'Fundraising Rounds Are Not Milestones' (ycombinator.com) 70
Michael Seibel, a partner at Y Combinator, writes in a blog post: I'd like to make the point that success isn't the same as raising a round of financing. Quite the opposite: raising a round should be a byproduct of success. Using fundraising itself as a benchmark is dangerous for the entire community because it encourages a culture of optimizing for short term showmanship instead of making something people want and creating lasting value. I believe founders, investors, and the tech press should fundamentally change how they think about fundraising. By deemphasizing investment rounds we would have more opportunity to celebrate companies who develop measurable milestones of value creation, focus on serving a customer with a real need, and generate sustainable businesses with good margins.
Fundraising rounds can be indicators of failure (Score:2, Insightful)
Multiple fundraising rounds indicates that the business has not found a way to make a profit.
Yes, there is a time where more money can expand the business, but multiple rounds for a startup are more likely to indicate a lack of success so far
Re: (Score:2)
That depends on why the new round exists. It may simply be that the initial investment was traunched, and that it was always expected that no profit could be made by this point, but the investors still wanted a check point to make sure things were developing on track.
Re: (Score:2)
It may simply be that the initial investment was traunched
Indeed. Additionally, if a company fails to hit their objectives, it is likely that those later traunches will be denied. Most companies that get a first round, never get a second. They either go out of business, get acquired, or scale back and try to grow organically.
Re: (Score:2)
Any prudent investor would not give "all the money" at once.
That's exactly what the article/summary said. Rounds of funding should be the *result* of the company showing progress on its business plan. The funding itself isn't progress.
Re: (Score:2)
"I'm not really interested in anything. I don't read, listen to music or watch movies/TV."
*cough* Trump supporter! *cough*
Re: (Score:2)
Hey, little crying bitch, how does it feel in Canada where there is no Trump.
Why don't you ask a Canadian? Meanwhile, California is doing just fine without Trump.
That's what I thought. But it's growth (Score:5, Insightful)
In all the years I was running companies, I always felt like the need to beg for outside money wasn't necessarily a positive indicator. ;) I grew my businesses organically, reinvesting profit.
All of my several companies stayed small. Profitable, but in a very small way. I now see, probably too late, the value of *growth*. If you want to be successful in a big way, it's perfectly okay to focus on getting big first, if you have a solid plan for profitability. A major funding round is a landmark of getting bigger, which is an essential part of big success.
Specifically, in new markets - a new product category, a new geographical market, etc, the correct course is to quickly establish market share, borrowing as necessary, then shift to a sustainable, profitable strategy as the market matures. An example would be smartphones ten years ago vs today. Ten years ago, it would have been a good idea to spend (lose) a hundred million dollars in the course of becoming a significant player in the brand new smartphone market. A few years later (2012-today), you'd shift to making money from your strong position in the market.
Obviously getting confused and investing heavily to become a player in a shrinking market would be dumb. If a company is losing money in order to enter the desktop PC market, that's probably a mistake. But if they are "losing money" developing a practical quantum computer, that may be very good and a new round of funding that allows them to grow and do more R&D is good news. Tesla is a good example - they are losing tons of money, but for the purpose of becoming the dominant company in an expanding market, electric cars.
Re: (Score:2)
It's much easier to occupy terrain than to take it.
--
Clausewitz (or maybe it was Yogi Berra).
But try to make sure it's the right terrain.
--
Sun Tzu (or maybe it was the Grand Old Duke Of York)
Re: (Score:1)
Excellent article every business person should rea (Score:2)
That's a great article, thanks. I didn't expect to really get anything out of it, since I pretty much understand the main points. It turns out he mentioned some things I hadn't thought of and reminded me of others.
One important point I wish I had thought about earlier is what he calls "lock-in". That term has a negative connotation, perhaps, but call it "loyalty" and it sounds good. Some things are just easier to switch providers than other things. My main business was one where people rarely switch, and
Re: (Score:2)
I've always considered fundraising an admission that you're not there yet. With every round.
And it's a necessary evil and a welcome leg-up when you need it, but you're begging for help and diluting the value of your project because you need it because you're not there yet.
Re: (Score:2)
The most insightful VC comment of the year. (Score:2)
The point of venture capital is to provide for the expansion and development of an idea. To transform the idea into a product, or sometimes to provide the means to determine that it Just. Won't. Work.
The gamesmanship that is rewarded by making the funding the goal in itself is perhaps entertaining, but otherwise completely valueless.
Now still, if anyone wants to fund my research into why shiny things attract money...
Re: (Score:2)
I thought it was to separate fools from their money.
Once you get the big round of funding, you bank the cash, delay the product, and then shut the doors (with the right note of regret) once you've got your next gig/startup lined up.
Re: (Score:2)
Wow. Seibel gets it
I am not so sure. Many modern tech businesses, from auctions to social media to ride sharing, depend on "network effects" far more than technical excellence. The first company to get funding and build out their customer network is likely to be the winner. Even for businesses without network effects, there are advantages to bigness. If you have a better search algorithm than Google, you are still going nowhere without funding, because you don't have the money for the ten thousand servers needed to hold y
Reminds me of the .dot era (Score:4, Funny)
Re: (Score:3)
I remember working for a bank controlling institution back then, and I had a conversation with one of their auditors. I asked him what bizarre rules are applied when it comes to lending money to people who have no product, no business plan and nothing at all, but say something about "internet" and getting millions. He said it's an investment. I asked "into what". He said "the future".
6 months later the whole shit came down like 18 months later two towers. Just with more damage and fallout.
We're still trying
Re: (Score:2)
The lesson to learn here was that you don't let idiots in ivory towers with ZERO connection to actual work run your economy. Sadly, nobody bothered to learn it.
I love how stating the obvious also counts as casting shade in 2017.
Don't bother closing the door (Score:2)
Don't bother closing the stable door. The horse is almost over the horizon.
Re: (Score:3)
Damn right, business would be so much easier if it wasn't for that pesky customer actually wanting some product for his money. For fuck's sake, ain't there a law that we're entitled to his money without having to provide one?
And if not, how much do you think such a law would cost?
To give you a comparison (Score:2)
Fundraising rounds are to projects what quarter reports are to business administration: A way to quickly sink them if that's all you care about.
Optimizing for short term showmanship (Score:2)
Using fundraising itself as a benchmark is dangerous for the entire community because it encourages a culture of optimizing for short term showmanship instead of making something people want and creating lasting value
That's all true, but it ignores the fact that almost the entirety of manufacturing consumer products is 'optimized for short term showmanship' and is based on a model of planned obsolescence. When the manufacturing sector makes as much money as possible for goods that are made to break easily, be difficult or impossible to service, and be obsolete in a short amount of time, it's impossible for that attitude NOT to seep into the innovation sector. So long as the world economy is basically a giant Ponzi schem
Re: (Score:2)
Also, the even the current goal of most apps is not to develop something useful and lasting. It's to make the new Flappy Bird. Or to make a new social networking app that doesn't offer real benefits over the old one, but it's catchy enough that maybe some teenagers will use it. The eventual goal of these app developers is often not even to create a sustainable company, but just to get purchased by Google.
shut up, windbag (Score:3)
shut up and keep blowing that hot air into the bubble; we don't keep you around for your "conscience" or moral insights. i have a nephew to whom i just gave a modest $10M seed money to get into investing, and he goddam better have an IPO or two within a year.
Re: (Score:2)
Do you own the iPee on the iShart?
The plan (Score:1)
Tell us a story Grand Daddy 90s Buisness Model... (Score:2)
Honestly not to be too cynical here, but this entire article feels like this. Someone complaining about the tech industry boiled down to it's lowed common demonstrator instead of talking about exact circumstances where this is a problem.
To take an example I think a lot of us can agree that trying to fund the AAA title Deus Ex: Mankind Divide was just a terrible idea from Square Enix and in fact a perfect example of really bad crowd funding that fits this guy's narrative. But as a counter there's hundreds
...less of an article (Score:1)
this slashdot post just feels more like a statement than an actual article.
But I appreciate there is something to dicsuss
Read the book... (Score:3)
"Startup: A Silicon Valley Adventure" by Jerry Kaplan is one of my favorite books about Silicon Valley startup culture. Kaplan's pen-based computer company, Go Corp, got torn apart in the end from subsequent funding rounds as shareholders pushed the company in different directions. Company went through $75M in funding before closing.
Book: https://www.amazon.com/Startup-Adventure-S-Jerrold-Kaplan-ebook/dp/B00L0M749M/ [amazon.com]
Go Corp: https://en.wikipedia.org/wiki/GO_Corp. [wikipedia.org]
Re: (Score:2)
But how much of that $75 mil did Kaplan get? If it was enough, who cares?
He took a salary. I don't think he lined his pockets like so many CEOs do today.
Communism (Score:5, Insightful)
"deemphasizing investment rounds"
"making something people want"
"creating lasting value"
"sustainable businesses"
Sounds like Communism to me.
Re: (Score:2)
"deemphasizing investment rounds"
"making something people want"
"creating lasting value"
"sustainable businesses"
Sounds like Communism to me.
Communism isn't concerned with what people want...
Re: (Score:2)
The lack of legitimate investments opportunities is due to the fact consumers have had all their money sucked out, so there is nothing left to do but trade high-end real estate and derivatives among the millionaires. It not because of specifiable "regulations".
Re: (Score:3)
"Your purchasing power is directly tied to your productivity."
Wages and productivity became decoupled [epi.org] in 1973. Almost all the money from productivity growth since then has gone to the top 10% (half going to the top 1%).
This happened about when Noe-liberalism took hold under pro-business Presidents like Regan, Bush, Clinton, Bush and Obama (and Canadian and British counterparts).
Re: (Score:1)
Wages and productivity became decoupled in 1973
- you misunderstand what happened at that time. In 1971 USD was defaulted upon when Nixon decoupled it from any form of backing, namely from gold. [wikipedia.org]
Based on that former misunderstanding you further build other forms of misunderstanding, you believe that USA had productivity growth when the reality is that USA productivity has plummeted, for the last 20-30 years USA has been so unproductive that it generally runs 500 *BILLION* USD/year in trade deficits. That shows bankruptcy, not productivity. That shows
Re: (Score:2)
"making something people want"
As long as you want tractors, you'll be fine.
so what's new? (Score:2)
>> encourages a culture of optimizing for short term showmanship instead of making something people want and creating lasting value.
You've just described the entire US business culture for at least the last 50 years. No-one builds quality products designed to last any more. Everything is actively designed to ensure it needs replacing every 3-5 years now, and to be sold through marketing (push) rather than need (pull).
Re: (Score:2)
>> encourages a culture of optimizing for short term showmanship instead of making something people want and creating lasting value.
You've just described the entire US business culture for at least the last 50 years. No-one builds quality products designed to last any more. Everything is actively designed to ensure it needs replacing every 3-5 years now, and to be sold through marketing (push) rather than need (pull).
I know this is a popular thing about which people like to complain, but I'm not sure the alternative is preferable. Technology moves fast, and does offer desirable advantages. What I mean by that is: what is the point of designing things to physically last forever if they become technologically obsolete anyways? Sure, there are some things that will never advance technologically. My 100-year-old hunting knife is just as good as one I could pick up today. But look at most things we use in our daily lives and
Re: (Score:3)
Your argument is logically unsound. With things built to last, you have the option to stick with it. You don't HAVE to either keep or replace them.
With things made with built-in obsolescence, such as cell-phones with unaccessible lithium-ion batteries (i.e. a technology with a limited lifespan), you're gonna be screwed in say 3 years whether you want to keep the phone or not. i.e. you don't even have the option.
I also don;t agree with your sentiment that newer tech is necessarily better. For example, call m
Re: (Score:3)
Even toasters, a simple machine, have advanced.
But I seriously doubt that toaster engineers of yesteryear thought about obsoleting them to keep innovations moving into the market. The thermometer was the state of the art at one time so they went with it, unaware of when newer sensor technology might become available. The lifespan of the product was a tradeoff between cost and the market's perception of quality. When newer, non-toast-burning tech became available, older toasters would be replaced as customers perceived the additional feature to be worth
Re: (Score:2)
Even toasters, a simple machine, have advanced. Used to be that they used a thermometer to trigger the pop-up. This would burn your toast if you only had one slice.
Only in the cheaper ones. The more expensive models used a mechanical (clockwork) timer. That said, the cheap ones that used a thermometer (actually, typically a thermocouple, so they'd give different results depending on the ambient temperature) work just fine and you can work around the problem that you describe by adjusting the brownness slider depending on the amount of bread you're toasting. You should only need to upgrade it if you value the convenience of the newer models more than the cost of buy
News? (Score:2)
This is barely an article. "I suggest that this is bad. I offer no evidence, not even an anecdote. I trust you'll agree."
Sure in some theoretically pristine world, "optimizing" for funding rounds is dumb but its the reality of things. Its not like any company really wants to have "beg for more money" on their milestone chart but few investors will write you a blank check on day one when you have little more than a vaguely-worded business plan so unless you're amazingly lucky or grossly over-estimate you