Are “one-round-wonders” the next Silicon Valley aspiration?
workingtheorys.com
workingtheorys.com
As soon as you raise you are locking yourself to the idea you are selling for at least 7 years. If you are lucky, you can extract some money via a secondary to buy a modest house 3 years into it as a founder. You now have a heavy responsibility to your investors and employees to be a steward of their capital. All the code you've written now belongs to the company rather than yourself.
Meanwhile, if you bootstrap as a solo founder, you have optionality. If the business makes a profit you can now just deposit that in your bank account. If you get bored after 2 years you can leave the business on autopilot and repurpose the code you've written to try other ideas. If the product does take off you always have the option to spin it off into its own llc and raise money for it (or just sell it outright). The threshold for success is so much lower, you only need a few thousand paying customers to sustain one developer (you). Of course the obvious challenge with going this route is that you actually have to be able to execute on your own idea.
Not saying the profit incentive is necessarily a bad thing.
Angel investor here. I've had startups ask me about a $10mm exit. The team was tired. I'm not running a professional portfolio. I said go for it. I approximately 2x'd my money over as many years, while the founders became millionaires. (To be clear, I was being asked for advice. The founders had complete agency.)
None of those businesses, mind you, were compatible with bootstrapping. (And to the extent a business can be bootstrapped, I won't invest in it. Because that reflects its barriers to entry.)
After those three rounds you are a going concern with hopefully 10 - 20% market share and an IPO will repay the investors, give you a regular way to raise capital on the open markets, Etc.
Way too many 21st century start ups were investors scamming other investors :-)
The MVP condenses these risks. Building and delivering a product to a customer shows execution capacity and product-market fit. This is where angels and seed investors should live. If you have a proven tech team, trivial technology risk and a free product, however, delivering an MVP becomes a function of capital. Which means rounds go straight to scaling.
That final collapse, and the ensuing problem of future scaling rounds collapsing to the first, a direct consequence of low discount rates, which bring the future closer to the present, is where Silicon Valley's problems came from.
This is a side point but I have always wondered why companies publicize their funding rounds and why anybody outside the company would care? Well apart from the parasites who use those announcements as an acuse to cold call the CEO about mobile phone service, accounting software, and whatever.
Announcing important milestones (key customers, important new features, etc) makes sense. Raising money is just part of making those milestones and to me makes about as much sense as announcing a git push.
Current and potential employees care.
(1) It is a warning to competitors not to enter the market unless they're willing to put up a similar amount (all things being equal).
(2) It validates the valuation, which ultimately sets the bar for the next round or IPO.
Note that a company (with majority investors) will be wound up as soon as the prospects look bleak, even if there is plenty of money available. So in a financial environment with few alternatives (i.e., low interest rates), it makes sense to park your money as a threat to competitors, so long as the run rate roughly tracks the residual value increase in a fire sale.
So it makes sense for everyone to push up valuation number as anything they have stakes in will also seem more valuable...
IIRC YC started with 50k its first year.