Ask HN: Why do some serial entrepreneurs raise money when they can self-fund? | Hacker News Reader

Ask HN: Why do some serial entrepreneurs raise money when they can self-fund?

6 pointssixQuarks15 comments

I just read that the Waze founder, who sold his company for over $1 billion last year, launched a new startup and raised $3 million for it. Obviously, he can self fund this, but he's not the only person that does this sort of stuff.

I've heard you should stay away from VCs if you can afford it. So why do these guys raise money, give away a %, and have to deal with VCs?

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Why put your own money in the game if you can use someone else's?

I remember having read a Donald Trump quote somewhere to that effect.

This, literally.

Or as George Carlin once said. "Your stuff, is stuff... But my stuff, is thee stuf."

Yes, but that money comes with baggage. I've read a lot of horror stories of how VCs kick the founder out, etc.

I can understand if you need the money, but c'mon, this guy had a billion dollar exit. $3 million is nothing for him.

Sure, but if you've already got money from a previous exit, why would you care if you're booted out? It's just a job at that point.

Also, you've already done an exit, so it's less likely you'd get the boot; After all, Investors want a return. They should know whether that's your M.O. when they invest. There can be legal/tax ramifications for investing your own money too.

Regardless of how good you are at making a company successful, giving good ROI and everything else. If you treat it as a job (there are far more important things than work), why not use someone else's money?

Well, Donald Trump is GREAT at blowing billions of dollars of the money he inherited, money from investors, it would only make sense.

I think it comes down to the decision between potentially having a large piece of a smaller pie or a small piece of a massive pie.

Taking external funding is akin to leveraging up to build a portfolio -- your return on investment is magnified. However, as others have mentioned, risk is mitigated because losses are absorbed by the investors. Plus, you'd want your well-connected partners to have skin in the game as an incentive to help the company (although that can be at odds with the founders when VCs go into stop-loss mode).

Adds credibility. If someone else is willing to bet on your idea, that itself speaks for the idea.

Adding to this is "the exit".

With all the negatives VCs bring, they also make it incredibly easy to exit a venture, as they target an IPO or acquisition. For a serial entrepreneur, this is great.

I would second this. Imagine you can self-fund a successful company, there is no reason for your company to go public if you are profitable and generating revenue unless that in turn generates more income. This is a great for the owners of the company if you never have to take outside funding, but imagine that you have options in a company that never needs or wants to go public. Sure they can get you to work hard for a few years under the illusion of going public, but without a forcing function like a well timed exit there is no way those options will possibly be worth anything.

So by taking outside VC equity based funding an entrepreneur is signaling that they can raise money if needed, that if the company works out there's a chance the non-founders will make money, and that the founders can deal with the pressure VCs will put on them and the company to perform [and yes that can sometimes mean ousting the founder(s)] and produce an exit event.

Speaking generally, it one big factor is mitigating risk. Doing so does two nice things: (1) Allows you to go after really big ideas, using your own money makes you more conservative and (2) prevents personal disaster.

Successful entrepreneurs typically can raise a lot of money at very high valuations with little time and effort. At a certain point, why not? (For a capital-intensive business.)

To mitigate risk.

To establish funding sources early to be able to tap in later. Never go for funding when you need it... always do it when you don't.

It places less risk on the founder. They can easily gain funding so why not create something that, if it fails, won't negatively effect your personal net worth?

Reducing risk and building alliances.

I don't actually know but perhaps success has taught them that one value of successfully pitching to VC's is validating your idea? VC's seem to be much more than just money people. They judge quality of the seed idea. The process of pitching it requires you to think about it. Etc. This seems to be a tough nut to crack for many entrepreneurs -- figuring out how to validate the idea -- and perhaps this is a proven pathway for that.

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