It's not so much that "yes" means "no" but that VC's never actually say no, and it's easy to understand why. Whether or not they actually fund you, they always want you to think that they are going to fund you because that way they hedge their bets in two ways. First, if they learn new information (like if you suddenly start to get traction) they can change their minds without losing face. Second, and more importantly, as long as the answer is actually no you are potential competition for some other company that is actually in their portfolio, so they want you to think that you have a shot with them so you won't pursue other opportunities as aggressively.
The only thing that actually means "yes" in VC land is when the check clears.
I'm not going to say this has never happened, but I think it's a little naive to think that this is the common path. In my experience, the first option OP presented (hedging bets and wanting to save face) are incredibly common.
Naïveté is when someone assumes good outcomes from bad situations.
What I'm exhibiting is probably more correctly described as cynicism. I've worked for a few startups that were sure they were hearing 'yes' from VCs and we ended up running out of money thinking a check would come any day now.
There's an old saying, "I'll believe it when I see it." Cynics and startup employees expanded this to, "I'll believe it when the check clears."
And then there's me over here, who knows you can claw back a check that has 'cleared' for about 30 days, saying "I'll believe it a month after the check clears."
Top tier VCs will definitely tell you “no” and they’ll often get there quickly.
It’s more often the small funds, the inexperienced family offices, and the junior associates that don’t have authority who string companies along forever. They don’t have as much authority or funds to actually work with, so they have a lot of time to string you along.
Lumping all VCs together really doesn’t lead to accurate descriptions of how the industry works.
This is the most accurate comment I've seen here. Sequoia, Benchmark, Kleiner, etc. will all tell you "no" and why with minimal turnaround time. The same is true for second-tier players like Craft, smaller shops started by breakaways from the big firms, and scouts. Good VCs are professionals and have no interest in wasting your time or theirs. A "no" now never precludes future participation anyway; they don't need to string you along for that.
Which actually reinforces the grandparent's point. Sequoia, Benchmark, Kleiner, etc. can say an actual "no" and you'll still go back to them because they're...Sequioa, Benchmark, etc. You'll go back to them, because its a huge signal to prospective buyers, potential acquirers, partners, etc. that you're being funded by a top tier VC.
> Good VCs are professionals and have no interest in wasting your time or theirs.
"Good" VCs has less to do about professionalism and more to do about pedigree. Professionalism and "good"/"bad" VCs are not mutually exclusive things.
The grandparent said "VC's never actually say no". I did the opposite of reinforce that. Every good VC will give you a version of the following if it's a "no":
1. It's a "no". (Clear, unambiguous.)
2. Here's why. (E.g. not believing in the space, issues with customer background or another part of due diligence.)
3. We make mistakes all the time and hope you prove us wrong. (I've pitched the partner at Sequoia who invested in FTX. His name's Alfred, super nice guy and fully aware that screwing up is part of his job. "No" isn't a value judgment.)
4. Happy to talk again for the next round. (If they're a multistage fund, e.g. you won't hear this from First Round.)
It's all very predictable. The one real "why" you won't typically hear back on is strength of the founding team. They won't tell you when they think you're the problem. But product, space, GTM, basically anything else they're happy to dissect.
This is true for all of the firms that people have heard of. Of course there's a long tail of bad VCs, too, generally podunk firms few people ever encounter anyway. Avoid TechOperators out of Atlanta, for example.
Hmm, my experience with one of the largest investors in NL was a full verbal 'yes'. The investor was actively involved in the hiring process (that is how I got in). A founder put in his cash (think a small apartment) for a lower single digit percentage of agreed valuation. I signed for something smaller / similar but without bringing in cash.
In reality the money never arrived, they forked in few times 250k. The other investors who bartered a deal all brought in their share. My takeaway is that even the most reputable investor has absolutely no limit in saying yes and doing no.
The motivation for everybody was greed, and that was buzzing around due to the fact a large investor was involved. They know that and they used it. But in the end in this world signed contracts and wire transfers are the only credible thing.
Sounds like those "corporate VC-sounding but not really VC-operating accelerator" investment programs some larger corporates have. Their goal seems to be funding technology development aligned with their interests, few to no strings attached, with the potential for the occasional moonshot.
If successful, acquire before any competitors even fully understand the potential. Worst case they hire the top talent if the venture fails. See Shell GameChanger[0] for an example.
> But in the end in this world signed contracts and wire transfers are the only credible thing.
I don't have any experience in this business, but why would anyone think otherwise?
Did you spend your own money on a verbal promise of investment without any signed document??
That was my reaction, too. I have always avoided VC investment, but "it's not a done deal until the check clears" has applied to literally every deal I've ever done.
A signed contract is certainly part of the process. I can't speak to outside the US but here the high-level steps are:
1. Engage the firm and reach a decision that they'd like to invest.
2. Negotiate and sign a term sheet. (The only part of this that's legally binding is that you won't continue shopping around while negotiating the full deal with them. That said, it's extraordinarily uncommon for things to fall apart after signing a term sheet.)
3. Negotiate and sign the full deal. (This goes beyond just a contract, e.g. you'll be amending your articles of incorporation to reflect changes in board composition and a million other things.)
Virtually all breakdowns are in steps 1-2. Maybe the firm doesn't want to invest, or they aren't offering a compelling valuation, or they aren't flexible on dilution, or they only lead and you want another firm to lead, etc.
Keep in mind these are VCs, not PE. VCs make their money from outlier companies, so the competent ones don't optimize for worst-case outcomes. You'll never see a dirty term sheet (e.g. liquidation preference > 1x) from Sequoia, for example, because they don't return 8x on a fund by squeezing pennies out of failed startups.
People get pissed at entities that act irrationally, but the really good entities rarely act irrationally, and have a feedback loop to attempt to act as rational as possible.
But the people who are in the bottom 80% tend to match with others in the bottom 80% as well. And so this kind of story resonates well, to the tune of 200+ upvotes.
Not criticizing anyone, but it's a trap that people fall into, both founders and VCs, employees and employers. Where the perception of these entities is biased by inexperience.
Serious VCs often will say no, and they'll say it quickly.
Honestly I prefer the approach of being extremely straightforward with expectations. Make your pitch, but also make it clear that you aren't interested in playing games and would prefer a clear "no" if that's the decision.
Maybe it's my business major background and my skepticism of all these tech companies that have no reasonable business model to make $'s, but unless there is an obvious need for investment like buying a large amount of real estate or machinery, why would you need VC money to build an app after you've already spent several months doing it?
It should run on it's own and not need investor money. You shouldn't be focused on getting VC's, you should focus on developing an app that actually turns a profit.
It's not that difficult. Anyways, I found your story really interesting. Good story :)
The goal of most Silicon Valley founders isn't profit, but growth. Quickly increase users, quickly increase revenue, quickly increase headcount. Quickly become a large company which can be sold for billions.
Or, never reach sustainability and eventually go bankrupt - this outcome is actually still good for the founders since they probably walk away with millions in their pockets (from paying themselves seven-figure salaries).
A lot of venture backed companies aren't just building an "app". Spend some time looking through the portfolios of major VC firms, especially in life sciences and medical devices.
Yeah maybe handful of them. That too are also mostly lunatic ideas with little grounding in solid serious rigorous academic and scientific research with no feasible functioning product in sight or something financially viable on the horizon. It's not that they already have a research outcome that they need to "productize" with manufacturing and distribution channels.
Things like Neura Link, Carbon capture, fusion and such.
Most or close to 98% are just building an "app" or an app with a website such as yelp but for dogs, dogs but for cats or other tools that other founders should buy such as sales and leads management etc etc.
You're coming off as very biased. My startup was certainly grounded in research and rigor, I even spoke with academics at universities about the work. In many ways, my project was productizing some state of the art CRDT research by applying it to a domain that is in dire need of solutions - information security.
Most founders I met were doing similarly well-founded work. You're thinking about a tiny fraction of the VC market - the moonshot startups that make the news. Most people are raising money around very reasonable ideas, of course, since VCs obviously have to minimize risk for some of their investments.
I'm glad that you're working on something solid. You're not I'm addressing to. Rather the opposite. You are (or were) building something that has rigorous formally documented academic work.
> You're thinking about a tiny fraction of the VC market - the moonshot startups that make the news.
Exactly, that's why I implied that it's a very very small number. May be less than a fraction.
Wild post. No trolling: What is the cross section of CRDT and info sec? Usually, "CRDT" is like catnip on HN. And, yes, I am a major fanboi/fangurl of CRDT. The first time I ever watched a networed text editor with "simultaneously" blinking cursors where two humans were editing in parallel was mind blowing. It opens your mind to many other collaborative editing ideas.
I work in the SIEM space, which basically involves ingesting massive amounts of data (relatively speaking). A single customer can ingest terabytes a day, or even 10s to 100s of terabytes of data a day. And you want to run near-arbitrary realtime analytics on it + batch analytics on it. It's a fun, difficult problem.
My product's big thing was to extract the data from logs and into a graph data structure. The thing is that I've just taken "huge amount of scale + nice, immutable log" and turned it into "huge amount of scale + evil, mutable graph". Building a massive-scale graph datastructure that can be mutated over time is... hard. Like, "hope you've been keeping up on your academic papers" hard.
One of the key optimizations I leveraged was to represent the graph as a CRDT. Every Node has a `merge` function that follows CRDT semantics.
This allows me to collapse states together in a way that converges.
Security queries have some interesting properties:
1. They often care about thresholds, meaning that they inherently work well with a lattice (once a you've hit a "bad" state you will always want to investigate that state - this is unlike, say, operations where if it "recovers" you can ignore it)
2. They almost always filter out data
These two properties combine nicely. It means that if our alert is a threshold, and our data only 'grows' in one direction (thanks CRDTs), we can reject queries using stale data and not worry about invalidating any caches.
Because the SV VC business model isn't to build a traditional profitable business that beats the competition by providing a superior product/service for a competitive price. It is to dominate the competition by subsidizing the real cost to consumers, until you have taken over the market and can raise the price and lower the quality of the product/service.
Edit: Or the business model is to be acquired by a FAANG who fears they need to get into your area and care more about optics to their bosses/shareholders than how financially sustainable your startup is.
Does that even work as an investment model? The poster child for this has got to be Uber, and they've shown that this is a lot harder to achieve than it appears.
The huge wins have all been IPOs where the business is still growing/trying to dominate the market, and not where they're in that monetisation phase. At least that's what I've seen. I don't think there's a single case yet where the "dominate and then monopolise" plan has actually worked?
Uber seems to have created a lot of opex (30k employees, high comp) setting a pretty high bar to reach profitability, and there are many substitute goods (planes, trains, your own car, bicycles, busses, walking). So they may not be positioned to truly corner consumers with prices high enough to reach profitability, even if they monopolize cabs.
Uber is profitable as of the fourth quarter of 2023. You will also note that around the time of their financial announcement[1] their stock price gained about 50% in share price, jumping from $40/share at the beginning of November to $60/share today, about six weeks later.
A less cynical take is that it allows you to run at a loss for a very long time as you build revenue and market share. This can be right up to the time that you exit.
Legal doesn't mean that is ethical. Just saying that this is an interesting topic that was discussed for years in HN: at the end is it similar to dumping?
Dumping is absolutely illegal in domestic contexts. The famous one being supermarkets who undercut local fruit shops until they go out of business, then jack up the prices once they have a monopoly in the local area.
If you have a great idea for an app or a product and you've started developing it but you need to hire more people to bring that idea to fruition. Rather than spending years of your own time and money to maybe get the idea off the ground, if other people like the idea and want to help contribute via an investment, why not?
Surely your business major would have described the idea of seeking an investment or capital via a business plan. The challenge is that these VC vehicles push this idea of providing an investment tenfold and they have their hands across large industries and portfolios. To the point where they can both invest when you grow and when you fail.
> if other people like the idea and want to help contribute via an investment, why not?
Indeed! But VC investors are a very different animal than other investors (who may not even be investing cash -- in my past ventures, more than half of my investors were my vendors who invested in my company via their products and services instead of money).
If you're starting the sort of business that needs an enormous amount of startup capital, then VC is where you turn. If not, then you're far better off going with normal investors.
What VC wants to see is not the same as what other investors want to see, and finding the right expectation to match your business goals is a critical part of success.
It was never about building sustainable businesses or even solving a problem or gap in the market. The only "problem" that needs solving is that someone wants to have an all expenses paid "startup founder" lifestyle for a few years, and some engineers want to build & tend to a playground where complexity is the core feature.
Doing so on your own dime (or a bank loan) is stupid. Doing so on the VC's dime is smart because you can not only walk off scot-free when the whole thing inevitably WeWorks into the ground, but can start over again in a different vertical.
Tech companies aren't cash flow businesses, though IMO they should be. When debt is cheap tech leans hard into pre-revenue funding. Now that interest rates are more reasonable tech companies have to actually show a profit, and most don't know how.
Yep that's totally fair, I could have clarified here. I was specifically thinking about the VC world in the context of this threat and would expect any tech companies interested in VC money would fall into the bucket of those big (or aspiring to be big) tech companies.
One example of profitable software that needs a large amount of capital are F2P mobile games where a large part of the business model is user acquisition for which costs can be substantial.
> why would you need VC money to build an app after you've already spent several months doing it?
As someone who raised VC money for a SaaS, the answer is that operating a SaaS requires employees. I had two choices - attempt to operate it myself and incur a lot of personal costs, or raise money to pay for those operating costs at no personal cost.
Contrary to the other posts, the goal was in no way to operate at a loss for a long period of time or to get some sort of exponential growth at all costs or whatever. It was literally "do I personally want to spend 10s of thousands of dollars and attempt to operate a complex system 24/7, or do I want to take literally 0 financial risk and be able to pay other people to help me".
Imagine it costs $3/month to provide the service to a customer and the customer is paying $3/month.
You can make a good case that most of your costs are fixed. So that if you have 100x as many customers it’ll cost you $0.03/month to provide the same service to the customers, but they still pay $3/month.
You need VC money to acquire customers and grow. Then your business will become profitable because of the economics of scale that are inherent to software.
I played the VC game. We were attending every opportunity to give 10% of our business for $200K. No one would bite. Gradually, it felt it was easier to land customers than VCs. Then there came a moment that I wish for every founder. Our revenues started not only paying the bills, but also fueling growth. It felt as if a veil was lifted from my eyes. Now, it feels like all those pitches were a waste of time.
Hat tip for the SBF VC quote. If anyone else doesn't know these (now truly meme-worthy quotes), stick the quote in Google to see VCs gushing about SBF & FTX.
Its even better that the quotes of VCs gushing about SBF & FTX is in a puff piece written by the VCs themselves about how special they were that they could identify the real thing.
Essentially, the market forced you onto the track that it wanted you to be in. Which, as you found out, is a good thing (and the only possibility).
As the best time for VC investment is generally at the inflection point of the exponential growth curve. When revenue can't keep up with what it costs to supply the ever faster growing demand. Which, for many companies, will be shortly before an outright acquisition. And usuaully 5-10 years, minimum, after slow customer growth. Assuming a good business but not necessarily a unicorn in terms of market position.
But at that point wily founders may instead look to keep their company and seek a loan.
If you hang out on HN long enough, it's easy to fool yourself into thinking that you need VCs to fund your startup and there's no way your business will survive without it.
Very important to remember that when you go into fundraising mode, you are dedicating a bunch of time to doing this, and that the time you will spend doing it is time you will not spend building your product or focusing on your customers.
200k is pre-seed level. When I raised a 500k pre-seed for my latest startup, I explicitly avoided VCs (too much effort), went only to angels. Pitching to them taught me what I should focus on, and when I understood the potential of what I was building (and saw the enthusiasm to go with it), I cut the fundraise short at 100k: No more time to waste, I had to build.
Also worth mentioning that constraints are good. Having too much cash to build your MVP is like having no deadline. A fire under your ass (in the form of bootstrapping) can force you to be creative and focus on immediate revenue.
I tried VC:s and didn't work (I pitched Netflix before Netflix and was told laws would crush it). Then I tried bootstrapping and getting customers and the veil was lifted from my eyes! Cannot recommend it enough. Don't waste time with VC:s, put that time into getting customers. If you are successful you can always sell the business to someone later on if/when you decide to retire or try something new.
They miss my favorite: "Yes, we'll invest we just don't want to be 'lead'."
That is code for: "You aren't going to find anyone who shares your idea of what your valuation should be so we are safe telling you we'll invest if you find a 'lead investor' because that person doesn't exist."
It gets funny/twisted when you do find a lead and go back and now there is some other goal post that is keeping them out of "this round."
Not necessarily. It could also be code for "We can't write a check big enough to lead your round". E.g. a seed fund who writes $1m checks isn't going to lead a $5m round. The VC would be putting themselves out of a job if they wrote a $5m check when they told their LPs their fund target was $1m checks.
If its a fund that has led rounds before then yes, but if its a new fund or small fund then it might be part of the GPs proving they can get deal flow to their LPs before raising a larger fund
I mean, maybe, but (a) I've been told many times that it's code, and it's like a running joke in the industry, and (b) if you have a lead, you're not worried about reading tea leaves anymore. Saying "we'll invest if you have a lead" is like saying "we'll invest if you put a successful round together". Who wouldn't? The point at which you have a lead for your round is often the point where you start turning them down.
This has been my experience as well. There is certainly a herd/FOMO mentality there, when you have a term sheet from a lead investor you start getting cold called by other VC's who would "love to be part of this round".
We’ve had VCs who have literally ran out of money before they could invest, even when w round came together. They end up investing in lots of crappy startups and convincing themselves it’s the best thing since sliced bread. A lot of smaller VC is just about networking your way into the bigger deals and syndicates while you raise money from LPs, rather than sourcing new diamonds in the rough. The startup “orbiters” are just there to show that you’re not a nobody, while you go to different events and try to get into in the same deal as the big boys.
"We're in if you have a lead" is basically the starting point before you ever talk to a VC. Some other VC being willing to invest $5m is itself often considered a strong enough signal to invest some significantly smaller number than that while knowing literally nothing about the company being invested in. Even VCs which explicitly told you no may reconsider if you find a lead.
For our two-sided marketplace startup, this meant Android and iOS apps for customers, and another pair of apps for mechanics. 6 months later, we released our fully-fledged MVP to a deafening silence from customers, mechanics, and investors.
It's probably really hard to get traction when it's not obvious who your customers are, and this description reveals that. Your customers are the entities that are paying you. Is this supposed to be an app for mechanics to find work? Is it supposed to be an app for people with car problems to find someone to fix it? Those looking to get their vehicle serviced aren't going to want to pay the finders feed on top of the cost charged by the mechanic, which means those people are not your customers. What are the cases where someone would pay for your app? Are mechanics having trouble finding work? Are the mechanics the customers of Fixr? Do people with car trouble have it often enough that they'd pay for such a service vs whatever else they'd do?
"Talk to us again when you have traction" indeed. Or "Talk to us again when you know how to recognize traction."
Yeah, I was thinking the same. Fixr seemed like a solution looking for a problem, without having an even borderline clear idea on what it is supposed to be. No wonder it failed.
I've seen hundreds of startups like this. Literally talking to someone last week who was developing an app but had no clear idea who their customer was or why they would buy it.
There's so much survivor-biased bullshit in the industry, though. Founders who raised millions on an idea with no MVP, no customers, no traction. Everyone laps it up and repeats it on social media and then there's another 100 founders who are wasting their time and savings on ideas with no clue. The ecosystem soaks up their savings and spits them out disillusioned and drained of cash.
100%. I was a little embarrassed to include it but the first-time-founders' naïvete was an important, and hopefully quite relatable to many people, part of the story
I've never understood the cult around tech VCs, the ratio of self-regard to actual value delivered to the world (or even their own firms) has always seemed staggeringly out of scale with reality. And that's even true in a world that seems to have no shortage of unearned self-regard.
I guess if you play the game you can get your hands on a lottery ticket with pretty good odds. But seriously fuck these people and their egos.
I'm pretty sure if you build really solid tech or a growing company they'll come chase you, so I am really hard pressed to figure out why people should pay all that much attention to who they are and what they think at all.
VCs are just a different target market. Similarly, you can build a business with grant awarding bodies as your customers. The problem with both is that generally you have to pivot to selling to customers who actually want the product you've been pitching.
If you know marketing, you don't need VCs (unless you are in a capital-intensive business like rocket building). The problem is that most people who get funded are technical and do not know marketing and growing organically. However, there are lots of businesses that grow extremely well simply due to the cofounders having previous experience with marketing, often in a professional capacity.
My go-to example is Lemlist (and their "Lempire" of related products). The founders built their own cold email agency, grew that to millions just through sheer labor, then built software to automate that process and now they're at a 200 million dollar valuation from more than 10 to 15 million dollars in annual recurring revenue. They have lots of marketing channels: organic SEO via content marketing, Facebook group with frequent events like interviews with other agency owners and salespeople, YouTube videos that are then recut and repurposed to TikTok/Instagram/Facebook videos, partnering with influencers, paid advertising, and of course, cold messaging other salespeople and agencies via LinkedIn and email. Most technical founders do not know or have the patience to do any of this. If they do, though, they could similarly grow to such an ARR in a few short years, as Lemlist started only in 2018. Similar examples include GoHighLevel and ClickFunnels which are almost at or over a 1 billion dollar valuation each, both bootstrapped. The ClickFunnels founder for example sold his software via live demos (both webinars and in person events) where you got X% off but only if you booked right at the end of the demo, which apparently drove quite a high percentage of their initial sales.
I'd highly advise founders to start a marketing agency if only to understand marketing in a real capacity and how to deliver results to paying clients. I have done so via a cold email and paid ads agency for various niches before and I believe it's helped me immensely with future products. Best of all, you learn to be truly aligned with your customers and providing them direct value because they are paying you every month. If you make a mistake, you must fix it, you have no backup fund of venture capital previously raised in order to skate BY, especially now that ZIRP (zero-interest-rate phenomenon) is over.
I'm not dismissive of businesses like Lemlist, but would propose another angle.
I find that businesses that are spin out from agency models are particular, inherit a strong characteristic and outlook similar to agencies. This is not a critique of their model per say, but an observation that leads me to be hesitant to take advice from agency-born models and apply to more typical product-focused B2B or B2C settings.
This leads me also to note that that the nature of content exposes us to a lot of people who believe in posting content. I'm not against it, but would like to fight the common urge towards content as the best strategy to go to market. However, given that the medium is message, we don't hear from people who don't need to post to do business.
True, most agency companies may make money but their products definitely have quite a lot of room for improvement, since the founders are not engineers by trade and thus there is no permeation of engineering culture as in other tech companies. However, I will say that it would be good for tech people to learn the marketing side if only by doing it semi-professionally for a client, just to see what goes into it. Then, they can choose to bootstrap or go the VC route, not necessarily create a whole new agency from scratch and continuously work on that. It's simply a learning method, one where you conveniently get paid to do so.
Yes, I don't think content is the only way, and I don't believe most of their growth was from content, anyway. It seems like it was just sending out lots of messages to people and hoping they're interested. Content marketing is a secondary mechanism, it is inefficient to get you your first customers, and it is definitely not the best go to market strategy as you say.
Can you please expand on the topic of "learn the marketing side if only by doing it semi-professionally for a client"?
I mean, one side of this spectrum is doing affiliate marketing or direct-sales/MLM. Other point on this spectrum might be for an engineer to go get hired as a social media "manager" (lots of "jobs" like this on Upwork).
>In our first-time founder naïveté, we took this to heart. Our startup lived or died on whether we had traction.
Ummm... this seems pretty genuine, as opposed to a polite no? If you don't have something compelling to differentiate you from the cacophony of other founders who want preproduct dollars, then of course you need to demonstrate the viability of the product.
> If you already had traction, you wouldn't need to kiss the ring
They’re telling you you’re pitching at the wrong stage. Growth and early stage doesn’t invest before traction; that’s the purview of angels and possibly seed investors.
Nah, they're just politely saying no. Lots of (pre) seed investors, who supposedly actually really invest before tangible proof, don't actually do this. Their MO is to hope to talk to early stage founders who are doing amazing before said founder realize that they can raise at way better terms.
It's the "win by doing lots of cold sales" model, but for VCs: if you talk to enough founders eventually a startup that does way too good for your seed/preseed ticket size will actually accept your terms and give you 25% of their company for next to nothing.
To be fair, none of those ideas seem like venture scale ideas to me. Maybe I'm missing something?
If you are talking to just one investor, you are doing it wrong. It's a parallel process, not serial. Kissing a lot of frogs serially looking for Prince Charming will slowly kill your morale, waste your time and investors quickly learn that others have passed on your deal.
Think of it more like drafting a football team. You want all the potential investors on the field at the same time. That's how deals close in weeks, not months.
If your investment round is taking so many months, something is wrong. This is why YC and Techstars do a demo day. Parallel pitches to a large audience of investors is the technique to close a round quickly.
When I was raising funds, the thing that I hated to hear most was "We will give you $X as long as you find a lead" where $x was usually just less than 1/2 of what we were asking for.
That was basically their way of saying "we don't believe in you but we don't want to miss out if someone else does". We didn't really want investors like that so we bootstrapped instead.
You can collect these “soft commits” to make it easier to land a lead.
You can tell the potential lead, “we have $X in soft commits, so if you become our lead, our company will have total $X + $Y funding.” It makes your pitch to the lead more compelling.
I know we could have, but we thought it would be dishonest of us to do so since we had no intention of taking the soft commits. They were always from investors that had nothing to offer and apparently no conviction in their belief either.
They'll ask who your "soft commits" are, and they'll read between the lines; if any of them are significant firms, it'll get read as "those firms refused to commit, there must be a reason".
Michael Seibel had a video a long time ago from a YC VC class, and related his strategy to work around this, of setting a very short deadline --- like, do all the meetings inside of a week, and tell people "get your term sheets in by the weekend". The idea was: don't give investors an opportunity to stall, and, by stalling, send an adverse message to all the other investors.
(I don't know if this works at all anymore, but it gives you an idea of what the issue is here.)
I was in tech and gradually turned to VC, now I have my own VC firm based in Italy (I live in Venice, the original one, not the fake LA one), and we invest everywhere in Europe, and occasionally in the US. I was also a founder a few times.
I hated VCs most of the time. Now I'm trying to be useful, and to not waste anyone's time. I try to say "no" very quickly, and try to be very transparent about my thinking process.
Some founders really appreciate this. Some others don't. And that's fine. I want to be the VC that I would have wanted to meet when I was a founder, that's it.
I’ve fundraised in Europe, and as an HN-educated founder, I was surprised (and happy) to discover that pretty much every VC we talked to that didn’t want to move forward, told us so explicitly, reasonably quickly. And they were happy to explain why if we asked, which was instrumental for learning how differently than us they thought.
People love to complain about the European VC landscape, and how little capital there is compared to the US and so on, and they’re not wrong, but this to me is a stand-out positive. We felt taken seriously by everybody, just about nobody wasted our time.
What founders need to understand is that VCs are generally risk averse (which is surprising because they are supposed to be “venture”) and are momentum / fomo driven. Very few VCs think outside the box and can act independently (though they act like they can).
I know several successful founders who had to pitch over 100 firms on their financing round. I would say the usual number is probably 30 to 50, but 100 isn't out of the ordinary, especially if you are doing something unusual or new.
I think people underestimate how hard it is to truly evaluate someone else’s business. Imagine you hear bullshit every day - you just can’t call people out on it. So in the end you go with something you can actually properly evaluate because of some inside you have as an investor. Of the this ends up being a theme.
The show Silicon Valley well parodied this phenomenon. It implied that the evasive "no" is commonly because VCs don't want to be known for passing on an investment, outright, that then later takes off.
Which would reflect negatively on their judgement, in more or less a worse manner than it would when risking money on something that fails.
The implied choice then becomes to probably lose money but retain reputation, or to protect money at the possible cost of reputation. Funds can't invest in everything, even if passing on something borderline is a repuation risk. The "not a no but no" third option seeks to both retain reputation and protect money.
The theme is repeated both when Monica reveals her shameful secret of having passed on Slack, and when Erlich turns down the ferret / pig startup: "I'm not passing, exactly, I'm just not saying yes" (paraphrased).
Oh, I’ve heard many No’s. So many No’s that I will never, ever try to work with VC’s ever again. Fuck them. There’s a very high probability that you won’t need them either. In my case, I just kept going. If you have a good product then you will succeed. With VCs or not!
Until you actually see money in your bank account, consider every single thing they say as a no. No matter how much they kiss your ass, and no matter how much they throw term sheets at you, until you see money in the bank account, it’s a “no”.
If they want to say yes, they will have the money in your bank account that day, but if you get any excuses, then it means they are stringing you along.
I think most founders (understandably) don't know how the capital marketplace works, and so they create these codebooks for translating the things VCs say into a mental framework that makes sense to them. I don't know what the answer is, other than simply building the right company at the right time. There are people who are very good at navigating the fundraising space, but that usually comes from having expertise and/or connections prior to founding a company. Once you are in the middle of trying to start a company, it's a little late. Your best bet is to find a way to demonstrate that you're on to something big, then find people who can see that she vouch for it.
>In all honesty, you don’t want to take external funding unless you have intensely strong user growth; and being unable to hire becomes your bottleneck.
What you need to do is launder your “app/concept/vision” through “high profile individuals”.
Ideally, get someone with a high level of influence to invest or just get them on your board. Having their name in the decks increases future investment by vulture capitalists by at least 420%. Once VCs see those names, their typical DD process goes out the window. All they see is the name and gamble millions/billions just because of this.
Some notable examples of this are “theranos”, “ftx”, “frank”. Shit it even stretches back to the 1990s with infamous con artists like Jordan Belfort or Bernie Madoff.
Remember those college frat bros that cheated off you? Those frat bros and sorority sisters are often connected to high wealth individuals. Higher chance of this at “Ivy League” universities.
Remember. It’s not what you know. It’s WHO you know ;)
In fairness to the VCs, the 3 examples given in "The VC Codex" section seemed blatantly obvious to me. Here is the first one, for example:
> When they say: “Talk to us again when you have traction.”
> They really mean: “If you prove there is a market opportunity and that you can execute as a management team, then we might consider you. But because I don’t believe either of those things will happen, I will not be taking a risk on you”.
I mean, the general tone of the article is "VCs speak an ambiguous language because they're doing a dance with founders." One hand, sure, of course, that happens in literally every sales negotiation. But "Talk to us again when you have traction" seems pretty clear that the VC doesn't believe in either your market thesis or team, and they're basically saying "prove us wrong". I just don't see any guile here.
This is very true - the story also follows my maturing from extremely naïve to having my head screwed on a little better. To many people newly playing at startups, the traction comment is an invitation and not a rejection.
It's a good retrospective. It's clear the author learned, and improved. I didn't find anything new, it's got commentary on three common failure-to-raise modes.
One thing I noticed about the tale was lots of focus on the product and MVP things. I think more efforts on Customer Development before MVP can provide a lot of traction signal to VC.
I feel like this a SV/California culture of 'conflict avoidance' and general pleasantry rather than something specific to VC culture. It just so happens that most big VC players are in California.
I think it would be important to record and review the exact language used. People have a tendency to speculate, project and misremember things. "Let us know when you have more traction," could easily (and wrongly) be translated to, "They said they want to work with us once we can prove growth," which is not the same statement.
If you asked someone on a date, and they said, "Get back to me when your abs are showing," would you actually surmise that you were a good match and just needed to do more crunches?
"Everyone wants investment from venture capitalists."
Am I the only one not living in this bubble. I cofounded a boostrap business. Having cash to hire and not have to work two jobs would sure be nice, but if I am raising it would not be to be on Forbes list, it would be to build an actual business. The vanity of those people sometimes.
I listened to an interview with Ivan Kuckir who created Photopea with an old laptop and a cheap webhost. It runs in the users browsers, so his costs are extremely low. The interviewer asked him about taking VC money, but he didn't seem keen. It's a runaway financial success as it is, and there isn't really anything that taking a bunch of money would allow him to do that he can't already do.
"Everyone wants investment from venture capitalists"
No they don't, why should anyone sane pay for working capital with equity. If all a VC brings to the table is cash, than they are functionally a bank loan with really terrible terms.
One can tell a bad idea when you have to explain its value proposition to people, at that point it is a vanity project already non-viable.
Rule #14: "Never outsource economic control structures, or one may end up indentured"
I thought all this type of stuff was true until I did a proper raise. They will absolutely tell you no and give you reasons why. You should heavily discount the reasons
When you say yes, they value their time/energy like money, it gets you to shut up so they can move on, and delay the explanation later on why they “reconsidered”, it’s passed to the assistant for the reply.
Now when they don’t say yes/no abruptly and just asks more questions, they are interested and that’s a better gauge
1. Nobody is entitled to venture capitalist funding. It is not an oddly named and run social works program.
2. VC funding is not a home run. It is not free money. If the only way you can launch a tech business is venture funding with the hope of hitting it out of the park before the funds’ cliff, perhaps consider if the return justifies the effort.
"Everyone wants investment from venture capitalists".
I have a bootstrapped side project, Tunnelmole, turning a small profit and growing at a slow and steady rate on its own. I'm the engineer so I only really pay hosting costs, which are covered by the revenue, although in the early days I had to cover this.
While venture capital is an option, if it continues to grow, it's entirely possible the venture capitalists may not be needed.
I address this in the second sentence when I explain that this puts you in the same category as many famous grifters.
The ending of the piece helps to confirm exactly what you said - really, you want to bootstrap unless you are going so gangbusters that a lack of quick cash is damaging your ability to grow.
The very end of the article I think addresses this in a plain and direct way:
> 9. VC funding is cool and all, but essentially, it is a waste of time if you haven’t validated your market: bootstrapping to get paying customers quickly is the most effective tactic available.
> 10. In all honesty, you don’t want to take external funding unless you have intensely strong user growth; and being unable to hire becomes your bottleneck.
I understand it to be wordplay on "no means no", a well-known anti-rape slogan. In repurposing the lingo to be a statement about venture capitalism, there is a lack of respect for the need for such a slogan.
I think men a tendency to trivialize that message because it scares us a bit. It's a message of rejection and shame so it's uncomfortable and we naturally to want to twist it around until it isn't threatening anymore.
Yeah i was more so thinking of first time founders. Second time founder is a different thing, though I dont think early employees ("founding engineers") get much respect.
Never said it was, its a scam title. Only time it holds relevance is again if the founder already had a success. Then the chances of the equity being worth something are higher
Do they still call themselves founding engineer at Series C? Just seems like a cute way to convince graduates it's worth being paid 1/4 what Google/Meta could cough up.
Is there any real benefit to taking ~$160k and 1% as a “founding” engineer? We’re not even close to series C yet but it’s starting to feel like I need to be more aggressive about compensation or a role change.
If you don’t become a +$100mm company (and have the ability to cash out at that position) it seems to be a pretty rough deal honestly.
If you stick around, you should regularly get topped up so that dilution doesn't completely destroy your stake.
Your salary should also increase to become competitive with the market as your company continues to raise.
If the founders know what they're doing and you are bringing outsize value to the company, your salary should far exceed the market salary as your company gains success.
No. As someone said earlier, “Founding” is a scam title. It’s just sparkle. If they’re passing that out post-A, they must really think you’re a sucker, because that’s nowhere near founding.
They do - they just have to have had larger successes.
"Founding X" doesn't count for shit.
Being part of a team that built a hugely successful product teaches you a lot - it teaches you about the counterintuitive dynamics of superlinear growth. That is a very important mindset to bring to the table if you want to create a successful VC-funded startup.
I had to look up "superlinear growth" because I've never seen that term used under posts with VC related topics. If you're as confused as me, Paul Graham wrote a blog post about this last October (figures):
The reason I don't use the world exponential, is that superlinear growth in a product is generally not exponential.
It is usually at best quadratic because there is some kind of network effect at play - the number of edges in a complete graph with `n` vertices is `n(n-1)/2`.
The point is that the value of your product to your users should increase with the number of users OR the marginal cost to you of maintaining the product should decrease with the number of users.
"Superlinear" captures that more effectively than "exponential".
True viral growth is exponential: each of your users gets you N>1 additional users, and so the growth of your userbase is proportional to your current scale.
Superlinear but subexponential growth can still be pretty impressive, though, especially if it's fast (who cares about 0.1% weekly growth?)
One thing to add - in my experience, you need to spend money to go from merely superlinear to (locally) exponential.
This is the original reason that VCs exist.
If you go to an intelligent decisionmaker at a VC firm with proof of sustained superlinear growth and plan for how their capital will allow you to increase the rate (and higher derivatives) of your growth, they will almost certainly invest.
The reason that VCs have to specialize by industry or look for signals like Stanford/Harvard/whatever is that it's very difficult to validate or invalidate proof of superlinear growth. This requires specialization or, if lazy, social signals like the university you graduated from.
-> went to stanford or harvard -> funded (no questions asked)
I'd edit this to
-> white male went to stanford or harvard -> funded (no questions asked)
Source: I know lots of female and non-white Harvard grads who didn't get funded. I'm a non-white MIT grad and also found funding very, very difficult even when we had a product. We almost continuously had to spend >1/2 of our working hours just trying to get funding. Hundreds and hundreds of coffee chats plus travel time. We were building hardware, so bootstrapping wasn't an option.
White male Harvard grads I know routinely got funded very quickly, though. They often had time to get actual work done. Even still, most of them didn't succeed in the end.
Hardware is a different category and doesnt really fit the traditional VC model. Also, indians/east asians are the majority in tech, not the minority. Plenty of examples of open discrimination in big tech from those groups
I'm not white either but seriously, this mindset of "victimization of non-white people" needs to stop. I'd rather be taken seriously for my merits than my minority privileges (due to DEI for example).
You're looking at it backwards. White people get an automatic advantage because they're white. Any advantages given to minorities are an attempt to balance the game.
> White people get an automatic advantage because they're white.
By whom? By other white people? Homophily is a real phenomenon in every ethnicity.
But if you're saying that white people get advantages by non-white people, then it's a cultural issue of those non-white people who, for some reason, have internalized racism (look up inferiority syndrome).
Me too. The reality is that people don't always take my merits seriously.
I'm male though. Females have it much worse. I have heard lots of horror stories (both behind their back in "locker room talk" and directly from them) where their actual merits are effectively ignored and all focus is on their body. It's insane.
The entire concept of "warm introductions" is harmful to women.
Because most VC partners, CEOs etc are men. And so you have this power imbalance where young, women founders feel like they are forced to build relationships with typically older men.
And like you said there are plenty of horror stories (my partner was one) where this power imbalance gets abused.
It is possible it is racism but it is likely to be measurement error, sampling error, and/or specification error, assuming you have not ruled those out.
-> went to stanford or harvard -> funded (no questions asked)
-> held director level at faang -> funded
It's the chain of trust. It means that the investor is already 2-3 handshakes away from the founder, and hence can discuss certain things that require utmost discretion, and have reasonable grounds to believe they won't get double-crossed on that (because it would erode away the trust along the handshake path).
the outside capital is real, quickly landing a lead investor that gets the other investors to close comes from controlling the pools of capital
your family’s donor advised fund and private foundation are the lead investors, or they are the only limited partners in the private equity fund thats functionally a family office
this same capability allows for top university background too, or nonchalantly dropping out of it
in the mean time you get all the headlines in the world, alongside your PR agent, and you’re a genius star Stanford drop out that gets funded no questions asked
The “friends and family round” is actually more important than the stanford aspect, if we were really min-maxing here, but it all goes hand in hand as people with that support system do things together
the reason it is important to view it this way is because this is all window dressing for a bourgeoisie that doesnt want to be seen as different. in turn, it makes everyone else think they really have a chance of receiving the same consideration from their ambition and cognitive abilities. the answer is to just have capital and a predilection for de-risking with other people’s money.
have you checked the incorporation status of every entity on the cap tables?
this would be difficult to know from a passing glance, they wont necessarily say any combination of “Charitable Non-Profit Foundation”, although I have seen that on cap tables and other disclosures
they can be any entity type and trusts. Trusts dont need to have “Trust” in the name
donor advised funds are not separately incorporated, and may also be on the cap table as the sponsoring charity
and again, as a limited partner in a fund, neither would show up on the cap table, just the fund they invested through
This is super weird to me. In the tech circles I've run in, being from Harvard is about the same as being from UCLA or something.
I've never heard it considered a sign of exclusivity. CMU, Stanford, MIT, yes. But Harvard? It's not exactly known for a rigorous engineering program, and even less so the last fifteen years or so.
When looking for CEOs, they don't look for top notch engineering talent, they look for top notch CEO talent, where talent means capability. CEOs do need deep technical understanding, anything else and you have an enviroment that scares away engineers, but they don't need to be the best engineer in the entire company.
If you've been to Harvard, you are on a first name basis with highly ranking finance people. It's not a coincidence that among all the dot com carnage, Amazon emerged as the ecommerce champion: they lived thanks to Jeff Bezos being able to get continued funding despite making continued losses. For that, you need, among other things, good contacts into the finance industry and know how they work and think.
A membership in the exclusive club of Harvard graduates gives you the ability to find customers, advice, funding, employees. Stuff that makes it more likely that your company is more successful.
This sounds totally backwards, but I say this as someone who has no personal experience raising money, so maybe you're a VC or a founder?
If someone can get in front of VCs, presumably it doesn't matter if they know a bunch of other rich people from school. I really don't get the sense that VCs are impressed by someone's ability to convince some nepo hedge fund manager to invest a few million.
I think they're impressed by business accumen combined with technical chops. If you want to bootstrap, then yeah, maybe a school with the most amount of money matters so you can get a huge seed round.
But you think people with strong ideas and impressive technical backgrounds who get in front of VCs are going to be less impressive by less technical people who rub shoulders with finance bros?
Certainly Harvard/Yale is a good choice if you're going into medicine, law, or I dunno, maybe banking? But tech? I wouldn't think it's a top choice at all.
I'm neither VC or founder, what I wrote just bases on assumptions. It definitely helps my arguments I think that successful tech founders have went to Harvard, like Paul Graham, Bill Gates, Nathan Blecharczyk, and Mark Zuckerberg.
Like the 'No child left behind' did wonders to education, maybe 'No startup left behind' is needed to fund all of them irrespective of business model or founders' background.
It's not so much that "yes" means "no" but that VC's never actually say no, and it's easy to understand why. Whether or not they actually fund you, they always want you to think that they are going to fund you because that way they hedge their bets in two ways. First, if they learn new information (like if you suddenly start to get traction) they can change their minds without losing face. Second, and more importantly, as long as the answer is actually no you are potential competition for some other company that is actually in their portfolio, so they want you to think that you have a shot with them so you won't pursue other opportunities as aggressively.
The only thing that actually means "yes" in VC land is when the check clears.
Solid summary tbh. It's all about incentives really.
If they run down your clock because you think a check is coming, their other company can hire your former employees.
I'm not going to say this has never happened, but I think it's a little naive to think that this is the common path. In my experience, the first option OP presented (hedging bets and wanting to save face) are incredibly common.
Naïveté is when someone assumes good outcomes from bad situations.
What I'm exhibiting is probably more correctly described as cynicism. I've worked for a few startups that were sure they were hearing 'yes' from VCs and we ended up running out of money thinking a check would come any day now.
There's an old saying, "I'll believe it when I see it." Cynics and startup employees expanded this to, "I'll believe it when the check clears."
And then there's me over here, who knows you can claw back a check that has 'cleared' for about 30 days, saying "I'll believe it a month after the check clears."
Disagree, I’ve heard “no” from dozens of VCs. They sometimes even give a post hoc rationalization.
That's what the article says
Top tier VCs will definitely tell you “no” and they’ll often get there quickly.
It’s more often the small funds, the inexperienced family offices, and the junior associates that don’t have authority who string companies along forever. They don’t have as much authority or funds to actually work with, so they have a lot of time to string you along.
Lumping all VCs together really doesn’t lead to accurate descriptions of how the industry works.
This is the most accurate comment I've seen here. Sequoia, Benchmark, Kleiner, etc. will all tell you "no" and why with minimal turnaround time. The same is true for second-tier players like Craft, smaller shops started by breakaways from the big firms, and scouts. Good VCs are professionals and have no interest in wasting your time or theirs. A "no" now never precludes future participation anyway; they don't need to string you along for that.
Which actually reinforces the grandparent's point. Sequoia, Benchmark, Kleiner, etc. can say an actual "no" and you'll still go back to them because they're...Sequioa, Benchmark, etc. You'll go back to them, because its a huge signal to prospective buyers, potential acquirers, partners, etc. that you're being funded by a top tier VC.
> Good VCs are professionals and have no interest in wasting your time or theirs.
"Good" VCs has less to do about professionalism and more to do about pedigree. Professionalism and "good"/"bad" VCs are not mutually exclusive things.
The grandparent said "VC's never actually say no". I did the opposite of reinforce that. Every good VC will give you a version of the following if it's a "no":
1. It's a "no". (Clear, unambiguous.)
2. Here's why. (E.g. not believing in the space, issues with customer background or another part of due diligence.)
3. We make mistakes all the time and hope you prove us wrong. (I've pitched the partner at Sequoia who invested in FTX. His name's Alfred, super nice guy and fully aware that screwing up is part of his job. "No" isn't a value judgment.)
4. Happy to talk again for the next round. (If they're a multistage fund, e.g. you won't hear this from First Round.)
It's all very predictable. The one real "why" you won't typically hear back on is strength of the founding team. They won't tell you when they think you're the problem. But product, space, GTM, basically anything else they're happy to dissect.
This is true for all of the firms that people have heard of. Of course there's a long tail of bad VCs, too, generally podunk firms few people ever encounter anyway. Avoid TechOperators out of Atlanta, for example.
Hmm, my experience with one of the largest investors in NL was a full verbal 'yes'. The investor was actively involved in the hiring process (that is how I got in). A founder put in his cash (think a small apartment) for a lower single digit percentage of agreed valuation. I signed for something smaller / similar but without bringing in cash.
In reality the money never arrived, they forked in few times 250k. The other investors who bartered a deal all brought in their share. My takeaway is that even the most reputable investor has absolutely no limit in saying yes and doing no.
The motivation for everybody was greed, and that was buzzing around due to the fact a large investor was involved. They know that and they used it. But in the end in this world signed contracts and wire transfers are the only credible thing.
What is NL, the Netherlands?
One of the largest investors in a given location might not be "top-tier" in the overall VC market.
Yes, but it is not a VC. If they would, measured by asset size they would easily fit in the top-10 VCs of the US (United States).
It is not about asset size only but real experience and a portfolio leading rounds.
Sounds like those "corporate VC-sounding but not really VC-operating accelerator" investment programs some larger corporates have. Their goal seems to be funding technology development aligned with their interests, few to no strings attached, with the potential for the occasional moonshot.
If successful, acquire before any competitors even fully understand the potential. Worst case they hire the top talent if the venture fails. See Shell GameChanger[0] for an example.
[0] https://strategos.com/cases/shell-gamechanger/
> But in the end in this world signed contracts and wire transfers are the only credible thing.
I don't have any experience in this business, but why would anyone think otherwise? Did you spend your own money on a verbal promise of investment without any signed document??
That was my reaction, too. I have always avoided VC investment, but "it's not a done deal until the check clears" has applied to literally every deal I've ever done.
A signed contract is certainly part of the process. I can't speak to outside the US but here the high-level steps are:
1. Engage the firm and reach a decision that they'd like to invest.
2. Negotiate and sign a term sheet. (The only part of this that's legally binding is that you won't continue shopping around while negotiating the full deal with them. That said, it's extraordinarily uncommon for things to fall apart after signing a term sheet.)
3. Negotiate and sign the full deal. (This goes beyond just a contract, e.g. you'll be amending your articles of incorporation to reflect changes in board composition and a million other things.)
Virtually all breakdowns are in steps 1-2. Maybe the firm doesn't want to invest, or they aren't offering a compelling valuation, or they aren't flexible on dilution, or they only lead and you want another firm to lead, etc.
Keep in mind these are VCs, not PE. VCs make their money from outlier companies, so the competent ones don't optimize for worst-case outcomes. You'll never see a dirty term sheet (e.g. liquidation preference > 1x) from Sequoia, for example, because they don't return 8x on a fund by squeezing pennies out of failed startups.
Redpoint will also give you a straight no and share a lot of their rationale.
You can't be mad at the no because you learn so much from their response that you feel thankful.
People get pissed at entities that act irrationally, but the really good entities rarely act irrationally, and have a feedback loop to attempt to act as rational as possible.
But the people who are in the bottom 80% tend to match with others in the bottom 80% as well. And so this kind of story resonates well, to the tune of 200+ upvotes.
Not criticizing anyone, but it's a trap that people fall into, both founders and VCs, employees and employers. Where the perception of these entities is biased by inexperience.
Serious VCs often will say no, and they'll say it quickly.
Honestly I prefer the approach of being extremely straightforward with expectations. Make your pitch, but also make it clear that you aren't interested in playing games and would prefer a clear "no" if that's the decision.
Maybe it's my business major background and my skepticism of all these tech companies that have no reasonable business model to make $'s, but unless there is an obvious need for investment like buying a large amount of real estate or machinery, why would you need VC money to build an app after you've already spent several months doing it?
It should run on it's own and not need investor money. You shouldn't be focused on getting VC's, you should focus on developing an app that actually turns a profit.
It's not that difficult. Anyways, I found your story really interesting. Good story :)
Appreciate it :)
But yes, after learning a lot from my various startup scars, I don't believe I'll be seeking VC dollars for an app unless:
- I am creaking under success with an impossible cloud bill - I am a late-onset cofounder of an already successful co that needs and app
> It's not that difficult.
Who is going to tell him/her?
The goal of most Silicon Valley founders isn't profit, but growth. Quickly increase users, quickly increase revenue, quickly increase headcount. Quickly become a large company which can be sold for billions.
Or, never reach sustainability and eventually go bankrupt - this outcome is actually still good for the founders since they probably walk away with millions in their pockets (from paying themselves seven-figure salaries).
It’s growth… until the “plateau” phase of the Schumpeter economic cycle (~60 years), where entrenched actors raise prices and customers lose choice.
The goal of most Silicon Valley founders isn't profit or growth, but exit.
Whatever gets them there fastest is the 2nd priority.
What's confusing about how having more money might let you hire more people to build more things or build things faster?
If something is an obvious winner - why handicap it by limiting investment to what it can make on its own?
What if it relies on network effects, or economies of scale?
> If something is an obvious winner
As much as founders think otherwise (they have to!), there is no such thing.
A lot of venture backed companies aren't just building an "app". Spend some time looking through the portfolios of major VC firms, especially in life sciences and medical devices.
Yeah maybe handful of them. That too are also mostly lunatic ideas with little grounding in solid serious rigorous academic and scientific research with no feasible functioning product in sight or something financially viable on the horizon. It's not that they already have a research outcome that they need to "productize" with manufacturing and distribution channels.
Things like Neura Link, Carbon capture, fusion and such.
Most or close to 98% are just building an "app" or an app with a website such as yelp but for dogs, dogs but for cats or other tools that other founders should buy such as sales and leads management etc etc.
Mostly - meaningless.
You're coming off as very biased. My startup was certainly grounded in research and rigor, I even spoke with academics at universities about the work. In many ways, my project was productizing some state of the art CRDT research by applying it to a domain that is in dire need of solutions - information security.
Most founders I met were doing similarly well-founded work. You're thinking about a tiny fraction of the VC market - the moonshot startups that make the news. Most people are raising money around very reasonable ideas, of course, since VCs obviously have to minimize risk for some of their investments.
I'm glad that you're working on something solid. You're not I'm addressing to. Rather the opposite. You are (or were) building something that has rigorous formally documented academic work.
> You're thinking about a tiny fraction of the VC market - the moonshot startups that make the news.
Exactly, that's why I implied that it's a very very small number. May be less than a fraction.
CRDTs would be interesting area to watch. :)
> Exactly, that's why I implied that it's a very very small number.
Perhaps I misread, it sounded like the opposite.
Wild post. No trolling: What is the cross section of CRDT and info sec? Usually, "CRDT" is like catnip on HN. And, yes, I am a major fanboi/fangurl of CRDT. The first time I ever watched a networed text editor with "simultaneously" blinking cursors where two humans were editing in parallel was mind blowing. It opens your mind to many other collaborative editing ideas.
I work in the SIEM space, which basically involves ingesting massive amounts of data (relatively speaking). A single customer can ingest terabytes a day, or even 10s to 100s of terabytes of data a day. And you want to run near-arbitrary realtime analytics on it + batch analytics on it. It's a fun, difficult problem.
My product's big thing was to extract the data from logs and into a graph data structure. The thing is that I've just taken "huge amount of scale + nice, immutable log" and turned it into "huge amount of scale + evil, mutable graph". Building a massive-scale graph datastructure that can be mutated over time is... hard. Like, "hope you've been keeping up on your academic papers" hard.
One of the key optimizations I leveraged was to represent the graph as a CRDT. Every Node has a `merge` function that follows CRDT semantics.
This allows me to collapse states together in a way that converges.
Security queries have some interesting properties:
1. They often care about thresholds, meaning that they inherently work well with a lattice (once a you've hit a "bad" state you will always want to investigate that state - this is unlike, say, operations where if it "recovers" you can ignore it)
2. They almost always filter out data
These two properties combine nicely. It means that if our alert is a threshold, and our data only 'grows' in one direction (thanks CRDTs), we can reject queries using stale data and not worry about invalidating any caches.
One reason to seek funding early would be if you are in a competitive space and want to grow faster than your competitors.
Because the SV VC business model isn't to build a traditional profitable business that beats the competition by providing a superior product/service for a competitive price. It is to dominate the competition by subsidizing the real cost to consumers, until you have taken over the market and can raise the price and lower the quality of the product/service.
Edit: Or the business model is to be acquired by a FAANG who fears they need to get into your area and care more about optics to their bosses/shareholders than how financially sustainable your startup is.
Does that even work as an investment model? The poster child for this has got to be Uber, and they've shown that this is a lot harder to achieve than it appears.
The huge wins have all been IPOs where the business is still growing/trying to dominate the market, and not where they're in that monetisation phase. At least that's what I've seen. I don't think there's a single case yet where the "dominate and then monopolise" plan has actually worked?
Uber seems to have created a lot of opex (30k employees, high comp) setting a pretty high bar to reach profitability, and there are many substitute goods (planes, trains, your own car, bicycles, busses, walking). So they may not be positioned to truly corner consumers with prices high enough to reach profitability, even if they monopolize cabs.
Uber is profitable as of the fourth quarter of 2023. You will also note that around the time of their financial announcement[1] their stock price gained about 50% in share price, jumping from $40/share at the beginning of November to $60/share today, about six weeks later.
[1] https://investor.uber.com/news-events/news/press-release-det...
Work for whom? All of the early employees and investors in Uber have done very well.
Amazon?
Facebook and Youtube might qualify here
It worked for Facebook, but they were a lot more intentional about growth vs revenue.
It works for management and executives, that's who it works for.
A less cynical take is that it allows you to run at a loss for a very long time as you build revenue and market share. This can be right up to the time that you exit.
> A less cynical take is that it allows you to run at a loss for a very long time as you build revenue and market share
You're saying the same thing as the grandparent comment and in various places in the world this would be considered dumping/subsidizing and illegal.
Yet here we are and the enshittification continues.
I think dumping/subsidizing is illegal only in the context of international trade.
Legal doesn't mean that is ethical. Just saying that this is an interesting topic that was discussed for years in HN: at the end is it similar to dumping?
Dumping is absolutely illegal in domestic contexts. The famous one being supermarkets who undercut local fruit shops until they go out of business, then jack up the prices once they have a monopoly in the local area.
It "should" but in many cases it doesn't
If you have a great idea for an app or a product and you've started developing it but you need to hire more people to bring that idea to fruition. Rather than spending years of your own time and money to maybe get the idea off the ground, if other people like the idea and want to help contribute via an investment, why not?
Surely your business major would have described the idea of seeking an investment or capital via a business plan. The challenge is that these VC vehicles push this idea of providing an investment tenfold and they have their hands across large industries and portfolios. To the point where they can both invest when you grow and when you fail.
> if other people like the idea and want to help contribute via an investment, why not?
Indeed! But VC investors are a very different animal than other investors (who may not even be investing cash -- in my past ventures, more than half of my investors were my vendors who invested in my company via their products and services instead of money).
If you're starting the sort of business that needs an enormous amount of startup capital, then VC is where you turn. If not, then you're far better off going with normal investors.
What VC wants to see is not the same as what other investors want to see, and finding the right expectation to match your business goals is a critical part of success.
It was never about building sustainable businesses or even solving a problem or gap in the market. The only "problem" that needs solving is that someone wants to have an all expenses paid "startup founder" lifestyle for a few years, and some engineers want to build & tend to a playground where complexity is the core feature.
Doing so on your own dime (or a bank loan) is stupid. Doing so on the VC's dime is smart because you can not only walk off scot-free when the whole thing inevitably WeWorks into the ground, but can start over again in a different vertical.
Tech companies aren't cash flow businesses, though IMO they should be. When debt is cheap tech leans hard into pre-revenue funding. Now that interest rates are more reasonable tech companies have to actually show a profit, and most don't know how.
> Tech companies aren't cash flow businesses
Most actually are. It's just that the big ones tend not to be, and there are lots of startups that want to look and act like the big ones.
Yep that's totally fair, I could have clarified here. I was specifically thinking about the VC world in the context of this threat and would expect any tech companies interested in VC money would fall into the bucket of those big (or aspiring to be big) tech companies.
Next wave of ai companies require major $$$ to train; the game has shifted somewhat.
One example of profitable software that needs a large amount of capital are F2P mobile games where a large part of the business model is user acquisition for which costs can be substantial.
> why would you need VC money to build an app after you've already spent several months doing it?
As someone who raised VC money for a SaaS, the answer is that operating a SaaS requires employees. I had two choices - attempt to operate it myself and incur a lot of personal costs, or raise money to pay for those operating costs at no personal cost.
Contrary to the other posts, the goal was in no way to operate at a loss for a long period of time or to get some sort of exponential growth at all costs or whatever. It was literally "do I personally want to spend 10s of thousands of dollars and attempt to operate a complex system 24/7, or do I want to take literally 0 financial risk and be able to pay other people to help me".
Imagine it costs $3/month to provide the service to a customer and the customer is paying $3/month.
You can make a good case that most of your costs are fixed. So that if you have 100x as many customers it’ll cost you $0.03/month to provide the same service to the customers, but they still pay $3/month.
You need VC money to acquire customers and grow. Then your business will become profitable because of the economics of scale that are inherent to software.
Because you need to spend millions in advertising to get your app installed by someone.
I played the VC game. We were attending every opportunity to give 10% of our business for $200K. No one would bite. Gradually, it felt it was easier to land customers than VCs. Then there came a moment that I wish for every founder. Our revenues started not only paying the bills, but also fueling growth. It felt as if a veil was lifted from my eyes. Now, it feels like all those pitches were a waste of time.
And if you make your success public enough in the right circles? Those same VCs will be throwing their panties at you. It’s the game.
“I LOVE THIS FOUNDER" ... "I am a 10 out of 10"
Hat tip for the SBF VC quote. If anyone else doesn't know these (now truly meme-worthy quotes), stick the quote in Google to see VCs gushing about SBF & FTX.
Its even better that the quotes of VCs gushing about SBF & FTX is in a puff piece written by the VCs themselves about how special they were that they could identify the real thing.
Essentially, the market forced you onto the track that it wanted you to be in. Which, as you found out, is a good thing (and the only possibility).
As the best time for VC investment is generally at the inflection point of the exponential growth curve. When revenue can't keep up with what it costs to supply the ever faster growing demand. Which, for many companies, will be shortly before an outright acquisition. And usuaully 5-10 years, minimum, after slow customer growth. Assuming a good business but not necessarily a unicorn in terms of market position.
But at that point wily founders may instead look to keep their company and seek a loan.
If you hang out on HN long enough, it's easy to fool yourself into thinking that you need VCs to fund your startup and there's no way your business will survive without it.
Very important to remember that when you go into fundraising mode, you are dedicating a bunch of time to doing this, and that the time you will spend doing it is time you will not spend building your product or focusing on your customers.
200k is pre-seed level. When I raised a 500k pre-seed for my latest startup, I explicitly avoided VCs (too much effort), went only to angels. Pitching to them taught me what I should focus on, and when I understood the potential of what I was building (and saw the enthusiasm to go with it), I cut the fundraise short at 100k: No more time to waste, I had to build.
Also worth mentioning that constraints are good. Having too much cash to build your MVP is like having no deadline. A fire under your ass (in the form of bootstrapping) can force you to be creative and focus on immediate revenue.
Amen!
I tried VC:s and didn't work (I pitched Netflix before Netflix and was told laws would crush it). Then I tried bootstrapping and getting customers and the veil was lifted from my eyes! Cannot recommend it enough. Don't waste time with VC:s, put that time into getting customers. If you are successful you can always sell the business to someone later on if/when you decide to retire or try something new.
They miss my favorite: "Yes, we'll invest we just don't want to be 'lead'."
That is code for: "You aren't going to find anyone who shares your idea of what your valuation should be so we are safe telling you we'll invest if you find a 'lead investor' because that person doesn't exist."
It gets funny/twisted when you do find a lead and go back and now there is some other goal post that is keeping them out of "this round."
Not necessarily. It could also be code for "We can't write a check big enough to lead your round". E.g. a seed fund who writes $1m checks isn't going to lead a $5m round. The VC would be putting themselves out of a job if they wrote a $5m check when they told their LPs their fund target was $1m checks.
"We're in if you find a lead" is kind of notoriously code for "no".
If its a fund that has led rounds before then yes, but if its a new fund or small fund then it might be part of the GPs proving they can get deal flow to their LPs before raising a larger fund
I mean, maybe, but (a) I've been told many times that it's code, and it's like a running joke in the industry, and (b) if you have a lead, you're not worried about reading tea leaves anymore. Saying "we'll invest if you have a lead" is like saying "we'll invest if you put a successful round together". Who wouldn't? The point at which you have a lead for your round is often the point where you start turning them down.
This has been my experience as well. There is certainly a herd/FOMO mentality there, when you have a term sheet from a lead investor you start getting cold called by other VC's who would "love to be part of this round".
We’ve had VCs who have literally ran out of money before they could invest, even when w round came together. They end up investing in lots of crappy startups and convincing themselves it’s the best thing since sliced bread. A lot of smaller VC is just about networking your way into the bigger deals and syndicates while you raise money from LPs, rather than sourcing new diamonds in the rough. The startup “orbiters” are just there to show that you’re not a nobody, while you go to different events and try to get into in the same deal as the big boys.
"We're in if you have a lead" is basically the starting point before you ever talk to a VC. Some other VC being willing to invest $5m is itself often considered a strong enough signal to invest some significantly smaller number than that while knowing literally nothing about the company being invested in. Even VCs which explicitly told you no may reconsider if you find a lead.
For our two-sided marketplace startup, this meant Android and iOS apps for customers, and another pair of apps for mechanics. 6 months later, we released our fully-fledged MVP to a deafening silence from customers, mechanics, and investors.
It's probably really hard to get traction when it's not obvious who your customers are, and this description reveals that. Your customers are the entities that are paying you. Is this supposed to be an app for mechanics to find work? Is it supposed to be an app for people with car problems to find someone to fix it? Those looking to get their vehicle serviced aren't going to want to pay the finders feed on top of the cost charged by the mechanic, which means those people are not your customers. What are the cases where someone would pay for your app? Are mechanics having trouble finding work? Are the mechanics the customers of Fixr? Do people with car trouble have it often enough that they'd pay for such a service vs whatever else they'd do?
"Talk to us again when you have traction" indeed. Or "Talk to us again when you know how to recognize traction."
Yeah, I was thinking the same. Fixr seemed like a solution looking for a problem, without having an even borderline clear idea on what it is supposed to be. No wonder it failed.
I've seen hundreds of startups like this. Literally talking to someone last week who was developing an app but had no clear idea who their customer was or why they would buy it.
There's so much survivor-biased bullshit in the industry, though. Founders who raised millions on an idea with no MVP, no customers, no traction. Everyone laps it up and repeats it on social media and then there's another 100 founders who are wasting their time and savings on ideas with no clue. The ecosystem soaks up their savings and spits them out disillusioned and drained of cash.
100%. I was a little embarrassed to include it but the first-time-founders' naïvete was an important, and hopefully quite relatable to many people, part of the story
I've never understood the cult around tech VCs, the ratio of self-regard to actual value delivered to the world (or even their own firms) has always seemed staggeringly out of scale with reality. And that's even true in a world that seems to have no shortage of unearned self-regard.
I guess if you play the game you can get your hands on a lottery ticket with pretty good odds. But seriously fuck these people and their egos.
I'm pretty sure if you build really solid tech or a growing company they'll come chase you, so I am really hard pressed to figure out why people should pay all that much attention to who they are and what they think at all.
In terms of prestige finance, I suppose they probably deliver more value than private equity.
In terms of everything else...
VCs are just a different target market. Similarly, you can build a business with grant awarding bodies as your customers. The problem with both is that generally you have to pivot to selling to customers who actually want the product you've been pitching.
If you know marketing, you don't need VCs (unless you are in a capital-intensive business like rocket building). The problem is that most people who get funded are technical and do not know marketing and growing organically. However, there are lots of businesses that grow extremely well simply due to the cofounders having previous experience with marketing, often in a professional capacity.
My go-to example is Lemlist (and their "Lempire" of related products). The founders built their own cold email agency, grew that to millions just through sheer labor, then built software to automate that process and now they're at a 200 million dollar valuation from more than 10 to 15 million dollars in annual recurring revenue. They have lots of marketing channels: organic SEO via content marketing, Facebook group with frequent events like interviews with other agency owners and salespeople, YouTube videos that are then recut and repurposed to TikTok/Instagram/Facebook videos, partnering with influencers, paid advertising, and of course, cold messaging other salespeople and agencies via LinkedIn and email. Most technical founders do not know or have the patience to do any of this. If they do, though, they could similarly grow to such an ARR in a few short years, as Lemlist started only in 2018. Similar examples include GoHighLevel and ClickFunnels which are almost at or over a 1 billion dollar valuation each, both bootstrapped. The ClickFunnels founder for example sold his software via live demos (both webinars and in person events) where you got X% off but only if you booked right at the end of the demo, which apparently drove quite a high percentage of their initial sales.
I'd highly advise founders to start a marketing agency if only to understand marketing in a real capacity and how to deliver results to paying clients. I have done so via a cold email and paid ads agency for various niches before and I believe it's helped me immensely with future products. Best of all, you learn to be truly aligned with your customers and providing them direct value because they are paying you every month. If you make a mistake, you must fix it, you have no backup fund of venture capital previously raised in order to skate BY, especially now that ZIRP (zero-interest-rate phenomenon) is over.
I'm not dismissive of businesses like Lemlist, but would propose another angle.
I find that businesses that are spin out from agency models are particular, inherit a strong characteristic and outlook similar to agencies. This is not a critique of their model per say, but an observation that leads me to be hesitant to take advice from agency-born models and apply to more typical product-focused B2B or B2C settings.
This leads me also to note that that the nature of content exposes us to a lot of people who believe in posting content. I'm not against it, but would like to fight the common urge towards content as the best strategy to go to market. However, given that the medium is message, we don't hear from people who don't need to post to do business.
True, most agency companies may make money but their products definitely have quite a lot of room for improvement, since the founders are not engineers by trade and thus there is no permeation of engineering culture as in other tech companies. However, I will say that it would be good for tech people to learn the marketing side if only by doing it semi-professionally for a client, just to see what goes into it. Then, they can choose to bootstrap or go the VC route, not necessarily create a whole new agency from scratch and continuously work on that. It's simply a learning method, one where you conveniently get paid to do so.
Yes, I don't think content is the only way, and I don't believe most of their growth was from content, anyway. It seems like it was just sending out lots of messages to people and hoping they're interested. Content marketing is a secondary mechanism, it is inefficient to get you your first customers, and it is definitely not the best go to market strategy as you say.
Can you please expand on the topic of "learn the marketing side if only by doing it semi-professionally for a client"?
I mean, one side of this spectrum is doing affiliate marketing or direct-sales/MLM. Other point on this spectrum might be for an engineer to go get hired as a social media "manager" (lots of "jobs" like this on Upwork).
What possibilities do you have in mind?
>“Talk to us again when you have traction.”
>In our first-time founder naïveté, we took this to heart. Our startup lived or died on whether we had traction.
Ummm... this seems pretty genuine, as opposed to a polite no? If you don't have something compelling to differentiate you from the cacophony of other founders who want preproduct dollars, then of course you need to demonstrate the viability of the product.
Oh, it's absolutely genuine, but there is a contradiction in a VC (inherently risky endavour) requiring you to de-risk their risky investment
If you already had traction, you wouldn't need to kiss the ring
> If you already had traction, you wouldn't need to kiss the ring
They’re telling you you’re pitching at the wrong stage. Growth and early stage doesn’t invest before traction; that’s the purview of angels and possibly seed investors.
Nah, they're just politely saying no. Lots of (pre) seed investors, who supposedly actually really invest before tangible proof, don't actually do this. Their MO is to hope to talk to early stage founders who are doing amazing before said founder realize that they can raise at way better terms.
It's the "win by doing lots of cold sales" model, but for VCs: if you talk to enough founders eventually a startup that does way too good for your seed/preseed ticket size will actually accept your terms and give you 25% of their company for next to nothing.
To be fair, none of those ideas seem like venture scale ideas to me. Maybe I'm missing something?
If you are talking to just one investor, you are doing it wrong. It's a parallel process, not serial. Kissing a lot of frogs serially looking for Prince Charming will slowly kill your morale, waste your time and investors quickly learn that others have passed on your deal.
Think of it more like drafting a football team. You want all the potential investors on the field at the same time. That's how deals close in weeks, not months.
If your investment round is taking so many months, something is wrong. This is why YC and Techstars do a demo day. Parallel pitches to a large audience of investors is the technique to close a round quickly.
When I was raising funds, the thing that I hated to hear most was "We will give you $X as long as you find a lead" where $x was usually just less than 1/2 of what we were asking for.
That was basically their way of saying "we don't believe in you but we don't want to miss out if someone else does". We didn't really want investors like that so we bootstrapped instead.
You can collect these “soft commits” to make it easier to land a lead.
You can tell the potential lead, “we have $X in soft commits, so if you become our lead, our company will have total $X + $Y funding.” It makes your pitch to the lead more compelling.
I know we could have, but we thought it would be dishonest of us to do so since we had no intention of taking the soft commits. They were always from investors that had nothing to offer and apparently no conviction in their belief either.
They'll ask who your "soft commits" are, and they'll read between the lines; if any of them are significant firms, it'll get read as "those firms refused to commit, there must be a reason".
Michael Seibel had a video a long time ago from a YC VC class, and related his strategy to work around this, of setting a very short deadline --- like, do all the meetings inside of a week, and tell people "get your term sheets in by the weekend". The idea was: don't give investors an opportunity to stall, and, by stalling, send an adverse message to all the other investors.
(I don't know if this works at all anymore, but it gives you an idea of what the issue is here.)
I heard the short deadline advice also, it’s nice idea but has flaws:
- most VCs will have at least a few days delay on when they are willing to meet you
- intros are required, and often intros come out of other VC meetings. This means you can’t shotgun everything
- if a VC wants to meet after your “deadline”, will you actually say no? Who has more power?
If you are a hot deal or Michael Seibel himself, the short deadline probably works. For mid level startups it’s not as easy.
I was in tech and gradually turned to VC, now I have my own VC firm based in Italy (I live in Venice, the original one, not the fake LA one), and we invest everywhere in Europe, and occasionally in the US. I was also a founder a few times.
I hated VCs most of the time. Now I'm trying to be useful, and to not waste anyone's time. I try to say "no" very quickly, and try to be very transparent about my thinking process.
Some founders really appreciate this. Some others don't. And that's fine. I want to be the VC that I would have wanted to meet when I was a founder, that's it.
I appreciate that :)
I’ve fundraised in Europe, and as an HN-educated founder, I was surprised (and happy) to discover that pretty much every VC we talked to that didn’t want to move forward, told us so explicitly, reasonably quickly. And they were happy to explain why if we asked, which was instrumental for learning how differently than us they thought.
People love to complain about the European VC landscape, and how little capital there is compared to the US and so on, and they’re not wrong, but this to me is a stand-out positive. We felt taken seriously by everybody, just about nobody wasted our time.
What founders need to understand is that VCs are generally risk averse (which is surprising because they are supposed to be “venture”) and are momentum / fomo driven. Very few VCs think outside the box and can act independently (though they act like they can).
Have actually read a few founders now who had no connections and just treated VCs as sales targets:
3000+ investor cold emails, 100+ meetings, 3 term sheets, 1 deal.
Reading this it makes me wonder if this isn't the best strategy.
I know several successful founders who had to pitch over 100 firms on their financing round. I would say the usual number is probably 30 to 50, but 100 isn't out of the ordinary, especially if you are doing something unusual or new.
I think people underestimate how hard it is to truly evaluate someone else’s business. Imagine you hear bullshit every day - you just can’t call people out on it. So in the end you go with something you can actually properly evaluate because of some inside you have as an investor. Of the this ends up being a theme.
Sounds like a huge waste of time
Sounds like 6 months in a regular cubicle job.
The show Silicon Valley well parodied this phenomenon. It implied that the evasive "no" is commonly because VCs don't want to be known for passing on an investment, outright, that then later takes off.
Which would reflect negatively on their judgement, in more or less a worse manner than it would when risking money on something that fails.
The implied choice then becomes to probably lose money but retain reputation, or to protect money at the possible cost of reputation. Funds can't invest in everything, even if passing on something borderline is a repuation risk. The "not a no but no" third option seeks to both retain reputation and protect money.
> "The show Silicon Valley well parodied this phenomenon."
Yup, often hilariously. Basically summarized in this scene (especially the very end of the clip):
https://youtu.be/PdCoadVSfXg?si=VVwDsNw84WoZx8XD
Great scene.
The theme is repeated both when Monica reveals her shameful secret of having passed on Slack, and when Erlich turns down the ferret / pig startup: "I'm not passing, exactly, I'm just not saying yes" (paraphrased).
Regardless of yes or no, VC money is ludicrously expensive.
125k is barely one year's salary and your 7% of ownership gone forever and that's the deal for almost all accelerators.
On top of that - the connections, reach, prestige might be meaningless or irrelevant to your particular product and market.
I think you like it, like it, to be told, what to do, ain’t that true? https://youtu.be/XbLKWm12yx0
Oh, I’ve heard many No’s. So many No’s that I will never, ever try to work with VC’s ever again. Fuck them. There’s a very high probability that you won’t need them either. In my case, I just kept going. If you have a good product then you will succeed. With VCs or not!
I kinda feel for the people who are desparate to be the big cheese rather than have their own thing that's sustainable
wonder how they would feel squashing your business in the same industry
It's the only thing that makes them feel something
VCs are the biggest snakes in business.
Until you actually see money in your bank account, consider every single thing they say as a no. No matter how much they kiss your ass, and no matter how much they throw term sheets at you, until you see money in the bank account, it’s a “no”.
If they want to say yes, they will have the money in your bank account that day, but if you get any excuses, then it means they are stringing you along.
I think it was Paul Graham who gave a good indicator if the VC was saying yes.
“Look down. Is there a term sheet in front of you?”
I like that, but from my experience I’d go as far as saying “is their money in your bank account?”
Terms sheets are not legally binding.
Money talks.
I think most founders (understandably) don't know how the capital marketplace works, and so they create these codebooks for translating the things VCs say into a mental framework that makes sense to them. I don't know what the answer is, other than simply building the right company at the right time. There are people who are very good at navigating the fundraising space, but that usually comes from having expertise and/or connections prior to founding a company. Once you are in the middle of trying to start a company, it's a little late. Your best bet is to find a way to demonstrate that you're on to something big, then find people who can see that she vouch for it.
>In all honesty, you don’t want to take external funding unless you have intensely strong user growth; and being unable to hire becomes your bottleneck.
100%
What you need to do is launder your “app/concept/vision” through “high profile individuals”.
Ideally, get someone with a high level of influence to invest or just get them on your board. Having their name in the decks increases future investment by vulture capitalists by at least 420%. Once VCs see those names, their typical DD process goes out the window. All they see is the name and gamble millions/billions just because of this.
Some notable examples of this are “theranos”, “ftx”, “frank”. Shit it even stretches back to the 1990s with infamous con artists like Jordan Belfort or Bernie Madoff.
Remember those college frat bros that cheated off you? Those frat bros and sorority sisters are often connected to high wealth individuals. Higher chance of this at “Ivy League” universities.
Remember. It’s not what you know. It’s WHO you know ;)
In fairness to the VCs, the 3 examples given in "The VC Codex" section seemed blatantly obvious to me. Here is the first one, for example:
> When they say: “Talk to us again when you have traction.”
> They really mean: “If you prove there is a market opportunity and that you can execute as a management team, then we might consider you. But because I don’t believe either of those things will happen, I will not be taking a risk on you”.
I mean, the general tone of the article is "VCs speak an ambiguous language because they're doing a dance with founders." One hand, sure, of course, that happens in literally every sales negotiation. But "Talk to us again when you have traction" seems pretty clear that the VC doesn't believe in either your market thesis or team, and they're basically saying "prove us wrong". I just don't see any guile here.
This is very true - the story also follows my maturing from extremely naïve to having my head screwed on a little better. To many people newly playing at startups, the traction comment is an invitation and not a rejection.
It's a good retrospective. It's clear the author learned, and improved. I didn't find anything new, it's got commentary on three common failure-to-raise modes.
One thing I noticed about the tale was lots of focus on the product and MVP things. I think more efforts on Customer Development before MVP can provide a lot of traction signal to VC.
Thank you for saying! Certianly the post is primarily aimed at wide-eyed first-time founders like I was to help temper some of the naïvete
I feel like this a SV/California culture of 'conflict avoidance' and general pleasantry rather than something specific to VC culture. It just so happens that most big VC players are in California.
I think it would be important to record and review the exact language used. People have a tendency to speculate, project and misremember things. "Let us know when you have more traction," could easily (and wrongly) be translated to, "They said they want to work with us once we can prove growth," which is not the same statement.
If you asked someone on a date, and they said, "Get back to me when your abs are showing," would you actually surmise that you were a good match and just needed to do more crunches?
"Everyone wants investment from venture capitalists."
Am I the only one not living in this bubble. I cofounded a boostrap business. Having cash to hire and not have to work two jobs would sure be nice, but if I am raising it would not be to be on Forbes list, it would be to build an actual business. The vanity of those people sometimes.
I really hope you read the second sentence and understood I was trying to be a little satirical here
I did, I enjoyed reading that, from ire to wry smile, in a sentence.
I'm very glad my structure worked as intended :)
Can you f*cking believe that the publication on Medium I originally posted this to edited that sentence out!?
I enjoyed that sentence, too. It may be what led me to keep reading to the end of the piece.
I listened to an interview with Ivan Kuckir who created Photopea with an old laptop and a cheap webhost. It runs in the users browsers, so his costs are extremely low. The interviewer asked him about taking VC money, but he didn't seem keen. It's a runaway financial success as it is, and there isn't really anything that taking a bunch of money would allow him to do that he can't already do.
I’m not in this game, but it sounds like if there’s a condition, the answer is “no,” rather than great advice.
All these anecdotes boil down to VCs saying “if (false),” where what drives the false proposition is your job to guess about and may be useless.
And if that proposition were true, the startup might not need their money or contacts.
> much like the Inuit people, who have many words for snow,
this is a myth https://en.wikipedia.org/wiki/Eskimo_words_for_snow
This article is kinda silly, but very true. I have a LUT in my notes that is “VC says” “they actually mean”
"Everyone wants investment from venture capitalists"
No they don't, why should anyone sane pay for working capital with equity. If all a VC brings to the table is cash, than they are functionally a bank loan with really terrible terms.
One can tell a bad idea when you have to explain its value proposition to people, at that point it is a vanity project already non-viable.
Rule #14: "Never outsource economic control structures, or one may end up indentured"
I thought all this type of stuff was true until I did a proper raise. They will absolutely tell you no and give you reasons why. You should heavily discount the reasons
Had to stop at "None were brave enough to rip off the poisoned shirt we had woven for ourselves", but that's a great line.
> "angel syndicates"
I'm very sorry, but I just laugh my ass off because of all these kinds of words related to money and investors.
I wonder how many here got the second paragraph of the OP.
Second sentence of second paragraph, actually.
I hope nobody needed pointing out that it is (obvious) satire
I didn't, at least. That's what I implied by my comment.
When you say yes, they value their time/energy like money, it gets you to shut up so they can move on, and delay the explanation later on why they “reconsidered”, it’s passed to the assistant for the reply.
Now when they don’t say yes/no abruptly and just asks more questions, they are interested and that’s a better gauge
No money means "no." Doesn't matter WTF they say.
Two things:
1. Nobody is entitled to venture capitalist funding. It is not an oddly named and run social works program.
2. VC funding is not a home run. It is not free money. If the only way you can launch a tech business is venture funding with the hope of hitting it out of the park before the funds’ cliff, perhaps consider if the return justifies the effort.
Hey, if the company's equity goes to zero then it was free money!
"Everyone wants investment from venture capitalists".
I have a bootstrapped side project, Tunnelmole, turning a small profit and growing at a slow and steady rate on its own. I'm the engineer so I only really pay hosting costs, which are covered by the revenue, although in the early days I had to cover this.
While venture capital is an option, if it continues to grow, it's entirely possible the venture capitalists may not be needed.
The longer you go w/o raising money the better your position can be.
Unless you run out of cash
I work at a VC firm. If the business can finance itself, you absolutely don’t need VC cash. Ultimately, that’s the goal - build a profitable business.
The only reason I'd consider it, is to accelerate the current growth, beyond what I can drive myself.
But it depends how my own efforts go, there's still a long way to go before my current methods become ineffective.
I address this in the second sentence when I explain that this puts you in the same category as many famous grifters.
The ending of the piece helps to confirm exactly what you said - really, you want to bootstrap unless you are going so gangbusters that a lack of quick cash is damaging your ability to grow.
The very end of the article I think addresses this in a plain and direct way:
> 9. VC funding is cool and all, but essentially, it is a waste of time if you haven’t validated your market: bootstrapping to get paying customers quickly is the most effective tactic available.
> 10. In all honesty, you don’t want to take external funding unless you have intensely strong user growth; and being unable to hire becomes your bottleneck.
> unless you have intensely strong user growth
Or you have a business that needs capital to get going.
Your title is one of those things that reminds me why our industry is so short of women
Wait, really? Please explain this
Also, the actual title or the one HN moderated it to?
I understand it to be wordplay on "no means no", a well-known anti-rape slogan. In repurposing the lingo to be a statement about venture capitalism, there is a lack of respect for the need for such a slogan.
I think men a tendency to trivialize that message because it scares us a bit. It's a message of rejection and shame so it's uncomfortable and we naturally to want to twist it around until it isn't threatening anymore.
> Everyone wants investment from venture capitalists.
Everyone minus 1 at least anyway.
Rubrik for early stage:
1. No product:
2. Have product:
This is almost accurate. I would add one more thing:
Yeah i was more so thinking of first time founders. Second time founder is a different thing, though I dont think early employees ("founding engineers") get much respect.
“Founding ____” is not “founder”. It’s just a fancy way of saying “employee”. This is always been the case.
Never said it was, its a scam title. Only time it holds relevance is again if the founder already had a success. Then the chances of the equity being worth something are higher
Seems sort of clearly misleading at any rate.
Do they still call themselves founding engineer at Series C? Just seems like a cute way to convince graduates it's worth being paid 1/4 what Google/Meta could cough up.
Is there any real benefit to taking ~$160k and 1% as a “founding” engineer? We’re not even close to series C yet but it’s starting to feel like I need to be more aggressive about compensation or a role change.
If you don’t become a +$100mm company (and have the ability to cash out at that position) it seems to be a pretty rough deal honestly.
Depends - how much conviction do you have in the product you are building?
I think we’re building a great product. But 1% (undiluted) from an even $100mm company feels like a long shot.
If you stick around, you should regularly get topped up so that dilution doesn't completely destroy your stake.
Your salary should also increase to become competitive with the market as your company continues to raise.
If the founders know what they're doing and you are bringing outsize value to the company, your salary should far exceed the market salary as your company gains success.
No. As someone said earlier, “Founding” is a scam title. It’s just sparkle. If they’re passing that out post-A, they must really think you’re a sucker, because that’s nowhere near founding.
They do - they just have to have had larger successes.
"Founding X" doesn't count for shit.
Being part of a team that built a hugely successful product teaches you a lot - it teaches you about the counterintuitive dynamics of superlinear growth. That is a very important mindset to bring to the table if you want to create a successful VC-funded startup.
I had to look up "superlinear growth" because I've never seen that term used under posts with VC related topics. If you're as confused as me, Paul Graham wrote a blog post about this last October (figures):
http://www.paulgraham.com/superlinear.html
tl:dr: Just make a product that's so cool it'll go viral in it's respective market.
so basically exponential but fancier.
The reason I don't use the world exponential, is that superlinear growth in a product is generally not exponential.
It is usually at best quadratic because there is some kind of network effect at play - the number of edges in a complete graph with `n` vertices is `n(n-1)/2`.
The point is that the value of your product to your users should increase with the number of users OR the marginal cost to you of maintaining the product should decrease with the number of users.
"Superlinear" captures that more effectively than "exponential".
True viral growth is exponential: each of your users gets you N>1 additional users, and so the growth of your userbase is proportional to your current scale.
Superlinear but subexponential growth can still be pretty impressive, though, especially if it's fast (who cares about 0.1% weekly growth?)
Very good point.
One thing to add - in my experience, you need to spend money to go from merely superlinear to (locally) exponential.
This is the original reason that VCs exist.
If you go to an intelligent decisionmaker at a VC firm with proof of sustained superlinear growth and plan for how their capital will allow you to increase the rate (and higher derivatives) of your growth, they will almost certainly invest.
The reason that VCs have to specialize by industry or look for signals like Stanford/Harvard/whatever is that it's very difficult to validate or invalidate proof of superlinear growth. This requires specialization or, if lazy, social signals like the university you graduated from.
Less specific than exponential which also makes it more achievable. More positive than nonlinear.
No, definitely not as employee. Maybe founder. Failing as (a funded) founder is ok too.
It's the whole fairground saying, right?
(I'm definitely in the middle-class bucket)
I'd edit this to
Source: I know lots of female and non-white Harvard grads who didn't get funded. I'm a non-white MIT grad and also found funding very, very difficult even when we had a product. We almost continuously had to spend >1/2 of our working hours just trying to get funding. Hundreds and hundreds of coffee chats plus travel time. We were building hardware, so bootstrapping wasn't an option.
White male Harvard grads I know routinely got funded very quickly, though. They often had time to get actual work done. Even still, most of them didn't succeed in the end.
Hardware is a different category and doesnt really fit the traditional VC model. Also, indians/east asians are the majority in tech, not the minority. Plenty of examples of open discrimination in big tech from those groups
I'm not white either but seriously, this mindset of "victimization of non-white people" needs to stop. I'd rather be taken seriously for my merits than my minority privileges (due to DEI for example).
You're looking at it backwards. White people get an automatic advantage because they're white. Any advantages given to minorities are an attempt to balance the game.
> White people get an automatic advantage because they're white.
By whom? By other white people? Homophily is a real phenomenon in every ethnicity.
But if you're saying that white people get advantages by non-white people, then it's a cultural issue of those non-white people who, for some reason, have internalized racism (look up inferiority syndrome).
> I'd rather be taken seriously for my merits
Me too. The reality is that people don't always take my merits seriously.
I'm male though. Females have it much worse. I have heard lots of horror stories (both behind their back in "locker room talk" and directly from them) where their actual merits are effectively ignored and all focus is on their body. It's insane.
> Females have it much worse
The entire concept of "warm introductions" is harmful to women.
Because most VC partners, CEOs etc are men. And so you have this power imbalance where young, women founders feel like they are forced to build relationships with typically older men.
And like you said there are plenty of horror stories (my partner was one) where this power imbalance gets abused.
What we need are data. Then set up funds that scoop up the good ideas left on the table by this dumb money if it exists.
It is possible it is racism but it is likely to be measurement error, sampling error, and/or specification error, assuming you have not ruled those out.
It's the chain of trust. It means that the investor is already 2-3 handshakes away from the founder, and hence can discuss certain things that require utmost discretion, and have reasonable grounds to believe they won't get double-crossed on that (because it would erode away the trust along the handshake path).
two precious things in this economy:
- attention
- trust
a lot of this is reputation laundering
the outside capital is real, quickly landing a lead investor that gets the other investors to close comes from controlling the pools of capital
your family’s donor advised fund and private foundation are the lead investors, or they are the only limited partners in the private equity fund thats functionally a family office
this same capability allows for top university background too, or nonchalantly dropping out of it
in the mean time you get all the headlines in the world, alongside your PR agent, and you’re a genius star Stanford drop out that gets funded no questions asked
The “friends and family round” is actually more important than the stanford aspect, if we were really min-maxing here, but it all goes hand in hand as people with that support system do things together
the reason it is important to view it this way is because this is all window dressing for a bourgeoisie that doesnt want to be seen as different. in turn, it makes everyone else think they really have a chance of receiving the same consideration from their ambition and cognitive abilities. the answer is to just have capital and a predilection for de-risking with other people’s money.
I've never seen a donor advised fund or private foundation on a startup cap table, and I've seen quite a few. Got any examples?
have you checked the incorporation status of every entity on the cap tables?
this would be difficult to know from a passing glance, they wont necessarily say any combination of “Charitable Non-Profit Foundation”, although I have seen that on cap tables and other disclosures
they can be any entity type and trusts. Trusts dont need to have “Trust” in the name
donor advised funds are not separately incorporated, and may also be on the cap table as the sponsoring charity
and again, as a limited partner in a fund, neither would show up on the cap table, just the fund they invested through
This is super weird to me. In the tech circles I've run in, being from Harvard is about the same as being from UCLA or something.
I've never heard it considered a sign of exclusivity. CMU, Stanford, MIT, yes. But Harvard? It's not exactly known for a rigorous engineering program, and even less so the last fifteen years or so.
When looking for CEOs, they don't look for top notch engineering talent, they look for top notch CEO talent, where talent means capability. CEOs do need deep technical understanding, anything else and you have an enviroment that scares away engineers, but they don't need to be the best engineer in the entire company.
If you've been to Harvard, you are on a first name basis with highly ranking finance people. It's not a coincidence that among all the dot com carnage, Amazon emerged as the ecommerce champion: they lived thanks to Jeff Bezos being able to get continued funding despite making continued losses. For that, you need, among other things, good contacts into the finance industry and know how they work and think.
A membership in the exclusive club of Harvard graduates gives you the ability to find customers, advice, funding, employees. Stuff that makes it more likely that your company is more successful.
This sounds totally backwards, but I say this as someone who has no personal experience raising money, so maybe you're a VC or a founder?
If someone can get in front of VCs, presumably it doesn't matter if they know a bunch of other rich people from school. I really don't get the sense that VCs are impressed by someone's ability to convince some nepo hedge fund manager to invest a few million.
I think they're impressed by business accumen combined with technical chops. If you want to bootstrap, then yeah, maybe a school with the most amount of money matters so you can get a huge seed round.
But you think people with strong ideas and impressive technical backgrounds who get in front of VCs are going to be less impressive by less technical people who rub shoulders with finance bros?
Certainly Harvard/Yale is a good choice if you're going into medicine, law, or I dunno, maybe banking? But tech? I wouldn't think it's a top choice at all.
I'm neither VC or founder, what I wrote just bases on assumptions. It definitely helps my arguments I think that successful tech founders have went to Harvard, like Paul Graham, Bill Gates, Nathan Blecharczyk, and Mark Zuckerberg.
Like the 'No child left behind' did wonders to education, maybe 'No startup left behind' is needed to fund all of them irrespective of business model or founders' background.
Money means yes, everything else means no.
This is a solid 7-word tl;dr
Money talks, bullshit walks
Also watch Season 2 Episode 1 of "Silicon Valley" :) https://www.youtube.com/watch?v=857XqOoMm8c
Is that the brain rape one?