Comments on: Venture Capital – A Necessary Evil?

By: Facing your Goliath

Facing your Goliath — Mon, 08 Feb 2010 07:09:05 +0000

[...] have been some interesting developments in the week since my last post. About ten days ago I stumbled upon a need at one of the firms I worked with in the past. I decided [...]

By: Doug Grossman

Doug Grossman — Wed, 03 Feb 2010 07:11:48 +0000

Steve,

You had responded to one of my Questions at Answers.Startups a month back and I have been checking out your blog since then. Ive found your posts, images and YouTube links very informative. Looking forward to seeing what direction you end up taking the new venture. I’ll be breaking away from the corporate life myself before year end and have found all this information quite motivational.

Doug

By: stevew

stevew — Sun, 31 Jan 2010 19:05:24 +0000

Jason – many thanks for the feedback. I wasn’t aware of this issue – that getting funded as a first-time entrepreneur is getting more difficult due to the number of second-time founders on the scene. Interesting dynamic – but then ten years ago there was no such thing as Y Combinator – if I was twenty years younger and had no family commitments, I’d be on a plane tomorrow to the West Coast, looking to dream up something Paul & Co would be prepared to jump-start. (I know that cuts across everything I said above, but of course when you’re young and have no commitments, you’re in a better position to tolerate risk, and I reckon the opportunity to learn from the wealth of experience out there is probably unmatched.)

Regarding bad habits caused by lack of cash, I couldn’t agree more – in my first business we spent nearly a year on a BizTalk consulting project with a large corporate which added nothing to our product repertoire, just because we needed the money. The lesson for me there was not to grow your cost base faster than your product revenue can easily sustain, but as you point out, that means maybe missing out on real product development opportunities. I think you just have to face that the self-funded route is more tortoise than hare.

By: Jason Cohen

Jason Cohen — Sat, 30 Jan 2010 17:14:47 +0000

Great post, and thanks for the shout-out.

You’ve got the major arguments covered, but there’s a new argument based on what’s changed since Joel wrote that piece, Neil wrote his, and I bootstrapped Smart Bear.

Today if you’re a first-time founder you have a very hard time raising money on any idea, especially since there are second-time folks with a success under their belt in front of you in line.

The conventional wisdom says that ideas are worthless (I agree), and therefore before you approach VC you’ll need at least a (shaky) v1.0 built (to prove you can do so), a few customers giving you money (to prove that can happen), and some small but visible growth (to prove it wasn’t a fluke).

But of course by the time you get to that point, do you need VC? If yes, at least you can get a much better valuation, but probably the answer is no.

Another thing to be cautious about with bootstrapping is that the starvation, although leading to good habits like thrift, also lead to bad habits like being distracted by consulting offers (cause you need the cash) or not being able to capitalize on some opportunities just because you don’t have the cash or manpower.

This is OK if you’re working on a business that doesn’t need big attention to be successful! It’s bad if your business aspirations aren’t compatible with slow growth.
Jason Cohen´s last blog ..A Tradeshow Checklist, born of experience

By: Venture Capital – A Necessary Evil? | Drakz Free Online Service

Venture Capital – A Necessary Evil? | Drakz Free Online Service — Sat, 30 Jan 2010 14:29:00 +0000

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