's bible. Turns out it's available for free now:

http://www.changethis.com/8.BootstrappersBible

Thanks for the link. Looks like a promising read!

how is this "brilliant" and not "common effing sense"?

The problem with common sense is that it's not so common. Good advice is often simply common sense once you realize what's being said.

This is a fundamental fact of companies: they are bought not sold.

Excellent insight

Reply on news.ycombinator.com