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Comment by pg | Hacker News Reader

Companies without VC funding also fail. They may fail at a higher rate than companies with VC funding. I wouldn't be surprised if that was the case, because you have to be pretty good at whatever you do to raise a series A round. So even if VCs didn't help the companies they funded at all, the companies they fund might do better than the ones they don't.

Instead of simply assuming that one of two equally plausible alternatives is true, it would be useful if David tried looking at the world and trying to figure out which actually is true. I'm not asking for a scientific study. It would be a start just to find an industry where some participants are VC funded and some aren't, and then look at how they each fared.

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> Companies without VC funding also fail.

Companies without VC funding also don't have to deal with investors pushing to get a big return at the expense of every other part of their business. Maybe not all VCs do this - I suspect that's the reason your responses to this string of 37signals posts seem defensive - but a significant portion of them do.

> Instead of simply assuming that one of two equally plausible alternatives is true, it would be useful if David tried looking at the world and trying to figure out which is actually true.

Honestly, I think you're both painting with a wide brush. He's lumping all VCs together as pump-and-dump investors and you're taking his criticism of that business model as "no one should take VC money."

This is a tough topic, which makes the vague language at play here all the more frustrating. I'm not entirely convinced you two are actually talking about the same things.

While you're right that VC funding (and all of the other resources) can be valuable assets, I've had the end-user experiences he cites often enough to get suspicious any time I see someone taking it.

The source of the vagueness is that David doesn't make any real claims to correlation, let alone causation, between VC funding and the company-level problems he lists -- he just says VC-backed companies might do this, VC-backed companies might do that.

For example, The Talent Acquisition -- if anything, raising VC means you probably won't be a talent acquisition, right? His excuse for including this problem is that your VCs will be the ones to blab to Google about how great you are, at which point they acquire you and shut you down. Huh?

Companies that don't pay their bills, fail. A VC is only needed as a big lump of cash when that rule is broken very early on.

Any group can focus on generating profit from their ability to work well together and deliver to the world something that is truly needed and wanted. A group that pays its bills forward and productively pushes its ability to generate revenues, no matter if consisting of two people or many, many more, has to manage this fact.

VC as an 'injection combustible' is definitely of value in markets, but I propose that the group dynamic as defined by the individuals actively contributing to the survival of the company is too often over-managed before this reality sinks in. An executive team who have worked together to do big things in the past is really, sort of, a step above 'need outside help or else we are toast' levels of competence.

It would be a start just to find an industry where some participants are VC funded and some aren't, and then look at how they each fared.

As appealing as such a question might be in abstract, I think the results would be pretty useless in practice. There's too much diversity, too many variables. Every startup is at rather incommensurable with every other, beyond the basic financial anchors. Every product's success is a highly stochastic combination of team, market conditions, direction of winds, luck, etc.

What would such a study--regardless of "scientific" rigour, which, if desired, may itself may be an unintelligible criterion given the complexity of the question--really tell us?

>It would be a start just to find an industry where some participants are VC funded and some aren't, and then look at how they each fared.

I think that might be a skewed metric. This may be the first time I agree with DHH, but VC funding changes the definition of "fairing well". It all depends on how you want to define success. I personally know a lot of bootstraped companies who have achieved success simply by not having to worry about making enough money to cover this month's payroll. That is clearly not the case with a VC funded startup.

Actual success rates aren't that important - I think the point can be examined more clearly simply by considering things in their true light: there is a big difference between having money you've got and having money someone has lent you. They may both be money, but one is a credit and one is a debt.

Practically, this is the difference between buying a house with cash or buying it with a mortgage. And that's part of DHH's point - the homeowner who buys their house with a mortgage they can pay only if everything goes right is hardly and barely the owner of their house or destiny.

I'd also add that the successful moon-shot companies don't justify the business model in-and-of-themselves either. An overnight success, beholden to investors with short time frames, that gets pushed to an IPO and into the arms of shareholders with an even shorter timeframe . . . not an attractive recipe in my opinion. Companies built slowly, organically, and personally are capable of more longer-term thinking and risk-taking then entities that more resemble a joint-venture between investors and contract workers glued together mostly by their dream of mutual exits. If everyone is thinking of how they are going to leave, the bonds are by definition very weak.

This is not an indictment of VCs per se - moreso of the short-term pressures that dominate when money is at stake and opportunity costs are forever pressing on the gas pedal.

I agree that this post is way over the top. But I don't think it tries to oppose startups with VC funding to any and all startups without VC funding, in general. It's arguing (as usual) that the way to go is bootstrapping, and being profitable from the start.

So in order to refute it, one needs to find out how many startups, that are profitable from the start, end up failing. Probably not many, but I don't know.

Also, for the author(s) of this post, "fail" includes being acquired and then integrated and "sunsetted" — which, depending on your point of view may or may not count as "failure". It's certainly not a failure from the founders' perspective; for the users', it's at least a setback.

They're not even equally plausible if you assume that being a VC suggests any positive amount of skill at picking likely successes from among startups. The "VC is bad for you" point of view suffers significantly under most reasonable assumptions.

Plus, all of these drawbacks apply substantially to unfunded companies, except maybe four. Although, if it were MY money on the line rather than an investor's, I think I'd be MORE careful with it, not less. So the pressure cooker aspect should decrease with VC.

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