Comment by xnull2guest | Hacker News Reader

Comment by xnull2guest | Hacker News Reader

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How you start a (tech) company in America:

* Move to the valley.

* Come up with a really good idea. Or at least a gimmick that will be a fad for a time.

* Find a generous person from the upper echelons of the wealth distribution (or a club of them) who have enough money to fund your idea or gimmick.

* Make a deal with them so that your business becomes part of their diversified portfolio. The risk to them is hedged by being broadly invested. The risk to you is a real ultimatum of your time.

* Work tirelessly and thanklessly. If you do succeed you will give a large part of your company, and many times control, to your patrons.

* Furthermore, because you've waited as long as possible to IPO all of the initial growth to launch your business into 9 or even ten digit figures has been captured by the upper class - the common man never had a real chance to invest in your idea.

* That's okay though, the common man probably isn't paying you with dollars anyhow. You're probably collecting his data for sale and for advertisement (or rather partnering with a company that does for you).

I've never really understood these comments. As someone who's founded two VC-backed companies and raised millions of dollars I have to tell you that the parts that bother me really aren't "working tirelessly and thanklessly" for the benefit of my "patrons" who aren't taking any risk. I actually really like my investors. Many of them are effectively startups, too: most funds, especially new ones, have to work hard to source and get into good deals and demonstrate a return so that they can raise their next fund. That's far from guaranteed. Those investors are as much entrepreneurs as we are, just in a different sector. I'd say probably 70% of my investors fall into that category.

Occasionally a founder will get screwed by a VC. It's happened to people I know. In retrospect it's very rare that they didn't see it coming, and usually it's more complicated than just "investor screws founder." Investors have to work with the small ecosystem of each other and new startups on an ongoing basis. It's an iterated game and truly bad behavior gets you shunned. It really does.

It's actually more often that I hear that people wished they'd raised VC. I have several friends who have bootstrapped successful multi-million companies who look back over how they got there and the challenges they face now and wish they'd raised money. Yeah there are a lot of great small businesses - and bootstrapped startups - that do well without getting investors involved. But I can tell you first-hand that investors can really add value and drive entire fields much faster than they would have otherwise matured, and at the end of the day come out successful in real terms.

Founders have ways to diversify. I've executed minor equity swaps with a few friends to create a portfolio of my own. It's more "downside protection" (hopefully) than designed to replace the possible returns from my own company, but those investments have actually done really well.

It boggles the mind that in this corner of immense wealth creation and the freedom to do really whatever we want to do - if you don't want to work on something, don't start that company - what people fixate on is "investor vs founder."

Just go do it. A lot of the stuff you wrote about above really aren't things you worry about.

>the common man never had a real chance to invest in your idea.

This part of your very pessimistic comment is certainly true, and I would like to point out that this is the government's fault, not Silicon Valley's. People who aren't rich are legally not allowed to invest in startups. [1]

But the unstated major premise of your comment, which is wrong, is that investment in startups is some kind of magic bullet for making tons of money. This is demonstrably not the case. One of the common justifications for the law in [1] is the fact that high-risk investments like startups are not necessarily any better than traditional low-risk investments (like stocks in big companies), and (by some metrics) are worse.

1. http://www.sec.gov/answers/accred.htm

Startups used to IPO while there was still a large amount of risk, so it was possible for a public market investor to invest and capture value.

Today's startups choose not to. Anti-government types will say that the only reason is SOX. Honest and intelligent people will admit that there are a lot of other factors too, mostly around the finance sector getting better at capturing growth stage value.

I completely agree that VC is not a magic money making bullet, but I don't think it matters for the post.

Certainly there are patrons who will lose money. Having a portfolio full of lemons isn't going to make any financial elite any money. Most will hire accountants and financial and technological advisors. Some will provide extra services (advice, contacts, demo day audiences, etc) to bolster the prospects of their portfolios. Some will fail anyway. The ones who stick around are the ones who are good at it.

The real unstated major premise of my comment is that it is essentially impossible to be a self-starter unless you are already rich, which (along with the other stated bits) implies that growth in the tech industry concentrates wealth and that there is a mobility problem that runs counter to our nice cultural myth about geniuses in garages.

"the common man never had a real chance to invest in your idea."

You may not realize that VCs are investing on behalf of the common man. Most of the LP's in VC funds are entities like pension funds who represent the common man's money.

I'm skeptical. Most of these funds disclose at least the categories of assets they invested in - what is this asset class called and can you point me to a prospectus that mentions it?

https://www.calpers.ca.gov/index.jsp?bc=/investments/assets/...

You'll notice Insight Venture Partners (an investor in Twitter) and Khosla on the list, to highlight a couple.

To add to that, university endowments are also a big component of VCs, in addition to pension funds.

I think a couple years ago a judge ordered Berekely to release the fund performance figures for the VCs they had money in, and most of them don't even do well (measured in terms of IRR).

Er do you not know anything about how collective investment in things like pensions Unit trusts and Investment trusts work.

Most of the big main stream IT's have a proportion of there capital in pe/vc - read the annual reports

This is the very reason I take Dash[1]'s approach to success. He has half a lifetime stored up in a savings account, and he works a fraction of the time I do per week.

1. Make a small niche app.

2. Market it ferociously.

3. Don't be a slave to your job, make it the other way around.

4. Be your own #1 customer.

[1]: http://kapeli.com/dash

Interesting! How'd you know that about the developer's situation? Digging around kapeli.com, it doesn't talk much about it.

The developer gave some insight on his blog here:

http://blog.kapeli.com/dash-for-ios-android-windows-or-linux

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