[HN Gopher] Why is raising money from VCs worn as a badge of hon...
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Why is raising money from VCs worn as a badge of honour?
It's like a loan because the founders don't have the money or the
revenue to afford what they are trying to do. Eventually it has to
be paid. Somehow when folks take a large loan and buy a house
which they can't really afford, usually they don't shout about it
on social media forums. But somehow when it comes to start-ups
it's almost worn as a badge of merit? Why is that the case and why
don't more companies try to raise money later in the cycle and try
and make do with their product revenue?
Author : ilrwbwrkhv
Score : 16 points
Date : 2022-04-05 21:21 UTC (1 hours ago)
| lesuorac wrote:
| > Somehow when folks take a large loan and buy a house which they
| can't really afford, usually they don't shout about it on social
| media forums.
|
| But they do shout about it to the seller of the house. This is
| the same situation but instead of advertising to a seller that I
| can afford your house, you're advertising to employees that you
| won't go bankrupt in a few months.
| rebelidealist wrote:
| It is a welcome party to say you are now part of the capital
| markets. Now there is a ticking time bomb for you to make the
| investor class more rich.
| samspenc wrote:
| It helps a lot with recruiting. For an engineer with a choice of
| where to work and with disparate total compensation across
| companies, they may be more likely to choose a company that can
| maximize potential total comp, and a startup with VC funding
| increases their chances of winning that IPO lottery ticket.
|
| Also, it is not quite a loan or debt, what happens is you are
| exchanging your equity for a money infusion to help you grow. If
| the startup fails, no money has to be repaid, the VC firm loses
| money. _But_ if the startup succeeds, you succeed, but so does
| the VC, it becomes a win-win for both parties.
| danielmarkbruce wrote:
| To answer the last question: all companies are in competitive
| markets. For example - if you can get customers for your saas
| product at a cost of $25,000 per customer and that customer is
| worth $100,000 to your business over the lifetime, and you can
| acquire 10,000 of them over the next 18 months - you probably
| should take all the money required and go get them.
|
| If you don't, some other company with a similar product will.
|
| To be clear though - _most_ companies do exactly as you are
| saying. You just never hear much from them unless you are their
| target market.
| PaulHoule wrote:
| You don't have to pay it back but you do give up equity.
|
| It depends on the deal you strike. Mark Zuckerberg still controls
| Facebook even though it is a public company despite selling a bit
| here or there if he wants cash, borrowing against the shares,
| etc.
|
| Other founders lose control of the company at an early stage.
| Many people would be delighted to get $5-50M worth of stock in a
| quality public company and be free to do something else with
| their life.
|
| VC and accelerators offer benefits by association. For instance I
| worked at a startup that used space at an accelerator for B2B
| software startups close to Union Square in New York City. It was
| energizing to be surrounded by people who are thinking about both
| the software development and marketing aspects of the business,
| there is the network of the people who run the accelerator and
| brand name which helps with finding customers, hiring. You can
| walk out of that office and hike (or take the subway or a car) to
| meetings with mega finance, media, consumer brands, you name it.
| byoung2 wrote:
| It is validation that (in theory) someone has peeked behind the
| curtain and done some due diligence on the startup and put money
| on the line as a bet that the company has a chance to be a
| success. Compare that to some other startup that was unable to
| get any investors.
|
| That said, I would rather be a bootstrapped startup with revenue
| than one that raised a lot of money.
| dcolkitt wrote:
| The problem with bootstrapping is that eventually you'll hit an
| inflection point where the viability of the business model
| starts becoming visible. At that point you'll most likely start
| attracting competition. Unless it's a niche a business with a
| small TAM, your competitors will most likely raise VC funding
| to throw cash at hyper growth in a way you can't while staying
| cash flow disciplined.
|
| In today's environment VC capital is nearly ubiquitous. So you
| have to assume that sooner or later you'll run up against VC-
| funded competitors. If you don't have a game plan to survive as
| a bootstrapped business when that day comes, then you pretty
| much _have to_ raise VC funding.
| b20000 wrote:
| bootstrapping sounds cool and i've done that for many years. at
| some point you need money to grow because hiring people is
| super expensive and/or risky and marketing is not free either.
| so if you cannot generate enough cash to pay for that you are
| stuck. you are then basically still juggling all the work
| yourself perhaps with your cofounder and no investor will touch
| you because they think you are weird or don't want to work with
| people even though the business is valid and the potential is
| huge given a investment. most investors are not very smart,
| have little operating experience and are not very good at
| listening. looking back i would never start a company again
| with my own money as the journey is brutal. i would rather have
| an investor on board, be able to hire people and pay myself
| rather than being broke for many years and working myself to
| death.
| devoutsalsa wrote:
| Imagine trying to bootstrap a semiconductor or EV company. Or
| a rocket company.
| jensv wrote:
| Money is power and now you have some external validation and can
| afford some nice things.
| [deleted]
| killingtime74 wrote:
| What else can most of these start ups claim? They would usually
| all have low user base, high "growth" (from a low base), low/non-
| existent revenue, not listed on the share market, forget about
| profit. Everyone wants to make themselves look better
| jamesmishra wrote:
| Lots of things are badges of honor to various groups of people.
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