Ask YC: Expectations and Reality (Startups)

In all seriousness, the odds of finding an investor who will hand over money with no strings attached are miniscule -- most investors (quite reasonably) want to avoid the "I think I should get a big bonus this year... oh look, the company has run out of money, too bad guys" scenario. (And this scenario isn't necessarily quite so blatant -- sports teams, for example, are notorious for "losing" money while they funnel inflated contracts to other companies with the same owners.)

That said, not all companies need funding. Do you have enough money saved to let you survive while you write code? Can you avoid capital costs and long-term leases by working out of your home(s) and renting servers instead of buying computer hardware?

If you can bootstrap, do it. If not, accept that you're going to have to give up some control; and try to find the funding which will let you retain as much control as possible.

But with money raised by serious venture capital firms, they definitely expect more control. It isn't so much direct as it is indirect. The VC firms will have control over a significant portion (if not a majority) on the Board of Directors. As such, they'll likely have power to hire and fire top-level managers. Including yourself. Therefore, while you're not obligated to obey them, you'll be more inclined to follow their advice since your job is, essentially, in their hands.

That, in its essence, is why you should 1) avoid VC cash unless completely necessary, and 2) pick your VC firm carefully (don't always go with the highest valuation or biggest name).

Why do you need to maintain control? Greed? Paranoia? The idea is too complex for others to understand? (note: none of these are good reasons ;) )

As a leader, you should always strive to ensure that you can be replaced, and that the company can and would continue without you. This is often a big hurdle for many entrepreneurs to wrap their head around, but it is almost always critical to the success of the company.

In the beginning, the founders maintain full control simply because they are the only ones that fully understand the idea and market. Over time, you need to do less innovation, and more operation of the business. Founders rarely make good full-time CEOs, and "professional CEOs" rarely make good founders, but they both play their part in the on-going success of the company.

Here are things that founders could do that might upset an investor:

1. Selling your company to someone else for a tiny sum. 2. Issuing stock in peculiar ways. 3. Issuing stock to yourselves without any vesting plan. 4. Jacking up your own compensation at the expense of runway.

Much of the "control" they want is to keep you from doing something unethical. Some of the control they want is to keep you from compromising their investment.

There are plenty of great stories where entrepreneurs had such a great idea/startup that they were able to push for pretty great terms (Google).

The best way to insure control is to insure that you don't NEED the investment.

Once it's more than just you in the startup--whether it's partners, employees, or customers--you will need to sell your ideas and to compromise to achieve your larger mission. If it's a work of art or a hobby then you can be in complete control and not worry whether it's salable or appreciated. But if it's a business it will involve negotiation and compromise.

The Japanese have a phrase "if he works for you, you work for him" that is a good precept when it comes to attracting and retaining employees. Many early stage startups are effectively volunteer organizations, so you need to think through how you are going to attract and retain the talent you need until you get to positive cash flow.

Borrowing money is a recipe for getting started but you have to have a realistic plan for how you will pay it back. This is why investors are so demanding as well, most don't really want to run your company, they just want a return on their investment.

In the end it's positive cash flow that allows you to maintain control, and whether it's from consulting or from product sales it's from paying customers. And they exercise a fair amount of control in their own way.

So if you want to be in control I would stop developing and start selling, making sure that someone wants to pay for what you are planning to build.

- Good advice (with the right investor).

- Someone with connections who is constantly talking about you and trying to do good things for you.

- Another person you are accountable to (failure isn't just your own, that's too easy).

It all boils down to the type of business you are trying to make. If you'd be happy pulling in 200k of revenues after building a company for 2 years and being barely profitable with 2 full-time employees and other misc costs, then you might be able to bootstrap, maybe. If you're trying to grow a business fast, or grow a huge business, it's just not going to work.