Yeah, so don't go public. Problem solved.
Or, game the system. Zuck owns a majority stake in FB despite it being a "public" company, he can't get fired.
Or, game the system. Zuck owns a majority stake in FB despite it being a "public" company, he can't get fired.
In two ways.
First, don't allow dilution to push you + any co-founders below majority. If you focus on building a profitable business, and you're not trying to be the next Uber, this is extremely doable. Ellison at Oracle, Gates + Allen at Microsoft, and Omidyar + Skoll at eBay were able to basically do this; Bezos & Family were also roughly able to accomplish this leading up to Amazon going public (his family still owns nearly 20%).
Second, use the Page-Brin voting shares control approach. Most investors will not like this, don't take their money. Find investors that sync with your vision for the company.
I took on a well known investor, and gave up a modest corner of my business. I retain majority, and will continue to indefinitely. The key is to be able to grow your business into the second or third inning with that first investment, then strictly control dilution thereafter. For example I could do two rounds of 15% dilution from here, and the investors would still not have majority control.
If your business needs to bleed large amounts of red ink, then you're going to put yourself into a corner accordingly. There probably is no good outcome unless you happen to be among the tiny number of companies that make it out of that start alive. For everyone else, you always have a choice.
if the startup has big traction, they have it..
if they are seeking better traction then the VC's have it...
The ones who really like the "go big" stuff, even if they can't do it (see product owner problem)
The first timers who really need the money.
The rest bootstraps. Especially those who made good money on their first gig.
Software is so easy to get started that if it can't bootstrap from a bare minimum product, maybe the idea isn't that great as a business.
On top of that, I think there's a bit of circular logic and wishful thinking involved in getting VC money. It encourages companies to spend more money than they need to on things like scaling and fancy design and excessive marketing, because they need to scale to meet VC expectations.
The VC model was essential for the hardware oriented companies that pioneered it because they needed a lot of equipment and capital to build chips and computers. There's so little capital cost with software nowadays, I don't know why VC still persists.
That said, a lot of the money goes to marketing. Google AdAwords and low-touch web-based marketing doesn't work for all kinds of products; in an esoteric business market niche, the cost of customer acquisition is rather high, as trade shows, conferences and personal connections matter a lot more.
There is an entire eco-system of startups outside the little typically SV/VC bubble where everyone is in it to disrupt everything and win big, there are tons of small companies growing at reasonable levels that will never be the next google or facebook. There's nothing wrong with a "mere" multi-million dollar company.
The side that has the leverage is going to get the best terms. Normally that's the VC. (Liquidation preference, your first born, board seats, etc.)
Should founders just take less investment if their initial product isn't wildly popular? Tho burning VC money to do market exploration (and failing) doesn't sound too bad (isn't that what it's for? :)
Don't have the leverage or don't have the luck?
I'd love to see more nascent startups follow the GitHub path, and seek product-market fit before attracting investment.
Aaron puts on his speculation hat
GitHub didn't need VC funding. They were incredibly profitable from selling their enterprise product, and took funding because one or more of the following were true:
1. The founders wanted liquidity. Like, buying a Gulfstream or three liquidity.
2. The founders were getting bored and wanted to put the 'fuck you, we IPO'd' notch in their collective belt.
3. Early employees with equity were getting restless about their lack of liquidity and threatening to quit unless they got theirs.
When GitHub started, they were a developer tools company, and the common wisdom was that developer tools have very little lock-in, there's room for multiple players in the space, etc. Sometime at just over a million users, that assumption ceased to be true; you now get companies that host on GitHub because all their prospective employees are familiar with it, and users that sign up for GitHub because their employers use it. With that network effect, it makes sense to grow as quickly as possible to exploit the network effect, and if they didn't take VC, they'd risk some other startup doing that.
It's not just GitHub: pretty much everyone in the developer tools market started taking VC right around then. StackOverflow in 2010; Atlassian in 2011; GitHub in 2012. In Atlassian's case, they were founded in 2002 and didn't take VC until much later. Also, developer-oriented startups started getting funded, eg. Parse, Meteor, Codecademy & other bootcamps.