I recently started out on this road as a solo founder [0], and out of all the given pieces of advice that YC gives, two things are the most conflicting for me:
- This pressure to have a co-founder. I see that quoted as a major reasons for why startups go bust but also necessary for doing anything meaningful. I can imagine there being truth to both statements. I've seen startups go bust in my own network on both sides of the divide. But I feel there isn't enough advice out there for folks who are doing it Solo - that's still a valid design pattern for many startups in the past or present.
- The whole idea of go big or go home - lot of the advice seems to assume you want to be really big one day. There doesn't seem to be enough advice for someone wanting to be a 10M-100M dollar business as their main milestone, not as a path to hit a billion dollar valuation. That kind of assumption results in very different kinds of design patterns, often borrowed from other billion dollar startups that may not make sense to your own little venture in the beginning.
I wish startup advice wasn't universal as every author or speaker would like you to believe - there could be a system where it was doled out based on the current phase and situation, or at least recognizing the fact that there isn't one size fits all for something as varied as starting your own venture.
The old "Business of Software" forums, part of joelonsoftware.com, had lots of good advice for single founders. The term micro-ISV (independent software vendor) was very popular there. Unfortunately, it got shut down few years back.
The best VCs optimize for the founder + the business thriving together as the ideal package unit.
Overwhelmingly the greatest outcomes are produced by companies with founders at the helm for long periods of time. The best VCs in the industry know this well, with few exceptions. If you're dealing with VCs that routinely like to replace or marginalize founders, you're dealing with either a subpar firm or one of the couple old bureaucratic dinosaur firms that occasionally are prone to 'IBM thinking.'
Examples: Amazon, Microsoft, Apple, Google, Facebook, Alibaba, Tencent, Baidu, Netflix, Salesforce, Qualcomm, HP, Dell, nVidia, Sony, Intel, Oracle, Airbnb, Twitter. Even IBM, at its most successful it was run by the Watsons.
In business people can be perfectly nice and at the same time completely ruin your life. In fact, that's standard practice.
I'm telling you to be wary of VC advice on how to start a startup, basically because VC advice is entirely self serving; it's not designed to help you. It's designed to help them.
This type of comment isn't really productive to make. Yes, I read what you said. Because I replied to it.
My point is that I wouldn't work with somebody who wouldn't treat me reasonably-- I wouldn't accept their VC money.
I don't understand how VC advice can be self-serving, though, since in order for them to get a return on their money, your business has to take off. And you don't give up 100% of the company. So you win too. I view it as mutual, in that regard.
If you lose, they lose money. If they invest in you, they don't want to lose.
And you also tell me you don't like being told that you don't understand. Which one is it? Go read what I said again. Now read the following.
You are one of N (N being large) investments by VC. Your utility function is to increase your probability of getting rich. Their utility function is to increase their probability of making bonus. How on earth can you assume you are optimizing the same thing? You are not. You're just one of 100 or 200 dice they're rolling. Your success is completely meaningless to them; they want the loaded die, and they want to be able to identify it and bet the house on it. You might have a great idea for a business which makes YOU rich, but if it doesn't fit their model, you're SOL with VC. You may even have a great idea which makes the VC rich. They're not optimizing for your wealth here either: they are optimizing for THEIR wealth, and they will happily take your company, your idea, and all your profit and leave you with jack shit. As such, taking advice from a venture capitalist is like taking advice from a financial advisor that works in a boiler room. Guess what? They don't have your best interests in mind either! They just want to make bonus. Just like the VC. You are product to them.
If you've been around the block a few times, you'd know this. I'm trying to tell you how it works, but you keep telling me VCs are your friend and everything they tell you is the truth. They're not! They're almost all scumbags! You should use them to achieve your goals, and that's it! And only a fool takes what they have to say about founding a startup as some kind of revealed truth. It's just propaganda to make their job easier.
I actually boot-strap my own projects. So in a sense, you're right. I probably never would take VC funding. I don't think terribly highly of them, but I do think it would be naive for them to not want you succeed.
Thank you for finally highlighting something pivotal in our discussion: the shared interest (or lack thereof) in your success. Like I said, it doesn't totally add up to me. If you remain majority shareholder in your business, it seems hard for them to walk off with more than you would at the liquidity event (e.g, your company is acquired, an IPO, etc).
The truth is probably somewhere in the middle. They're not 100% against your interests, but not necessarily 100% for them, either.
Sure, sometimes VC align with your interests. But I'm just trying to make the point that taking their advice without thinking about it is ... inadvisable.
I've seen super terrible things happen to people. Sometimes you have to jump up and down and make a lot of noise that "notes on how to start a startup by YC" should be taken with much salt.
That's fascinating for me. It certainly comes across like "best for all parties" kind of advice, but only magnifies the need for clear separation of business advice that is fully aligned towards founders.
The two things you cite are great examples of pieces of advice oriented to VCs rather than founders, and you should congratulate yourself for recognizing this.
They want two cofounders to test for sociability like they say, but also because it lowers their risk (if one develops problems or is a loser, the other can step up), and actually increases their leverage over the founders. I mean, one founder can always be some stubborn type who says "no." It's easier to get to "yes" when you have two people making choices -this is basically an algorithm. The sociability thing is reasonable and a good test in many ways, but I know about as many solo founders who made it as I know founder-teams, so the advice is obviously wrong for some. Distribution is about what you see in big firms: plenty of Zucks and Bezoses out there to balance out the famous dyads.
The "go for unicorn" thing should be familiar to you as a trend follower. I believe the old Turtle systems would have a majority of initiated trades as expected to lose money (aka start up failures -most of them fail!). You make up for the losing trades by doubling up and riding the winners. It's also vastly lower risk to do it this way than try to get a lot of medium sized deals/trades: the longer the trend rolls, the more you are certain the trend is real. The only way to make money on lots of little/medium moves is stat arb; a trading strategy where you can hedge, and VCs can't hedge.
The founder's utility function is vastly different from that of a VC. VCs optimize their utility; not yours. You're just one of many dice they roll.
If you want founder advice, get it from non-VC founders who succeeded at something, or people who have tried to do what you're doing. Otherwise: you are the product.
VCs are optimizing for the unicorn, and there is nothing wrong going for the non unicorn either. It's just you shouldn't go for VC financing. If you make a business that hires 50 people and throws off $10 million a year to you, you'll probably make more than most founders ever will anyway after 3 years of that business.
I have a pal who made a Unicorn. He got a nice condo out of it! His next one was a non-unicorn and he made vastly more when he sold it, as he had most of the equity.
That's pretty astute. I would say VCs do hedge their risk by allocating in many options, sometimes by investing in multiple startups in the same domain or even different/opposite approaches to the same goal. But that could be classified as diversifying their risk too.
Personally I don't mind the idea of going lean in the beginning, which I think applies fairly well to early founders. The current Silicon Valley notion of throwing money at it to generate enough revenue + growth, without potentially having profit for a long time is a bit uncomfortable to me. I have a hard time distinguishing between businesses that are re-investing their income for growth and no profits (like Amazon) vs. those subsidizing their growth from VC money and having little chance of being self-sustainable in the long run (e.g. I don't know where Uber will land).
Ideally, I would like to do a venture where profits do come in even at smaller unit sizes and you can test that before you decide to go big. I am not sure if there is a term for that or if anyone thinks like that.
The "hedging" point is, VCs can't hedge away the risk of making 100 little bets which are only expected to make a mean profit of $10m each (private equity might). They need the triple bagger $1b unicorns to make up for all the firms who don't make it, or their business model falls apart. Just like with trend following. The game has negative expectations; it's only the bet sizing which makes it profitable.
I'll say it a different way: VCs don't give a shit about the company _ever_ making a profit. They give a shit about ther VC making a profit. It's not the same thing at all! VC makes a profit if they invest at good valuations and sell at much higher valuations when the company goes public. The company doesn't have to be profitable! For all they care it will never be profitable! Pets dot com made some VCs a bunch of money!
(thx for kind words -good luck with your startup!)
- This pressure to have a co-founder. I see that quoted as a major reasons for why startups go bust but also necessary for doing anything meaningful. I can imagine there being truth to both statements. I've seen startups go bust in my own network on both sides of the divide. But I feel there isn't enough advice out there for folks who are doing it Solo - that's still a valid design pattern for many startups in the past or present.
- The whole idea of go big or go home - lot of the advice seems to assume you want to be really big one day. There doesn't seem to be enough advice for someone wanting to be a 10M-100M dollar business as their main milestone, not as a path to hit a billion dollar valuation. That kind of assumption results in very different kinds of design patterns, often borrowed from other billion dollar startups that may not make sense to your own little venture in the beginning.
I wish startup advice wasn't universal as every author or speaker would like you to believe - there could be a system where it was doled out based on the current phase and situation, or at least recognizing the fact that there isn't one size fits all for something as varied as starting your own venture.
[0] https://stockquanta.com