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000 points · username · 0 hours ago
example.com0 points · 0 comments · 11 years ago · graycat
But, but, but: It looks like there is a kind of a bus or bandwagon, and after this lecture I'm thinking of either not getting on or just jumping off before going too far.
Sure, YMMV.
More generally, I'm concluding that for information technology start-ups, Silicon Valley equity funding is on a long walk on a short pier, about to go the way of the Dodo bird.
E.g., the lecture told me that the Silicon Valley way is awash in onerous, nearly intolerable, often seriously dysfunctional, financial, legal, organizational, etc. overhead that is unnecessary and should be dumped into SF Bay and forgotten about.
Instead, with some irony, I remember the advice of Ron Conway in Lecture 9
http://startupclass.samaltman.com/courses/lec09/
in praise of bootstrapping.
My view: Be a solo, technical founder. Plan the start-up; get a computer; write the software; own 100% of the business; organize as a Sub-chapter S or LLC; get users/customers and revenue; do not accept equity funding; grow the business; smile all the way to the bank; and totally just f'get about VC, liquidation preferences, pro-rata rights, vesting, reporting to a board of directors, a Delaware corporation, etc.
Vesting: That's where a solo founder who owns 100% of a business -- and it's got to be a pretty good business before it qualifies for VC equity funding, e.g., see (5) below -- has the business take an equity check and suddenly owns 0% of the business, to start to get back some ownership gets a four year vesting schedule with a one year cliff, takes on a lot of expensive, onerous overhead, and reports to a BoD with people with a fiduciary responsibility to (themselves and) their limited partners, that can fire the founder for any reason or no reason (thus costing the founder his unvested stock -- do that in the first year and the founder gave his business away to the investors for a small salary for a few months and $0.00) who are non-technical and the founder would not want to hire in the business, who do not write code, who commonly claim they have "deep domain knowledge" (an outrageous belly laugh) and, really, do not understand the business. Total bummer.
To me, if a well qualified technical founder believes that he needs co-founders and/or equity funding, then, instead, he should think of a better business idea that doesn't need those and that he can do as a solo founder.
Some really good news: The US is just awash, border to border, crossroads, villages, ..., to the biggest cities with successful businesses 100% owned by solo founders. Indeed, from all I've seen, it is mostly just such founders who own houses, vacation houses, super-cars, boats, and jewelry worth $1+ million each and pay full tuition for K-12 private schools and Ivy League colleges. E.g., own 10 fast food restaurants, several new car dealerships, a good independent insurance agency, be a successful dentist, have a good construction firm of larger buildings, own and rent real estate, etc.
Further, actually can do fairly well in coin laundries, pizza shops, Chinese carry outs, landscaping, ..., even just grass mowing and snow plowing.
And of course these solo founder Main Street, USA businesses nearly never have VC or even equity funding.
Even better news: What can be done in principle, and sometimes in practice, with a computer that costs $2000- and an Internet connection with upload speed of 25 Mbps is just staggering, nearly beyond belief. E.g., there was the Canadian romantic matchmaking start-up Plenty of Fish, long just one guy, two old Dell servers, ads just from Google, and $10 million in annual revenue.
Five points:
(1) For more, a big lesson of the Altman course, YC, and VC is that there is a big risk of disaster from co-founder disputes but also a big theme of don't be a solo founder. Maybe there are some good reasons investors don't like solo founders, but I can see big reasons well qualified technical founders should want to be solo founders.
(2) For more, this latest lecture and much more, e.g., John Doerr from KPCB, keep saying that ideas are easy, plentiful, and worthless and that execution is challenging, risky, and everything.
My version would be, good ideas are challenging, rare, valuable, and nearly everything and, given a good idea, execution is routine and reliable.
It appears that Silicon Valley (SV) believes that an idea is just some one sentence product description a founder might explain to his neighbor and regards everything else as execution. So, it appears that SV fails to understand what else should be in a good idea. No wonder on average VC has poor ROI:
http://www.avc.com/a_vc/2013/02/venture-capital-returns.html...
But a good idea might be based on some original research, secret sauce, challenging for others to duplicate, and be protected as a trade secret or with a patent. Some people believe that some trade secrets and patents are valuable assets, maybe just crucial to the business, and not easy, plentiful, or worthless.
So a founder wants to report to a BoD that believes that ideas are worthless? What about some original and solid ideas for much more effective ad targeting? Easy? Worthless? Gads.
(3) For more, VCs keep saying that a start-up that claims that they have no competition is just silly, that there is always competition or at least near substitutes. Let's see: What about the original Xerox 914 copier, a license to print money?
(4) For more, there is the common claim that whatever a start-up is doing, it is not the first. Hmm .... Suppose we take the set of all efforts that did the same thing and there consider the effort that was started with the earliest date. Then that effort contradicts the claim.
(5) For more, some of the VC arithmetic doesn't work out:
E.g., once Menlo Ventures wrote me that they would not consider an investment in my work before I had 100,000 unique visitors a month. Okay, assume (a) each month, on average, each unique visitor comes 5 times and each time sees 8 Web pages, (b) each Web page has on average 4 ads, and (c) get paid $1 per 1000 ads displayed. Then the monthly revenue would be
100,000 * 5 * 8 * 4 * 1 / ( 1000 ) = 16,000
But the CapEx to serve 1 million uniques a month? Let's see:
That would be an average of
1 * 10**6 * 5 * 8 / ( 3600 * 24 * 30 ) = 15.4
30 * 2000 = 60,000
I can understand that a start-up with 100,000 unique visitors a month and five co-founders, each with a pregnant wife, might very much want some equity funding. So, be a solo founder.
In simple terms, by the time a solo founder has a business of interest to VCs, he has high motivation just to continue to own 100% of the business and f'get about equity funding.
With points (1)-(5), I see a pattern: Denigrate founders.
Net, I'm missing why good technical founders should want to be on that bus.
Yes, YMMV.
Udo
brackenbury
ISL
I'm a soloist by nature, but I've learned that I need to work with others. The mutual support of a qualified partner is almost priceless, for you and for them.
YC, and the startup culture in general, appears to have noted a strong correlation between multiple founders and success. It also sounds like founder breakups are common. These two observations are compatible.
Ideas do have intrinsic potential value, but that value cannot be unlocked without execution. You may have an idea that sequences DNA with absolute fidelity in ten seconds for $1. That idea has an intrinsic potential value of many billions, but if it can't be brought to market (or to proof-of-principle, to sell the idea to others), that value cannot be converted into currency.
rhc2104
Facebook has half that revenue per user, and that's with powerful targeting options and a userbase that spends a lot of time on the site/app.
danieltillett
The core value proposition of VC equity funding seems to me is enabling the business in the first place, or at least taking the business to places it could otherwise never reach. Obviously, there are lots of cases where that simply isn't necessary - and nobody likes to take on unnecessary equity holders if they don't need the money.
But if you do need the money, it's not a surprise this comes at a cost. People who invest in companies want to make sure those companies have a decent shot at succeeding. The vesting scheme is designed to incentivize founders to keep working on their company, and if that looks very similar to vesting schemes early employees get that's not an accident.
The same goes for your more general criticism of SV as a location. There are startups where this is simply not relevant. Nobody wants to move their life and business to another (more expensive) location if they don't expect it to be better there. But for a certain type of startup, the expectation that SV is better than any other part of the world is absolutely justified.
Everything is a tradeoff. It makes sense to evaluate these tradeoffs carefully. Money has a cost. Optimizing your opportunities (usually) has a cost. Sometimes you need investors to succeed, sometimes you don't.
To put it bluntly, if I can become the next Facebook while sitting in my garage in Vladivostok not talking to anybody, there is absolutely no reason to move to Silicon Valley and give away most of my company. That's a big if, though.