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Comment by tptacek | Hacker News Reader

No, the real problem wasn't insurance; it was that a firm-seeming commitment to fund the company fell through at the worst possible moment.

A lawsuit wouldn't have fixed anything for them; it'd have taken years to resolve.

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The real problem was they had no business model; spending money to get users when you don't even know what your return is? That's ludicrous. That's a core business issue from day one.

That depends on what kind of business you want to start. I'm a fan of growing slow and not taking outside capital. It worked pretty well for me, and working with VC, not so much. But the fact that bootstrapping works for some products doesn't mean it works for all of them. In particular, a product with serious operating costs and high cost of user acquisition is hard to bootstrap.

It's one thing to sell products to, say, every freelance developer in the world. Freelance developers are (relatively speaking) wealthy and interested in products that improve their practices. Parents are not generally in an ambient state of seeking products to secure their kids Internet connections. That makes them hard to reach and sell to.

twitter, google & facebook might disagree

Twitter/Facebook grew virally, not through paid marketing to acquire users.

We did have a business model. Jason didn't talk about it much, but if you look at my original post and Brandon's more in depth post it's there.

Was it a billion dollar business? Probably not, unless we owned most of the space if not all the space. This was inconceivable when you looked at the players.

They would have been in a much better position if they had actually turned on the revenue model before asking for money. Without that, the only metric they had to impress investors was user acquisition which was dropping.

Or he'd be in a much worse position, because his cost of customer acquisition was high and the money he'd earn from charging wouldn't come close to covering his operating expenses, and charging would slash his new user signups, which were probably the only realistic lead gen he had to work with. Which is, you know, the situation that gets most people to consider venture capital.

Sure, if the "genius business model" was "charge everybody money for it", but the way that was phrased implied they had something more devious in mind. By going the VC route and asking for $7 million straight up, they bet big and lost big.

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