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Comment by Solvency | Hacker News Reader

This is the cold truth. The entire process of raising money in the modern software world has nothing to do with creating a better product and business specifically. It's simply the de facto step-by-step playbook process one follows if one is an entrepreneur with the eventual become very rich. There is nothing novel, innovative, or remotely surprising about this process. It is well defined, well established, and simply how business is done. Every single person looking to build a company for the purposes of becoming rich should adhere religiously to this playbook. It's a cold, hard, transactional fact of life. Whether or not the product is good and fair and honest is largely an independent variable to this basic playbook process.

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Sometimes funding is necessary to grow income enough to sustain the business or hire more engineers or whatever you want to do.

If it costs $40 to acquire a new customer, and you expect a customer to stick around for long enough to spend $90 then it's totally worth doing that, but you need $40 now to make 90$ over some period of time.

That’s what's so great about five year projections! Somehow it’s always worth it until reality comes knocking after the money’s been raised. Then it’s a mad scramble for ROI that debases everything that built the business.

There is an entirely possible and alternative funding model that perpetually allocates a responsible amount of incremental funds for the purposes of novel R&D. It's trivial to imagine how a responsible incremental funding approach could create a better, more transparent, more estimable, more reportable, more mappable, more rigorously trackable innovation process.

Raising massive lump sums of money is about VALUATION. You have been led to believe this is the only way to go about building a software business like this.

It's all a major silkscreen for the colder simpler goal of generating a lot of eventual wealth for a specific cast of people.

Again, no shame or emotion here. It's just how business is done in this world.

> There is an entirely possible and alternative funding model that perpetually allocates a responsible amount of incremental funds for the purposes of novel R&D.

This works for some but not all business ventures.

There's a reason corporations were invented in the Age of Sail. If you build 5% of a ship, you can't sail to the New World and bring back 5% of the resources. You just sink in the harbor.

(The moral implications of relating modern VC-invested corporations to rapacious European conquests of the already-inhabited-thank-you-very-much New World is not lost on me.)

I believe there are healthy ways to start up a business that has startup costs too large to bootstrap. I agree with you that VCs are often not it.

You can build a small ship and a track record of profitable trade with the next port, then the next country over before undertaking an ocean crossing.

And by the time you've done that 97.3% of all shipping from the new world is being handled by a small handful of companies with gigantic cargo ships.

But congratulations, you've successfully created a small "local" business with a decent number of customers who are reasonably loyal. You should be happy with what you have and possibly invest in future generations who want to colonize the moon or something (assuming you want to expand your wealth)

But you can't incrementally upgrade that ship to become a large ship.

At some point, you need the capital investment to build a big ship, and the return on that investment is zero unless you build the whole ship.

Or maybe 20 customers who believe that having a shared ship might form a join stock company to take care of their respective 5%... and when the venture proves itself, they might convert it to a publicly traded company and let it scale up with demand.

that's literally an angel investor financed startup

> Or maybe 20 customers who believe that having a shared ship

You might describe these people as "capitalizing a venture", in fact, or "venture capitalists".

That alternative only works in the absence of competitors who raise capital to pursue more rapid growth. It is an arms race to an extent, but if you don't play the game then you may get locked out.

Particularly when that rapid growth involves price dumping. I've bootstrapped businesses before. It's really difficult to compete with free offerings when you have to pay the bills. Your competitors can burn a pile of cash to flush out the competition. They don't even need a better product... people love getting stuff for free. Invariably, those services either go bust or don't remain free since it's often unsustainable. But, it means in the short-term you often need to raise money if you're competing with a VC-backed business.

I'm curious have you ever tried to raise money for a tech business before?

There's a big reason VC and angels were and largely continue to be only game in town. No one understands or would risk loaning millions of dollars on a high risk business aiming for marginal incremental growth.

> marginal incremental growth

VC's and angels wouldn't be interested in that, either.

Yes that's my point, I was paraphrasing OPs pitch

Real world example: was DropBox a better or worse product when they were a simple syncing app before they started “innovating”.

The only consumer company that I can think of that went from “initial value proposition” to “not sucking after it went public” is BackBlaze. None of their new offerings has taken away from their initial “unlimited cheap backup” offering.

> There is an entirely possible and alternative funding model that perpetually allocates a responsible amount of incremental funds for the purposes of novel R&D.

You are completely missing the point of venture capital here.

Of course, bootstrapping exists, but I can't point to any similar companies to Fly which have achieved standout success in an area like this with a model like that.

> Raising massive lump sums of money is about VALUATION.

Valuation is merely a side effect in pursuit of market dominance or hopefully establishing a niche monopoly.

> perpetually allocates a responsible amount of incremental funds

Who does this allocation?

You raise money to pay for costs of running the business. If you couldn't raise money, then only people who are already extremely rich would be able to start a business of any size, let alone one that requires deploying physical hardware in multiple regions. Good luck getting even four regions for less than $1M. The world would be far worse off if all tech businesses had to be bootstrapped.

That being said, there's certainly many businesses that raised too much money based on bullshit, had the founders take money off the top, and then have to drastically change to become sustainable, especially in the ZIRP era. But I don't see that happening here.

To add to it, without external funding _any_ innovation would be stifled by existing players. If you can't even get low millions in funding, existing corporations with tens of billions of free money will eat you alive.

Organically growing a business; bootstrapping sounds fine, until you try to do something that potentially has any global impact.

It's funny to hear this in this context. Fly is treated as one of the few potential successors to Heroku, and Heroku raised very little money while remaining the number one choice for most devs here (based on sentiments). And then an existing corporation with tens of billions of free money came along, bought Heroku ... and ran it into the ground. So I don't buy that you need to fundraise or else be outpaced, at least not by big corporation.

To be fair, they do call out in the article that they're hosting on their own hardware. Afaik Heroku has always been hosted on AWS which is a lot less capital-intensive than buying hardware.

Also, Heroku was acquired in 2010. I know that the prevailing sentiment around here is that the acquisition was a mistake, but Heroku has been owned by Salesforce for 13 of it's 16 years of life...

You can offset burn rate with more skills. Putting a few machines in multiple regions is fairly cheap. If you’re ok doing the ops yourself, you can get buy on a shoe string budget. I know. A startup I was part of did this ten years ago and the tooling to do this has only gotten easier and better.

To be clear, I’m not saying that venture is intrinsically evil, but also companies are explicitly trading off higher burn rates and higher raise rounds to reduce the need to build all of this in house. That’s not a bad idea because it’s usually better for the business to scale as quickly as the sales channel can fill it rather than be stuck on difficult engineering roadblocks.

> If you couldn't raise money, then only people who are already extremely rich would be able to start a business of any size, let alone one that requires deploying physical hardware in multiple regions

You’re describing the current state of the world

We’re there already. The entire system is built to exploit everybody who does not have significant capital to fight back against it

I am so curious why you repeatedly spit in the collective face of the millions of small business owners in the US and around the world.

If what you say were true, the world would exist as a series of 3-5 megacorps, and small businesses would not exist. Since they do exist, how do you square that with your claim that only the "extremely rich would be able to start a business of any size" is currently true?

I agree, most businesses are very small. Large businesses and especially very large businesses are the exception.

4.7M of the 8M US businesses have <5 employees.

https://www.census.gov/newsroom/stories/small-business-week....

Starting a business requires little more than filing incorporation documents with your state.

Growing a business to dominate a market and get crazy rich may require outside funding, but growing a business to support and maintain your individual lifestyle does not.

I would also add to your point that starting a business is easier than it has ever been. While far from perfect, the internet has been an amazing equalizer.

On the one hand, it makes it easy for you to reach customers.

On the other hand, it makes it easy for your competitors to reach customers.

I'd argue that, on the whole, the internet has made starting "just an idea and a garage" businesses harder, because they now face immediate, maximally-funded competition. Whereas pre-Internet they would have been geographically/physically protected for awhile.

True, net win for customers, efficiency, etc. (maybe). But you couldn't start a Starbucks these days.

> spit in the collective face of the millions of small business owners in the US and around the world.

Their income is similar to that of most working professionals and their assets are similar to the savings of most working professionals. They entrepreneured themselves into having a job, they're not the investor/capitalist multimillionaires we picture when we think of rich people.

>the world would exist as a series of 3-5 megacorps, and small businesses would not exist

The economy exists as the 500 megacorps that make up the s&p 500. Small businesses just fill in the gaps and are for the most part beholden to the megacorps for their business, their supplies and/or their financing.

It's just not though. Surely you know (or know of) people who've built successful businesses with the help of funding, and couldn't have done so without it.

Just because someone takes funding, doesn't make them any less or a part of some "built" system. Even my favourite bakery could never have got started without funding - with debt not equity. It doesn't make him any less brilliant. He would've had to be extremely rich so start the business otherwise

Not all funding is creating equal or share the same expectations. Borrowing money from a bank to open a bakery or taking an investment from friends and family to cover the initial startup costs is very different from raising venture capital money. The growth and return on investment expectations are wildly different.

Which is sort of natural, isn't it? The natural world is set up to exploit everything that does not have a defense against it. You adapt or you get eaten or out-competed. The fact that "the non-rich" have not yet realized that they can, in fact, band together to force more powerful forces to behave better, doesn't mean they can't still do it.

Our biggest advantage is working together as a community, and our biggest flaw is not helping each other when we easily could.

Just buy an ASIN and use a VPS provider than understands them. You are now multihomed.

> This is the cold truth

No, it's not. It's emotionally manipulative propaganda that is thinly-veiled political ranting, and so is your comment, and neither belong on HN. Stick to interesting, intellectually stimulating discussion, please.

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