"Taking money from someone else kills more start-ups than anything else does."
Overfunding does kill some startups, but it's an exaggeration to call it the number 1 cause of death. What kills the most startups is building lame products.
Overfunding does kill some startups, but it's an exaggeration to call it the number 1 cause of death. What kills the most startups is building lame products.
I think their point is that those factors are related. If someone gives you a huge pile of cash, there's a temptation to answer any criticism with "you think it's lame now, but just wait -- once we're done you'll love it".
If you don't have a lot of money, you can't use that excuse -- you have to build something which people want from the start.
VC will also often refuse to allow you to build simple products, or products that already exist in the market, or to go to market with a product that does not have a hockey stick projection behind it.
in a settting like 37s is talking about, funding probably means seed/angel funding. How much control/influence do you think these types of investors have? They have a minority stake, rarely have a board seat, etc.
It's easy/popular to blame bad products on investors, but usually that's pretty unfair. I think (at the seed stage) it's usually due to the founders.
I think better advice might be "don't take so much money that you have to give up early control."
It seems to me that a well-run angel funded startup will get to market quicker and have a slightly bigger (and potentially quicker) exit if the founders play their cards right. So you trade a small minority stake for getting "there" (wherever there is) months or years sooner as well as having a slightly better shot at a win due to investor influence.
This all assumes a goal of eventual liquidity, of course.
You know, people talk about "angel" and mean a bunch of different things. Maybe you're right, but maybe not.
There are "angel rounds" like YC that just get things started. I'm not worried that Paul Graham is going to exert undue influence over your company. Once the 20k is spent, what's he going to do? Write a nasty essay?
But there are also a lot of "angel rounds" that provide runway. They're much smaller than "A Rounds" --- mid-low hundred thousands --- but it's just like an A-round, for 2-4 people. Those investors control the agenda.
And in both cases, the real issue isn't what happens after you get funded. It's what they make you do prior to funding you.
Whether you call it an angel round or a seed round, I don't quite understand how the investors control the agenda. My experience (which at this point is fairly intimate) with sub-$1m rounds is that you generally give up 20-30% of your company and no board seats. In the rare event that an investor takes a board seat, you can generally argue for the board should reflect the cap table and there will be 2 co-founders on the board and 1 investor.
Of course, all things are different and some investors can be predatory.
Now, when you get into big Series A/B country, I think things change. Board seats start flying around and the founders can lose control.
But in the first round of mid-low hundred thousands? Not that I've usually seen.
Prior to funding (an interesting point) I haven't seen any influence whatsoever. We've marched to the beat of our own drum, clearly explained the vision we have for the company, and taken advice/feedback when we agreed with it. I HAVE heard of investors saying stuff like, "I'll invest IF you go in the direction that I want".
Not lots. Only a tiny fraction of startups have the luxury of being overfunded. Most are underfunded. And poor startups produce lame products at at least the rate that rich ones do. Therefore overfunding is responsible for at most a tiny fraction of lame products.
That might be true in consumer web products. I wouldn't know. But it's wrong in enterprise IT products. Venture funding pushes people towards rube goldberg contraptions that overcome "defensibility" hurdles by sounding unlike anything else on the market and, not coincidentally, unlike anything anyone would want to buy.
In enterprise IT, the buyer isn't the user, and purchasing decisions are based on many factors besides quality of the software. It's unrealistic to blame all of that on VC funding.
This is a myth about enterprise IT products. I'm calling the whole space "enterprise", because that's what Graham would call it, but we're talking about all products that sell for over the ~$60k to justify direct sales.
That may include crazy stuff like SAP or PeopleSoft --- ew --- but it also includes Splunk and Palo Alto Networks and pretty much every security products. The buyer is the user for almost all of these products. Quality is very much an issue, although it's again stunted by VC.
Overfunding does kill some startups, but it's an exaggeration to call it the number 1 cause of death. What kills the most startups is building lame products.