Slashdot Mirror
'Fundraising Rounds Are Not Milestones' (ycombinator.com)
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.
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
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...
I remember a conversation with our Columbia MBA founder stating our success was evident in our expanded workforce. No mention we had zero sales--zilch. I miss the good ole days :D
I've always said English was my second language. Had Romeo and Juliet been written in C, I might have understood it.
Don't bother closing the stable door. The horse is almost over the horizon.
Confucius say, "Find worm in apple - bad. Find half a worm - worse."
"Congratulations on your failure to make enough money to run the company, now you have to sell more of it to strangers. Remind me, how much of it do you own now?."
What is this world coming to?
the whole private equity and hedge fund model is built on pre-funding. what a stupid article.
Someone needs to clue the public schools in on this info. Kid comes home every 2 weeks with some new bullshit fundraiser.
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.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
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 scheme, 'getting while the getting's good' is going to be an all-too-common practice.
'The Economy' is a giant Ponzi scheme whose most pitiable suckers are the youngest among us and the yet-unborn.
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?
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
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.
"They were pure niggers." – Noam Chomsky
1. Come up with a sellable idea, 2. Sell it to VC 3. Attract big company 4. Profit If that is your plan then I would say fundraising IS a milestone.
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 if not thousands of small publishers that put out smaller projects that definite greatly from crowd funding. To take another gaming example I'd point at HareBrained Schemes and their Shadowrun and upcoming Battletech title. Both of which were made possible by crowd funding mile stones like this.
this slashdot post just feels more like a statement than an actual article.
But I appreciate there is something to dicsuss
>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
When people can say things like that with a straight face and IPOs are for billions something's very very broken.
"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/
Go Corp: https://en.wikipedia.org/wiki/GO_Corp.
Here's the dynamic:
Hundreds of millions of people have money they have no immediate use for, and want to put that money some place where they can get the most out of it when they do need it.
Millions of people, representing the financial community at large, offer services that promise return on that investment, very often masked behind layers of advertising and 'selective' statistics. They compete with eachother to convince people to hand over their investment money. Many seal the deal just by promising to sort out the confusion of the market for them.
Hundreds of millions of others have companies of varying sizes that promise small returns over time for capitol in their business. Most of the small ones fail, and most of the big ones exploit all the loopholes in market rules they can get away with, or else get out-competed/purchased.
From the point of view of this system, complexity is a distraction. Money flow is the only important detail to this mindset.
And the global giant pool of money is always hungry for lies it can sell to keep the money flowing.
That all the last major startup success stories have involved data analytics companies and none of them "make what people want." They make was "businesses need." B2B is the where all the venture funding is going now. Consumer focused ventures are out of vogue right now "in the community."
And I don't know what "measurable milestones" are since I don't understand how half these business models are supposed to work. For example I don't understand how AppDynamics could be worth $3.7 billion dollars (that's what Cisco just paid) when all it does is sell software performance management software that any enterprise with a well run IT department would or at least should just code in-house for less money.... Like I understand UBS is a client but UBS has 10,000 in-house developers. Shouldn't 10 of them be able to code an in-house PM solution and save the company the X million dollars a year it will pay AppDynamics? Maybe a mid-size entity with 200 people would need to my PM software but a megacorp? And the stuff is so expensive no 200 man operation can afford it anyway. It's $50k per module. Who the hell is buying this stuff?
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.
"deemphasizing investment rounds"
"making something people want"
"creating lasting value"
"sustainable businesses"
Sounds like Communism to me.
Slashdot probably has plenty of Stanford MBA students who are working hard on their new app that will generate $1B+ in revenue per year.
>> 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).
Yeah, article/summary is retarded. Typical of the lack-of-thought process that goes around on SlashDead these days.
Start-ups are high risk ventures. Any prudent investor would not give "all the money" at once. You mitigate your risks by time segmenting your capital injections. That way, if it's going to flop, it flops. If someone is going to run away with the money, he gets a lot less. And the spendthrift start-up type gets only what they actually need.
Power of the purse. Look it up, millenials!
If the prevalent adaptation is towards showmanship, it must mean there is a symbiotic relationship with investors who lap it up. As much as I agree there should be higher values to making a buck, evolution is not so kind.
Hey, little crying bitch, how does it feel in Canada where there is no Trump.
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.
This is the most sensible thing to come out of the valley since the Z80.
Look, if someone wants my money showing me a 'fancy demo' of some idea they have may be 'cool' but I want to know how they'll create monetary value & WHEN so I know when I'll start receiving money back on my investment. If a VC or wealthy investor isn't doing such due diligence that's their fault...heck they do this fast & simply on Shark Tank & those people are NOT idiots.
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 your initial needs and still manage to talk someone into giving you that amount of money, chances are you don't have a choice.
And guess what.. that's perfectly fine. If a business can operate and succeed in that environment then power to them. If they can't then they go away and make room for the next entrepreneur. Yes there may be the odd business that crumbles specifically because of this model, but there are countless businesses that wouldn't be able to get funding, and thus wouldn't exist at all, without it.
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 had I gone for more market share earlier, development costs would have further discouraged competition. I missed out on at least a million dollars by growing slowly.