If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire. Even at 250k a year, you have an asset that could change your financial life for good.
If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.
I'm a business owner currently doing what the parent says to do, and the parent is exactly correct.
I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now).
But if I took money, the investors would clamor for more, and the stress would probably kill me.
You also took a bigger risk, either in your own money to support your product to profitability or in missed opportunity from a steady pay check (although the latter is also true to varying extents in VC backed companies)
Although I am curious _how much_ risk did you take, could you elaborate?
My wife is the breadwinner right now, so no missed opportunity from a steady paycheck. It did take me longer to get to this point, though (about three years once I got serious).
I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts.
Beyond that, less than 5 digits for two beefy computers over that time and longer.
> My wife is the breadwinner right now, so no missed opportunity from a steady paycheck.
The missed opportunity is your second income, the one you could have working for someone else, they didn't mean 'your household does not have a steady paycheck'.
There's a certain point where more income has diminishing returns, especially if it means someone in the household is putting off their dreams of entrepreneurship.
Most people who become entrepreneurs have this itch/calling, where they simply CAN'T do anything else (for long). Ignoring the call means living an unfulfilled life.
So missed opportunity of 3 years after tax for a programmer is probably somewhere above $100,000 and below $1,000,000. Possibly a little above $1,000,000 if your missed opportunity is at a FAANG in Some Higher Level title.
You could probably get a more concrete number by multiplying your previous comp by 1.5~2x or something.
I peeked at your website and your profile. I’m not surprised you struggle to get jobs… Do you realize these profiles will turn up when recruiters and hiring managers google your name? You’re basically telling them two things when they skim it.
First, on this forum, your headline says, my work isn’t a priority in my life, it’s behind church. Church is about as popular as Congress in this industry. There’s a very funny HBO Silicon Valley bit about coming out to your gay dad as a Christian, that’s a little too close to reality for comfort (like that whole series).
Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.” Is that the message you’re trying to send? Mate, never mind getting jobs, you’re not even making it past the HR screen with such sloppy social media hygiene.
Have you ever heard the phrase “hide your power level?” That doesn’t even really apply here, actually. You don’t have to hide your faith or your politics. Just don’t make it your introduction. First impressions matter, a lot.
So no, it’s not that you couldn’t have had a job. You’re just choosing to have an extremely unprofessional online presence, and that has consequences.
Am I being unfair, biased, uncharitable, judgmental? Sure, probably. I don’t know you, and I didn’t look very hard. But do you really think the average employer or customer is any better than me?
> Am I being unfair, biased, uncharitable, judgmental?
Yes, you are.
> But do you really think the average employer or customer is any better than me?
In my area, yes. My area has more people that would not see my profile as a problem. I'm not in Silicon Valley.
And if I'm not hired because I won't put work first, good.
> Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.”
You read that wrong. I am saying that I use those words in writing my blog posts, something that would have been normal 10-20 years ago. If that's a gender discrimination lawsuit, well, I just don't belong in this world anyway.
Yes, but these licenses have far more protection for me than regular licenses.
I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.)
1. (at least some of) the links from the FAQ entries to license texts appear to be broken due (presumably) to a change/transformation from `<filename>.md` to directory path.
2. It might be helpful to more clearly identify the text differences between the multiple licenses and/or at least the FAQs to enable skipping duplicated commentary when reading.
1. Yes, sorry. In the process of fixing those as the licenses are finalized.
2. That's a good idea, but I can't do that in the actual license documents since I need to keep the actual licenses clean from non-license materials. Do you have any good ideas how to do that?
Good luck, but I don't know many business owners who have a great work/life balance. I don't think it ever gets easier really. It's like writing software. It's never "complete". 500k revenue doesn't leave a lot of room for outsourcing work
>500k revenue doesn't leave a lot of room for outsourcing work
If you keep your business small, there's not much need to outsource work. In software circles, it's easy to think you can just keep getting bigger and bigger and bigger, because it's so easy to scale, but if you keep things small, a business really only needs to make enough money to keep the person running it fed and comfortable enough that they can do the work they enjoy.
The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
>The key for me is to reduce tech debt before I release.
Also an indie founder, and I've had the opposite experience.
Early on, I focused a lot on elegant code that would minimize my maintenance burden long-term. Then I read Rob Walling's book, Start Small, Stay Small,[0] and he talked about how programmers are typically afraid of ever taking on tech debt because they've been in orgs that don't allow them to ever pay down tech debt. As an indie founder, you can pay down tech debt whenever you want.
I've found it more useful to accrue tech debt early on in a new project or feature because it's likely that the product will fail or that I won't end up having to touch the feature for years.
Every time I have to work on code that has tech debt, I pay down the tech debt a bit, so eventually the parts of my codebase that see the most change are the most flexible and maintainable. But a lot of my code has tech debt in ways that don't matter because the product flopped or I never ended up having to extend the feature beyond the initial implementation.
Solo bootstrapped SaaS founder here. I accrue a lot of tech debt, because (as others have pointed out) I can pay it back whenever I want.
That said, I often spend a lot of time and effort building generalized solutions, because these act as leverage down the road. So, while I might cut corners on many things initially, I will often invest a ton of effort into polishing a thing, if that thing can be reused all over the app and make everything work much better.
If that's unclear, here's an example: users need to configure columns in a table in my app. I could provide preferences for configuring that table (quick), or spend a month writing a general-purpose table configuration system that will allow all tables to be configurable. I will choose the latter.
Tech is one part and you're right that having a manic focus on tech debt will alleviate maintenance. But from my experience the most time consuming stuff is really customer service. Depending on what your product is, it'll likely not be 100% self serve. If it's expensive and not a lot of customers then they'll expect a lot. If it's cheap and a lot of customers then there will be a lot of people to service.
You can outsource some of this stuff depending on how technical the product is. But realistically your time will be spent talking to customers and coding, about 50/50. Even if you get coding down to half it's still a lot of work. And managing customers is a lot more mentally draining.
That's all to say that a 9-5 is not that bad in terms of work life. You can always sign off and kick things up to senior people. You generally do things youre good at, so you won't be expected to do customer service, accounting, marketing, sales or a million other things you gotta take on as an independent business
Having run a bootstrapped-SaaS, I can say that it's 100% correct that customer service is the dominant term, time wise. More importantly, it's often the only commitment that has urgency (updating the site or the app can usually wait a day or a week).
That said, in my experience customer support was usually tied to new accounts. They need a bunch of support at the beginning. But once they get going, you essentially never get support tickets as long as the app continues to function. We literally had customers go 5+ years without ever filing a support ticket.
Once we realized customers do not really want to engage you & would rather self-serve, we invested more in documentation, simplifying UX, etc. Huge benefits to our time commitments for new accounts. I have seen others reduce time investment by having office hours where any customer can join and ask any question. The founder spends an hour or 3 a week and is able to help N customers, and customers are able to help each other as well.
Honestly we did not focus too much on tech debt because most of the things we considered tech debt ultimately did not impact the operation of the business.
"The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff."
This seems like everyone's dream and nobody's reality. Good luck.
Thank you! But I've already done it. I have been constantly refactoring over the three years I've been working on it. My tech debt is minimal at this moment.
Yes, but my point is that as you continue to code you are likely to encounter more tech debt, especially as you get more customers and as you need to make dependency version upgrades to address security vulnerabilities. A world without tech debt is a dream.
This is otherwise known as a "lifestyle business". It's the north star for most people and should be but it's not easy.
If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral.
If we're speaking of a true SaaS model. It can work. But there's "gotchas".
I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!".
It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created.
I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead.
The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K.
Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue.
But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything.
So there is a law of diminishing returns with this sort of business strategy.
It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service.
But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds.
Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+
Just don't be surprised when you feel like you've succeeded but feel like you're failing.
Very good thoughts and observations here. As a solo founder of a SaaS, I'd add:
* $200K of income from $500K of revenue sounds low. There are places which have SaaS-friendly taxation, I'm lucky to live in one (EU, Poland) and 75% net margin for the entire business is easy to achieve. An 8.5% tax on revenue is a really good proposition :-)
* Support is key. I care a lot about support (I do it myself). It can easily get out of hand and become a chore, but that means something is wrong: if you listen to your customers carefully, you should be changing your SaaS so that less support is needed. I'm thinking about this a lot.
* We're talking B2B SaaS here: I also believe it is better to have more customers at lower price points rather than a few big ones. Big ones are difficult to get, and often have bizarre requirements. If you cater to them, you will alienate your other users. But there is a sweet point somewhere: you do not want to go too low, or you'll get customers that have very little money. These not only churn more often, they also often cause support issues. The sweet spot is somewhere in the middle.
- US based business, Boston. Taxes are higher, rent is higher (when you needed rent). Salaries are higher (if you want good people). As the founder, I wanted my company to have great benefits and healthcare. That cost (and I'm not kidding here) reduced our revenue considerably. This is why I'm a huge fan of a single payer option in the US that takes healthcare off corporations.
- B2B business with SMB's, average customer ARR was about $3K. E-commerce integration product, so it was a bit of a lift on the technical side with many nuances between integrations.
- Support ended up being about 75% of our labor costs.
Yes, benefits and healthcare are important. Did I mention that these tax rates and margins I listed also cover full healthcare costs (state-provided health insurance)?
Anyway. My point was to show that costs can vary wildly across countries, and I was surprised to see how low the net margin can end up in the US.
I am giving away my code as FOSS, so I'm doing the following, in this order:
1. Charging for bug reports or feature requests.
2. Support. (And I have great examples of public support as marketing.)
3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].)
4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.)
And that will only be for companies. For individuals and their personal projects, I'll respond when I have time, for free, for bug reports. (Not feature requests, obviously.) This is to build a clientele of people that might bring my software into their work. And it will reduce bugs.
Sorry to pry, but "will"? Does that mean the business model is yet to be validated? Not pushing back just curious - if it's worked out for you I'd be interested in hearing more, because it sounds like a business model I could adopt for a FOSS project I'm working on.
It depends on what companies have interest in. Below is a list of the ideas I have.
* A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months.
* A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
I’m definitely interested in the build system / package manager. I have (idly, in a daydreaming sort of way) considered building something like it myself.
I tried to get into Nix recently, but found it difficult to accommodate my workflows within its uncompromising nature. My goal was to set up a reproducible development environment, where anyone at my company could easily get set up to work on our code with a single (or concise set of) action(s). I also tried to use home-manager, which I have heard might have been a mistake.
Anyway, Nix is really only designed to manage the entire world. I wasn’t able to use Nix to build a development environment where other developers and I could work inside of it using our existing tools and workflows, including other package managers that want to mutate things — it seemed that Nix was all-or-nothing. This was too disruptive and a large barrier to adoption for me.
I would love a tool designed for reproducible builds and development environments that can compromise, and do as much as possible immutably while allowing for local mutation on top. That can be a package manager, but also make it easy to use existing package managers too — with the understanding that these other package managers are typically also able to reliably reproduce a build, within their own mutable state. It’s OK if this potentially needs to mutate “the system” in the process to try to reach a goal state (e.g. installing system-wide package managers, xcode, etc.)
Nix really did not seem to be designed to allow me to use other package managers inside it like npm or cargo. It has some support for directly vending packages from those via Nix itself, but that’s not what I want right now; it’s too disruptive to my workflow. We already have all of the build reproduceability that we need via those package managers and via a container based build process. Still, a fair number of development and operational tools are required to develop the software, and I would really have liked a one-click way to set up a development environment that doesn’t require a container (which is not native on Windows or MacOS).
(I admit that it is possible that this idea fundamentally could not work for technical reasons, but it seems plausible that it could.)
Another challenge that I had was with the complexity of the Nix config and file format. It’s basically a programming language, and there isn’t always one right way to do something. That made it considerably more complicated to solve tasks that would be just a single line command if I was using e.g. Homebrew to solve the same goal (brew install xyz).
From a user experience perspective, I would like a tool that provides a simple command line porcelain for mutating the state of the environment, while tracking it immutably under the scenes, so that it’s reproducible. For example, “cmd install foo” should add the “foo” package to my environment (and rebuild it). So at the end I have a declarative description of my environment contents, but I can build that configuration using a sequence of familiar install commands.
I admire what Nix is trying to do, and see a lot of merit to the approach for defining an entire machine’s state immutably. For managing and defining the state of servers, it seems like a great idea. However, the cost to adopt it seems high, and the value would probably be marginal in our case, since we don’t need to manage servers to deploy software (instead deploying only containers); and since existing package managers provide a way to build those containers reproducibly. But containers aren't ideal for defining the tooling used by an interactive local development environment.
Before your comment, my design could not do that. After your comment, I'll make sure it will.
As a build system, it can incorporate other build systems and run them natively. It only makes sense that it should do that for package managers as a package manager. So as long as you understand that most other build systems give you opaque binaries, I can make that happen.
But on the other hand, I think I can make your mutable environment idea work and cross-platform to. My design will require that the environments all be on the same disk because it will use hard links and a SQLite database, but those work on any platform.
But anyway, I also think I could set up mutable environments such that, as long as you only modify it through my tool, it could record those modifications and generate a file to recreate that environment elsewhere. That sounds like Nix, but again, my tool will use other build systems and package managers.
With Fossil I pull in the full issue tracker and forum and have it stored locally, if I'm offline I can then make my changes, comments etc. and when I'm online it all syncs.
This general concept is what I wish I’d see more of: it’s okay not to grow.
When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.
I'd argue that if you're running a internet based company you do need some growth regardless of what you've raised or not raised. Someone is always trying to cut into your business and if you sit back and ignore everything growth related you will eventually be in a worse position.(Besides competition you do also have other things to consider like every year employees need raises, etc).
What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.
There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs.
The business needs axis is continuous:
- Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves).
- Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example.
- Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping.
If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is.
Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation.
Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.
I'm fairly certain most independently run american crop farms require many multiples of that in capital for around that much revenue if not less and NEED to exist. Of course they aren't good candidates for venture investment capital. But saying they shouldn't exist is probably a bit too far.
You're right, and there's other things like restaurants that require capital and have a cap on earnings.
I should have phrased it as venture capital, which is structured to look for unicorns.
There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.
I see this said here all the time, but why are obligated to do so? If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?
This presumes open and direct confrontation, which means the relationship is going bad, and which I’d speculate most people would rather avoid. You’re forgetting a bunch of things, like what the investment terms might say about it, what your reputation is going to be down the road, all the ways people can apply lots and lots of pressure, how important networking can be, and the fact that in some cases the investor is providing other resources and/or might be the gateway to future investment. Getting to a place where you’re openly ignoring your investors and calling for a board vote to overturn them is a last resort, and is playing Russian roulette, not the first thing to try if there’s disagreement about their advice, right?
It doesn't require selling 50%. You can sell less than 50% of your company and still have the board majority controlled by investors, because those were the terms of the preferred investment.
If I'm not mistaken, YC takes a 7% at the seed stage, then the SAFE bumps it to around 15-20% on the next fundraise? From that, they're diluted down in subsequent rounds is what I presume.
Board control and share control are two different and competing things, with the board generally trumping shareholders.
The board is not controlled by shareholders. The board has a fiduciary responsibility to act in the best financial interest of the shareholders as a whole. But they (the board) essentially have full authority to decide what that means to them. Shareholders are effectively powerless outside of court, except for whatever power a board intentionally briefly concedes to them.
I've seen it happen, with a seed round dragged out over years in multiple tranches. The company was poorly performing, never even came close to its projections, ran out of money, and was desperate.
It's definitely possible. Example: gumroad. I don't know the whole story, but basically at one point they couldn't raise more VC money, so they scaled down (read: fire people) and made it at least moderately profitable.
> If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?
Disputes with investors about the direction of the company are rare. Disputes about how exactly to aim that direction happen often. In my own experience, VCs and large investors have this leverage:
* Future investment. A major investor pulling back or not participating in the next round usually will result in worse terms, lower valuations or, the round not happening.
* Legal issues. Investments come with terms and conditions, and they are rarely, here's $5m, do what you want.
* Restructuring. From time to time, you need to have investors be on board with restructuring debt or the company. If you are at odds with a major investor, they are a whole lot less likely to be helpful.
* "We'll make it hard for you" Everything from investing in competitors, to introducing key people to job opportunities to guiding customers elsewhere. Yes they have a fiduciary duty, but when they think that duty requires management to change direction, things can get ugly.
Finally, investors talk to each other, and you piss one off, and they will poison the well with many others.
VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).
"I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.
I don't think you even need to go to court over this. If you have a reasonably good relationship with your VCs you can just offer to buy them out with a small premium on their investment. They see how the business is going too and most are not looking to hold you on their portfolio forever for no reason.
It seems like VCs will often sell shares for a near-total-loss on their investment, for simplicity and relationship with founders, and they can write it off[0].
How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?
What your mental plan is doesn't matter though, as long as you actually made a reasonable effort towards what the VCs expect. Or does anyone actually tell them "invest in me because I'll overtake Nvidia or die trying"?
I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
Of course it does. It makes the difference between being wrong and being a liar.
>I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
Former Silicon Valley lawyer here. It would be very difficult for a VC to win such a case, and it would almost certainly not be worth it for them given the amount of damages at issue.
It would also hurt their reputation by making it seem like they got duped by some founder.
Again, this requires them having a majority stake and we’re discussing YC which is a seed round. The current company I work at is YC backed and the founder still controls 85% of the company
This is exactly right. A couple years ago I became a co-founder of sorts, supporting the technical side. I assumed all you needed was a good idea that attracted users - we had that.
Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there.
If I ever go into business again, I'm staying far away from VC.
I’m not sure I agree. I hear from lots of people wanting to buy my business IF it’s making at least $5 million/year (it’s not). $500K/year might get you a 2X exit, and $1M is nothing to sneeze at, but it’s not early retirement money.
Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when:
* you are buying the team (leaders, skill positions, etc)
* you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage)
* The small company holds key contracts
* IP has great value
As companies grow, they tend to get valued more traditionally...
For a non-strategic buy you are right. For a big 1B PE fund, they can't be arsed to buy a bunch of 300k a year companies. I think its just too much to manage. So the higher in the millions you go, the more PE type people it can appeal to.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing.
There are several noteworthy exceptions to this generalization.
If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards.
Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.
I run a business similarly to what the parent advised to do and I wouldn't have it any other way. I am independent, I don't have to pursue GROWTH GROWTH GROWTH at all costs, I don't have to worry about running out of funding, I don't have to "scale", I don't have to hire people just because investors want me to.
The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work.
The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.
Not all problems can be solved by a solo founder bootstrapping a business. If you're driven by the problem you're trying to solve for, you should take the path that most likely will result in you actually solving the problem. For many types of startups, that requires VC.
These are all good points. To play Devil's advocate - the argument against this is that when you raise money you can sometimes take money off the table. Meaning you sell of a portion of your ownership for cash to you personally and not the business.
This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock.
Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue
I’ve been of this opinion for quite a while now and the part about
> If you raise VC money, the above scenarios are considered a failure
Rings particularly true.
My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy.
I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable.
As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell).
The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
N=1 example at least to the contrary... I read this a year ago.
I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business.
The end result however, was not shutdown/get acquired.
By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone.
If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc.
That being said - venture or not... don't forget to build a good business.
Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.
For an anecdotal story Bingo Card Creator was a lifestyle business having a large amount of customers and a stable cash flow. Then he moved forward an SEO consultant like business model which was rather successful after making Bingo Card Creator and eventually tried to do a startup with Y combinator trying to gamify hiring but then failing (and IIRC he downsized his lifestyle during the startup) but I think he moved forward and is doing well.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing
Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.
> If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire
That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.
Doing it yourself puts you in control of the expectations.
Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.
"enshittification" is my least favorite recent word. i like the concept but it's a terrible word. very cringe, it's got middle schooler trying to cuss vibes
> Why bother with the startup risk to make that amount?
One reason that hasn’t been mentioned yet as of this comment: ownership. Your startup is yours. You have the vision, you run the business, and there’s nobody to blame for anything but yourself.
When I was doing game development I got frustrated with the yearly post-mortem where we’d identify what things didn’t go well and what we could do to improve, only to make the same mistakes the next year. The company was relying on ambitious and hard-working people like me to keep fixing the same mistakes and avoid having to do deep planning and make hard decisions early.
With my own company, I still made mistakes but they were my mistakes to make and fix, and I never had to pull overtime to fix someone else’s mistake. I was far happier making a lot less money. (Up to a point… you can’t live on nothing. :P)
There are other benefits like doing both customer relations and engineering, which can make you better at both, and the slim potential for a large payout of FU money, among other things. Running a business isn’t for everyone, but wanting to and being willing to take all the responsibility is one thing you can’t get as a normal employee.
You can't leave your desk whenever you want. And when you leave your desk, you've always this social/peer pressure to ensure there aren't any complaints about you being frequently away or for longer, for example.
That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
It is the other way around, as part of a large company you can take 2-4 weeks' vacation without any material impact to your career or companies' performance not so in your own startup. In many cases you can take 1 year sabbatical and join back where you left, with a startup you are tied to weekly and quarterly result.
Really depends on industry.. maybe at FAANG that is normal, elsewhere - no.
I've worked almost 20 years now and haven't done a real 2-weeker vacation in 5 years, and probably won't again for a while. 4 week vacation is practically unheard of, as is sabbatical.
Of course being a small business owner is not really compatible with 2-4 week vacations, BUT.. you are empowered to make that decision. Maybe you just drag your laptop with you and stay reachable / keep things moving along, but from whatever sunny location you've decided to holiday.
Not much different than my last 6 day vacation where I had my laptop & work phone, and checked in on any urgent fires every morning & evening back at the hotel...
There's a wide range of workloads for small business owners. Sometimes a strategy finds a market and after significant effort to get to capture customers, doesn't take a lot of work to maintain. Others might be pulling 80 hour weeks for $40k/year
Or I'm aware of what the market actually pays at the top end.
Of course this is for very senior roles. But if you have what it takes to found and manage a start-up, you should have what it takes to be a leader in an established organization too.
Tax vehicles is one big advantage. Your take home as an employee on $500K is only $250K a year, whereas you can defer income in a business and pay 20% tax.
Founders can be paid entirely in dividends. They can also choose what salaries to pay themselves - thus bringing down their taxable income bracket spread out over time.
If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.