I never suggested any such thing. But I WAS being critical: PG's description amounted to saying that VCs want to get on the plane only after it has already left the runway. Although I didn't say it, I suspect that, then, what PG is saying is not all that close to how VC funding works. I wasn't being critical about it being "super hard" to get funding but just about the apparent contradiction in what PG wrote.
The VCs can do what they want. As Mark Suster has illustrated with some graphs and data, over the past 10 years the VCs have been doing poorly, and about half the partners are 'unemployed' as VCs.
So, I can't 'look up' to the VCs as business experts. They have MBAs; pseudo-great, I've been an MBA prof. Some VCs have had some startup experience, maybe in 'biz dev'. Pseudo-great; I helped start one of the most successful VC funded companies in history. And as IT experts, I have to look down on nearly all of VCs (although YC is an exception) so far I'd need a Hubble telescope to tell them apart. I've taught computing in two research universities, published peer-reviewed original research in computer science, mathematical statistics, applied mathematics, and artificial intelligence, and helped ship two commercial products from Yorktown Heights.
Any way it goes, I have to build a successful business. So does every entrepreneur on Main Street who opens a pizza shop, auto body shop, grass mowing service, etc.
So, as you wrote, by the time I've built a successful business, say not an "unproven" business, I would be able to sell a fraction to a VC. Okay. Just why I'd want to do that escapes me.
Or, the day before I take a VC check I have a 'proven' business, say, half filling 15 Mbps upload bandwidth with revenue close to $300 K a month and own 100% of it. The day after I take a VC seed check, I have $100 K -- $500 K more cash in the bank, that is, revenue from 1-2 months, where it took me much longer than 2 months to get the seed check, own none of my company, have to get my fraction of 'my' company back on a four year 'vesting' schedule, and can be fired by the Board at any time. Bummer.
My point is not that it's tough to get VC funding. Indeed, I MUST build a successful business, VC funding or bootstrapped. It's plenty clear, from what PG wrote and more, that once I've built a successful business, say, $300 K a month in revenue growing quickly, then I could get a VC check. And PG is saying that much before then, I can't get a VC check. Okay. Thems are the rules. Good to know the rules.
So, what was my point? Just that the rules as PG wrote them don't make much sense. I doubt that what he wrote is very close to the truth.
As an entrepreneur, I have to evaluate the potential of my business early on. Nowhere did PG mention that a VC will review that evaluation. Here he is mostly correct: One could count with shoes on all the VCs in the country who could evaluate or even direct the evaluation of the crucial, core 'secret sauce' in an IT business plan.
People have mentioned a similar point before: If VCs want to wait until there is significant traction growing quickly, now they risk waiting too long. That is, it used to be that, to get the traction, the company needed funding to write the software. Surprise: At least from Microsoft, once one understands the relevant parts of .NET, essentially all the code for a Web site, indeed, for much of commercial software, is already written, and all that's needed it a little, simple glue to join the .NET code.
Next, surprise: If usage grows, then can call up, say, Tiger Direct, get some parts, and plug together one heck of a 64 bit server for less than $1000. We're talking what, 4 AMD cores at 3.0 GHz for $100? A motherboard for $100? Main memory at $10 per GB? 2 TB hard drives for $100 each? A high end Antec power supply for $100? A case for $50? Some fans for $2 or so each? What'd I leave out?
Next, surprise: If usage is significant, just $1 CPM will throw off enough cash to buy servers enough to double capacity in less than two weeks. So, that's exponential growth. Bandwidth used to be really expensive. Surprise: Now where I live $15 Mbps upload with a static IP address costs $65 a month, and CAN use it for a Web site.
Fred Wilson has written on his blog that these changes are good for VCs. Maybe. And I continue to see the major successes taking VC funding and don't have a good list of successful bootstrapped companies.
Still, from what PG wrote, basically I've got to have, say, $300 K a month in revenue, growing quickly, to qualify for a Series A. But, in my case, that's just me and my team, two of whom have four legs, long tails, and long whiskers, and myself and I and a server at my left knee in my living room. For the server, I have one in a box in the next room. I also have an offer of a loan of one with 32 cores and 2 TB of main memory -- that used to be a lot of disk; now it's main memory! BELEIVE me, a 32 core server could send well over 35 pages a second from my Web site software! For the Microsoft software, their BizSpark program will let me, or essentially any IT startup, have the copies of Windows Server and SQL Server for free for a while.
Again, I'm not complaining that getting a VC check is too hard. Indeed, again, I need to build a successful business, say, $300 K a month growing quickly by myself. And, apparently PG would agree that with such a business I could get a VC check. Okay. But why then would I want to take a VC check?
Net, if I can ramp up to $300 K a month in revenue, I won't need a VC check. If I can't, I can't get a VC check. So, either way, there's no VC check. So, my point is, with PGs description, of what use are the VCs? Understand now?
The reply by tptacek discarded the point I was trying to make and claimed that I was just complaining because, according to an uninformed claim of tptacek, I was having trouble raising equity funding. The goal of tptacek was to try to gain upper status via an insult. That was a personal attack for no good reason, and I was angry at tptacek. Otherwise, I'm not angry at VCs.
For PG's post, it seemed to be deliberately a bit far away from what VCs do. It's frustrating to see such from the other side of the table.
"Traction isn't necessarily the same as revenue." Well, one form of 'traction' is a lot of users, and in some cases can have that long before any revenue. Examples include the early months of YouTube, Facebook, and Twitter. So, they had a lot of 'unique eyeballs' per month, and the assumption was that there should be a way, somehow, to 'monitize' that. Maybe. Usually.
In my case, a lot of eyeballs mean a lot of Web pages served and, for my Web pages, a lot of ads displayed. Then a lot of eyeballs mean a lot of revenue and, in my case, nearly all that revenue pre-tax earnings. Or, yes, I thought of 'monitization' up front. My most important Web pages have been carefully designed to have a banner ad of 720 x 90 pixels across the top and some number of ads 300 x 250 pixels down the right side. So in my case, 'traction' and 'revenue' go together.
"PG's view of the world isn't a universal rule." Yes, that is a weak version of my main point.
Maybe some LPs have asked their GPs to fund only 'traction', but likely some VCs are still able to fund something off the back of a napkin if they really want to. Even if they could, to me that's a bit moot: VC funding or not, likely not, like anyone on Main Street, I still need to build a successful business. At one time, a shot of VC funding could have helped my project a little. But now I'm so close to going live that what VCs do is getting to be a bit irrelevant. I'm still in touch with some VCs in case my personal funding runs out, but my guess is that it won't. Lots of pizza shops get to earnings without VC funding, and my project should be able to, also.
Sorry you feel that way. You may just be in the crossfire of a bunch of other similar threads. Meanwhile, it sounds like you have little to be upset about, since your business is doing so well.
You keep assuming that my concern here is my business. It's NOT. My concern was just being clear on just what the heck VCs do.
VCs are welcome to do what they want. While I have very little respect for all but a tiny fraction of VCs, I am not angry at any of them although I believe that here PG was not accurate.
VCs and my business are close to mutually irrelevant.
From all I can tell, my business is doing well, but, yes, I will be happier when I am getting $300 K+ a month in revenue.
"Crossfire", what VCs do in general or nearly always, etc. are getting to be nearly irrelevant for everyone: Just a short look at the finances of a VC and see that VCs need 'home runs'. All the rest is low grade work or just a waste of time, effort, and money. But there are only a few 'home runs' each decade in all IT VC in the US. So, 99 44/100% of what VCs 'do' is irrelevant, for all concerned. In particular, what is 'usual' is irrelevant. And for the VCs, 'patterns' are irrelevant.
The major failing of VCs is that they do not have effective criteria to select the 100 - (99 44/100) of interest, or even the candidates. So, about all they can do is follow the herd of the 'usual', draw their 2%, and hope a home run comes out of the blue. That's the key reason on average they are not making much if any money.
That lack of effective criteria is in wildly strong contrast with essentially everything in serious applications of science, in engineering, and in technology outside of VCs.
My criteria that get me to invest my effort are nothing like those of the VCs, usual or otherwise. On this point, I'm standing on solid ground, and the VCs are standing in a swamp.
"You have a content business." Wrong. You are misinformed.
"Also, if you conduct yourself in person like you do here that is probably another issue."
What I do here is fine. What PG wrote is a bit far from what VCs do, and I called BS.
Generally people want to suck up to the VCs and get all excited when they 'receive a round of funding'. No, what they did was just sell a huge chunk of their business and put themselves under the control of a VC Board under some really bad terms. I won't suck up to VCs.
Entrepreneurs, including in IT, and on HN, need simply to observe that the US, border to border, is just awash in entrepreneurs who start successful businesses on Main Street with no contact with VCs. The people I've seen in yacht clubs were mostly successful on Main Street, and there wasn't a penny of VC equity in sight.
My mention of a pizza shop is dead on the center of the target: Now a Web site serving a few dozen Web pages a second takes much less in capital equipment to get started than a pizza shop. And the Web site has some advantages, e.g., once the site is up, mostly just lean back and let the servers do the work, 24 x 7, and that beats the heck out of all the food handling, kitchen cleaning, floor washing, worker supervising, customer interactions, etc. at a pizza shop.
I and likely nearly all of us have neighbors in big truck, little truck businesses, fast food, gas stations, rental property, various trades, etc. They make it, buy houses and new cars, get their kids through college, etc. without a big failure rate and without VC. A Web site can be a better business, still.
Since on average, as reported by Mark Suster, VCs are not making much if any money, I have more respect as businessmen for a guy running a pizza shop, especially a guy running several, than I do for VCs.
For technical expertise, maybe in all the US a dozen IT VCs have some significant technical qualifications, and otherwise they would be at best just dead weight in an IT startup. So I can't respect VCs technically either. VCs commonly have a LOT of trouble handling their e-mail; NOT good. VCs commonly want others, lawyers, CEOs, bankers, etc., to 'filter' entrepreneurs for them; NOT good. VCs commonly assert that they have wide 'networks' -- mostly not among well qualified technical people! Nearly none of the VCs are anything like the people I respected in math and physics in school or like the people I respected, say, at Yorktown Heights.
VCs need entrepreneurs more than entrepreneurs need VCs. So, I'm not here to suck up to VCs. For what PG wrote, I call BS. So be it. There's nothing wrong with that. HN is for 'hackers' who should not be sucking up to VCs.
VCs want a specific kind of entrepreneur. You might need to face up to the fact that, generalizations aside, they don't need you or me, despite the fact that we are entrepreneurs. Similarly, as admirable as it is to get a local small business off the ground, all the rationalization in the world isn't going to get Fred Wilson to fund your favorite pizza shop. Try convincing the owner to make grilled cheese, instead.
You might also pay careful attention to what Joshua Schacter is telling you about how VCs look at content businesses, because all the HN comments in the world aren't going to change the fact that it's hard to get funded with a business model that has become unpopular among VCs.
But on the other hand, like I've said ad nauseum: if you can go it alone without VC, I agree that you should. We did; we've been growing at a steady clip since 2005, and not chasing VC is (by unanimous consent among the founders) one of the better decisions we made.
I'll say it yet again: there are a lot of things to complain about with the VC model. I just don't buy that what they choose to fund is one of those things. If VC won't put money into something that is obviously a strong bet, that should be an exploitable market inefficiency; a place to build up market power and differentiation without competing with 10 me-too valley shoot-the-moon built-to-flip startups.
I never suggested any such thing. But I WAS being critical: PG's description amounted to saying that VCs want to get on the plane only after it has already left the runway. Although I didn't say it, I suspect that, then, what PG is saying is not all that close to how VC funding works. I wasn't being critical about it being "super hard" to get funding but just about the apparent contradiction in what PG wrote.
The VCs can do what they want. As Mark Suster has illustrated with some graphs and data, over the past 10 years the VCs have been doing poorly, and about half the partners are 'unemployed' as VCs.
So, I can't 'look up' to the VCs as business experts. They have MBAs; pseudo-great, I've been an MBA prof. Some VCs have had some startup experience, maybe in 'biz dev'. Pseudo-great; I helped start one of the most successful VC funded companies in history. And as IT experts, I have to look down on nearly all of VCs (although YC is an exception) so far I'd need a Hubble telescope to tell them apart. I've taught computing in two research universities, published peer-reviewed original research in computer science, mathematical statistics, applied mathematics, and artificial intelligence, and helped ship two commercial products from Yorktown Heights.
Any way it goes, I have to build a successful business. So does every entrepreneur on Main Street who opens a pizza shop, auto body shop, grass mowing service, etc.
So, as you wrote, by the time I've built a successful business, say not an "unproven" business, I would be able to sell a fraction to a VC. Okay. Just why I'd want to do that escapes me.
Or, the day before I take a VC check I have a 'proven' business, say, half filling 15 Mbps upload bandwidth with revenue close to $300 K a month and own 100% of it. The day after I take a VC seed check, I have $100 K -- $500 K more cash in the bank, that is, revenue from 1-2 months, where it took me much longer than 2 months to get the seed check, own none of my company, have to get my fraction of 'my' company back on a four year 'vesting' schedule, and can be fired by the Board at any time. Bummer.
My point is not that it's tough to get VC funding. Indeed, I MUST build a successful business, VC funding or bootstrapped. It's plenty clear, from what PG wrote and more, that once I've built a successful business, say, $300 K a month in revenue growing quickly, then I could get a VC check. And PG is saying that much before then, I can't get a VC check. Okay. Thems are the rules. Good to know the rules.
So, what was my point? Just that the rules as PG wrote them don't make much sense. I doubt that what he wrote is very close to the truth.
As an entrepreneur, I have to evaluate the potential of my business early on. Nowhere did PG mention that a VC will review that evaluation. Here he is mostly correct: One could count with shoes on all the VCs in the country who could evaluate or even direct the evaluation of the crucial, core 'secret sauce' in an IT business plan.
People have mentioned a similar point before: If VCs want to wait until there is significant traction growing quickly, now they risk waiting too long. That is, it used to be that, to get the traction, the company needed funding to write the software. Surprise: At least from Microsoft, once one understands the relevant parts of .NET, essentially all the code for a Web site, indeed, for much of commercial software, is already written, and all that's needed it a little, simple glue to join the .NET code.
Next, surprise: If usage grows, then can call up, say, Tiger Direct, get some parts, and plug together one heck of a 64 bit server for less than $1000. We're talking what, 4 AMD cores at 3.0 GHz for $100? A motherboard for $100? Main memory at $10 per GB? 2 TB hard drives for $100 each? A high end Antec power supply for $100? A case for $50? Some fans for $2 or so each? What'd I leave out?
Next, surprise: If usage is significant, just $1 CPM will throw off enough cash to buy servers enough to double capacity in less than two weeks. So, that's exponential growth. Bandwidth used to be really expensive. Surprise: Now where I live $15 Mbps upload with a static IP address costs $65 a month, and CAN use it for a Web site.
Fred Wilson has written on his blog that these changes are good for VCs. Maybe. And I continue to see the major successes taking VC funding and don't have a good list of successful bootstrapped companies.
Still, from what PG wrote, basically I've got to have, say, $300 K a month in revenue, growing quickly, to qualify for a Series A. But, in my case, that's just me and my team, two of whom have four legs, long tails, and long whiskers, and myself and I and a server at my left knee in my living room. For the server, I have one in a box in the next room. I also have an offer of a loan of one with 32 cores and 2 TB of main memory -- that used to be a lot of disk; now it's main memory! BELEIVE me, a 32 core server could send well over 35 pages a second from my Web site software! For the Microsoft software, their BizSpark program will let me, or essentially any IT startup, have the copies of Windows Server and SQL Server for free for a while.
Again, I'm not complaining that getting a VC check is too hard. Indeed, again, I need to build a successful business, say, $300 K a month growing quickly by myself. And, apparently PG would agree that with such a business I could get a VC check. Okay. But why then would I want to take a VC check?
Net, if I can ramp up to $300 K a month in revenue, I won't need a VC check. If I can't, I can't get a VC check. So, either way, there's no VC check. So, my point is, with PGs description, of what use are the VCs? Understand now?