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Comment by jorgem | Hacker News Reader

In an age when anyone can do a startup, the word "startup" here on YC has somehow been distorted to mean "small software business that was started in the last two years on a shoe string budget."

I think the VC should instead concentrate on businesses where their investment can make a real difference: Business plans that require a factory, or expensive custom hardware, thousands of servers, gigantic customer education, etc.

I know it's heresy on YC, but real VC's shouldn't be involved in companies where only $20k is required to start the business. Founders are taking the VC for a ride when they convince them to fund extravagant startups that should be started without big investment.

VC investors, if they still have cash, need to think bigger. They're not needed for software startups.

The amount of funding required to start a business is one of the best barriers to entry, and the VC should exploit that.

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Real VCs shouldn't invest in Google?

VCs should choose their investments by the expected return, not the amount of money they require.

Do you seriously mean to suggest that Google got to profitability on 20k?

They got to profitability on angel money. They were already profitable when they raised money from VCs. I don't know exactly how much angel money it took. Probably a couple hundred thousand. Costs have decreased so much since then that it's reasonable to think one could do the equivalent for $20k today, if one had to. But whether it would take $20k or $100k, the point is that the amount needed would be way below the typical series A deal size of $1-3 million. An order of magnitude less. Which means this is a company where VC-scale investment isn't required to win.

According to their SEC filings, Google turned a profit for the first time in 2001. Their first funding ($100k) came in 1998. They then secured $25m in 1999.

AdWords was not launched until 2000 so it wasn't possible they were turning a profit before then.

They were profitable from their deals to supply search technology to Yahoo, etc. If they didn't call themselves profitable in their SEC filings, it was presumably because of some accounting rule about the cost of options or something like that.

Do you have any source for this? First time I've heard of it.

I heard it from someone directly involved.

Yeah, I'd like to see a source for this too. I recall there being a big flap about how much money they were burning back in 2000/2001 with no possibility of revenue (hah).

In fact, IIRC it was Google's success at doing the "Get users first and profit will come" that made it fashionable among Web 2.0 startups. The idea was pretty disreputable after hundreds of Web 1.0 startups tried it and flamed out spectacularly.

I get the impression that Google cares so little about haters that they don't even bother to correct them. If someone claims they're doing something immoral, then they'll respond, because they don't want people to have a bad opinion of their character. But if someone says they're stupid or won't make money, their attitude seems to be that the appropriate punishment is to remain benighted.

It is possible they were profitable for a time, then stopped being so as they hired more, etc. I've seen it happen at a couple of startups.

Maybe there's ground in the middle that looks something like this: VCs have a stronger bargaining position in capital intensive startups than in software. Stronger bargaining leads to more power to direct the returns to their pockets rather than the founders'. So the model is VCs maximize their after-costs (founders and otherwise) rate of return which is likely to be higher in non-software ceteris paribus.

However all is not equal, the extraordinary returns in recent memory have come from the web, and so venture capital firms will likely still be putting their thumb in the pie, even if it means cashing out to founders, letting them be CEO, giving them smaller rounds, etc. for software start-ups.

No, Google is the perfect investment for VC. Most founders (or anyone for that matter) can't afford the huge data centers that Google needs.

That server farm costs a lot, and therefore the required investment is a huge barrier to entry.

That business model is perfect for VCs, and that is where they should focus.

The server infrastructure they have now costs a lot, but they've paid for that entirely by themselves.

When they became the default search on Netscape, they had 30 computers.

I thought that was Excite? I don't recall Google becoming the default search on Netscape until FireFox. I remember that when all my friends first started telling me to use Google (1999/2000, well after they had 30 computers), we still had to type in www.google.com to get there. And I was a die-hard Netscape fan then.

Edit: Never mind, they switched over to Google in July 1999 (http://searchenginewatch.com/2167331), when it was quite possible that they still had 30 computers.

The idea that VC's shouldn't be involved in companies that only require $20K to start is fairly popular here on HackerNews. Just ask the TicketStumblers, or the VirtualMins.

It seems more popular to think of VC as working capital here: start the company on $20K, prove that it works, then take VC money to scale. Hell, that's the whole YCombinator model.

We've actually had a fair amount of help from VCs...it just hasn't been in the form of money :).

...and you didn't have to give up equity for the help, right?

Correct.

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