> While there are plenty of VC horror stories, there are fairytales as well.
What's the ratio, though??? 10/1? 20/1? 50/1?
What's the ratio, though??? 10/1? 20/1? 50/1?
It's not for everyone, but eastdakota is right that it's not for nobody.
I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.
They’re looking for a 10+% return on the entire portfolio.
I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.
Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested.
What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.
But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works.
And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well.
As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room.
I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.
The incentives are highly not aligned.
If you do not understand that, you'd be disappointed. If you do understand that, you'll see where your agent is coming from.
Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool.
THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome.
Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.
So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.
Indeed, you may feel like you are learning quite a bit. But that will generally be lessons that the vc investors want you to learn.
Your statements imply that there are lessons to be learned that can only be facilitated by the kind of money that vc investors offer. But your own company (Cloudflare) makes cloud technology more affordable and partially weakens the rationale for getting vc investments.
When you have a soft money bed to land on, you will be less incentivized to search for a broad range of knowledge. Arguably, you will be learning less as a result of this money safety net.
You will be operating under the vc cog thinking that you are learning significantly both quantitatively and qualitatively. As the vc cog wheel continues to churn, you have the illusion of epistemic progress.
We talked to our investors generally four times a year at Board meetings. We had a rule that no sentence we said in those meetings could end with a question mark. We recognized that we were the experts in our business. We used those checkins as opportunities to confirm ourselves that we were making progress. We focused on building great products for our customers and chose the KPIs to report based on measuring that. And we leveraged our success to meet thousands of people we’d never have had access to and try and learn from them all.
One thing that I think is natural if you have professional investors but is important to find way to create even if you’re bootstrapped: the regularly scheduled check-in. The most valuable part of a Board meeting isn’t the meeting itself. It’s the preparation for that meeting which forces you to assess how things are going.
Our trick was to pick 5 KPIs that indicated the true health of the business and track them relentlessly. The first 12 pages of our Board meeting presentation was exactly the same every time other than the numbers being updated. We picked the the metrics. We didn’t ask for our VCs input. But then we relentlessly stuck with them, quarter after quarter. It made preparing for Board meetings easy: just update the stats and prepare to talk about whatever is anomalous (good or bad). And the consistency built confidence from our investors. I remember one saying: “Cloudflare Board meetings are great: I know exactly how things are going by slide 4 of the presentation.”
No VC taught us that. We learned it by being curious, talking to other entrepreneurs, and experimenting ourselves. You can do the same if you’re bootstrapped, you just have to be more self-directed to create some cadence to check in with your business and keep yourself honest.
PS - sadly, there’s no Illuminati running the world either. “Sadly” because it’d certainly be comforting to think someone was in control and it’s scary to meet the people who supposedly are and realize they’re just making it up as they go along too.
But curiosity is not limitless. It is a function of time. And it would be disingenuous to completely refute the fact that a vc frame of reference will affect curiosity - perhaps even in an adverse manner that can reduce innovation.
Let's get practical and technical with a Cloudflare example. Arguably, there would be no Cloudflare without the ability to change nameservers from domain registrars. You spotted some network slack with the ability of people to easily move to Cloudflare with a relatively simple nameserver change.
That was innovative and surely a result of your curiosity. That allowed you to then build upon that traction and offer a wider range of cloud services.
However, Cloudflare itself eventually became a domain registrar. In the terms of service, Cloudflare blocks all nameserver changes for domains registered with Cloudflare - the very option that allowed Cloudflare to emerge in the first place.
There is no justifiable technical reason for this. It is essentially a political decision borne out of a vc frame of reference. Perhaps the political justification is : Let's lock in people that registered domains with us on Cloudflare. So, they will will be forced to use Cloudflare services.
Arguably, this is a violation of ICANN guidelines that allowed you to obtain your domain registrar license. The block is essentially pointless. Most people interested in nameserver changes for Cloudflare registered domains just want to coordinate across multiple Cloudflare accounts. Multiple questions have been posted in Cloudflare community forums for years. Yet, nothing gets done about it.[1]
The fundamental point is that curiosity led you to use nameserver changes to get some traction. As the vc frame of reference gained more importance over the years, it blocked your curiosity by nudging you to block nameserver changes.
You are undoubtedly still curious. But that curiosity time is spent on board meeting formats and and how to optimise slide presentations - instead of realizing that some curiosity doors that allowed the existence of Cloudflare in the first place are getting closed. Ramifications of that attitude and mindset going forward are overlooked.
So yes, curiosity is good. But, there is no inherent primacy of curiosity under vc versus outside vc. Highly curious people tend to be self directed in any context. If anything, the direction provided by vc can limit curiosity and be ultimately self defeating.
[1] https://community.cloudflare.com/t/unable-to-change-cloudfla... https://community.cloudflare.com/t/still-no-way-to-transfer-... https://community.cloudflare.com/t/how-can-i-change-nameserv...
It actually builds a worse internet. One that is closed to the exchange of information and services. One in which Cloudflare, an entity that allegedly helps build a better internet, would not even exist.
You know full well, that if all domain registrars had prevented nameserver changes to Cloudflare, that Cloudflare would not exist. In this context, you could forgive a skeptic for suggesting that "building a better internet" is just empty corporate speak.
Let's now consider the business case for domain registration. You mention that it is at cost as far as ICANN fees and registry fees are concerned. But you incur payment processing fees and customer support fees that would place an undue business burden that would generate a loss.
For payment processing fees, let's assume one to two percent. Cloudflare domain registration for the dot com registry including ICANN fee currently stands at $9.15.
One percent is $0.0915 or let's just say a dime. Two percent is $0.183 or let's just say a quarter. Registrants would surely not mind paying an extra dime or quarter to cover payment processing costs. Heck, you could just round it up to an even $10.
If your intention is indeed lead generation for your other services, it would actually make even more business sense to have this slightly higher price as a lead qualifier. Do you think a potential customer that is price sensitive for a few cents on domain registration is likely to purchase your other services?
As for customer support, if the user changes the nameservers to another provider, by definition, that user will have to get support for dns records and all other issues from that provider. In other words, there would not be much custom to support.
So, if payment processing and customer support are your key arguments against blocking nameserver changes, respectfully, they are tangential and inconsequential. If there are some more relevant and consequential arguments for blocking nameserver changes, out of curiosity, please share those with us. Thanks.
If I give up on this, I'm not sure I'd want to do it again. I don't know what I'd do differently. Building an app and all the non-programming junk that goes into running a business is just a lot. I could rise the corporate ladder. I'd be fine but never rich.
First class, meh. I could afford it if it was something I wanted to spend money on, but it feels pointless.
Isn't what you described as The Slog essentially just SMEs? That's not so bad. Perpetual meteoric growth for everyone is not healthy on a macro level. Couple of friends of mine are in what you describe as the worst outcome, yet they can buy houses and put their kids through schools (outside the US).
There's a middle layer of B2B that props up the economy in a more fragmented manner, and I don't think they should be dunked on.
Basically, issues happen when you take VC money but don't end up going the growth startup path. Buffer had the same problem, but they managed to earn enough money to buy their investors out.
About the same as the ratio of successes to failures in a VC portfolio.