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Comment by manmal | Hacker News Reader

Once you have investors, they want their money to grow, and this is not possible by staying small. We have invested in a startup we work with, and given the high risk of failure, I would not be happy with a meager growth rate of <10% per year. At that rate, my money is safer in the bank or some kind of low risk portfolio. If you have an 80% chance of losing the money, then you better expect at least a x5 return rate when selling your shares.

I'm a big fan of bootstrapping myself, and it's the best model IFF you can get by without investors. If you, like SoundCloud, have a product that does not break-even, then you will need investors, period. Of course you could say - well, just don't make a product that nobody pays for; but obviously there is a market for such products, on the investor side.

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Staying small != don't grow business. I would never hire crazy so people in the startup can imagine spinning up new projects new microservice new crazy revolutionary database/big data/ new KV store/new cache layer out of curiosity.

Till one point, when the business is so big, growing engineering team to over 100 is inevitable. But plently of really successful tech companies did not overgrow their team size for a number of years. E.g Facebook.

Human captial spent is actually the most expensive even comparing space rental if you add up salary, bonus, and benefits. I also will not recommend startups in their early stage (or even until they can break-even for a long time) to flu candidates over. There is really no reason to fly people over until you want to hire that person. Flying and hotel adds up big time too. Google can offer this because spending a couple millions doesn't matter to them.

> But plently of really successful tech companies did not overgrow their team size for a number of years. E.g Facebook.

A much better example is WhatsUp with 55 employees at the time of aquisition.

Or Instagram - they had 13 employees when they were acquired.

Yes, but you could argue that WhatsUp is even more impressive because it can be considered much latter stage and aquisition value also reflects that being 19x more than Instagram.

The issue is that the investment market seems to be partially built on selling the idea that you're doing something so new and different that you need all these fancy architectures and hundreds of developers. If you don't sell that idea, you're just another CRUD company so why should anyone invest?

Look at all of the really successful tech companies out there, they startrd with tools already available. I see this too often. Everyone has nice ideas and wanted to write something better because they don't like the interface or they had to hack around (look at you Jenkins). We are all guilty of that. But if you hire people and they begin to create new fancy architecture that doesn't pay off, trust me, that money went to waste. This is not even a math problem.

Again, find a company out there did not create their infratructure with common solutions and only begin to develop custom solution when they afford and they really needed it. Several years later.

If you don't break-even, how are you going to employ even two people without an investor? Where does the money come from?

In case it was not clear, I was talking from getting VC money, meaning you already have some cash to run for some months.

Why would a VC want to see their money burn to the ground if all they see is hiring 200 people when you really just 100 people?

don't ignore the lack business acumen of some VCs.

Mostly because they just look at number of users and hope someone will buy the company at a users multiplier valuation and nothing else?

headcount is a relevant metric to justify higher valuation when you are unsophisticated investor that probably never built a Tech-Startup yourself.

"the guys I invested in are killing it they just doubled the headcount" VC pitching LP's for new fund.

The irony is that the maths stays the same for a more modest 1.2x if you can get 80% of your investments to pay off.

...but when you have an 80% loss rate, you have to play the game more than a hundred times to reliably make your money back.

...but I doubt you're investing in hundreds of companies; which means, you're probably walking away with nothing.

Remeber, those numbers only work at scale; in small numbers 80% failure for 5x return = you get nothing. Just like the soundcloud investors will.

The x5 return takes partial responsibility for the 80% failure. These foolish business pivots trashes the brand. If there's only one high-return idea in the room and it's clearly hazardous and unlikely to work - there should be no obligation to take it; an investor didn't drop millions to be squandered foolishly.

VC is an entertainment industry. It's about the drama and the excitement.

The entire industry is an RPG played with real people and real money.

Sometimes returns happen, but in many cases they seem to as much by accident as careful design.

At those insane risk rates (at least for early rounds), it better be as exciting as going to a casino. Nobody in their right mind would provide seed funding with anything but gambling in mind. [Except for those who want to change the world by supporting an idea, of course.]

Having a reason to do a foolish thing doesn't make it reasonable, especially when the reason is also foolish.

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