Ahem! Right on the money. Doesn't it make you think of the early stages of a rocket taking off? Burn all the fuel and hope you make orbit, for if you don't, you crash and burn!
My experience is that VCs add so much pressure to hit the right trajectory that they cause a lot more problems rushing and trying to "do right". Of course they also believe that regardless of the kind of rocket you have, so long as you staff it with "the right team" it will hit its mark. Of course we know most don't.
I don't really understand how can you have time on your side. If you have 4 programmers and they have 40 and better paid, they can ultimately mimmic your software and afterwards they can build a better one.
If they're smart, and one must suppose they are, they will not spend all the money on marketing, but they will build also a good tech department.
I think that the only advantage that you can have is that they enter your market when you already have a good customer base, and a good knowledge of your field. That takes time to earn, with money or without it.
In other words, you have to hit first.
There are still savvy startups and sensible VCs around, and this is not a post-bubble occurrence. I was fortunate to meet a young man who was a co-founder of a bio-tech company.
His company started around 2000. They received VC funding, and had planned the R&D resources required to deliver their first product.
The VC firm tried to offer more money but they refused because it wasn't needed to reach their goals. Six years on the company is still around and doing well.
We tend to hear about the spectacular startup failures with the associated greed and excesses - but there are savvy VCs and startups, and they have been around for many years.
Good post Dharmesh!
First, a question: Your onstartups blog provides useful insights for software startups. Is it your intention to also serve the needs of entrepreneurs in the Web 2.0 world e.g., HubSpot?
Second, an observation (please don't be offended): In my view your blog posts are useful, yet often, tending to frame issues in a more general way. You have a ton of experience in fighting the good fight to compete and build a successful company... This includes tough battles, moments of sheer terror and moments of joy. I think to ought to write about some of these gritty experiences, telling your truths as it was, your lessons learned and you don't have to be smooth... Rather, be real and people will learn a lot from your experiences.
Awesome post! For those of us with no VC experience, it's an excellent explanation and perspective.
It is clear there are different agendas between us small bootstraps, and the VC funded startup. Thanks for making this so clear.
Sheamus: I actually think of Web 2.0 companies and Software As A Service companies (like HubSpot) as software companies -- so yes, I do hope to provide useful discussion for them as well.
On the topic of writing more about real-world experiences, this is a good point. Though I personally find some of experiences very interesting, I have a biased opinion and others may not think so. In any case, I'll try this out with a couple of articles over the next couple of weeks and see how the readership responds. Thanks for the tip.
"...even in the post-bubble world, you can still expect your venture-funded rivals to hire aggressively, have a larger marketing budget and give away their product and service to build market-share. They are not looking to quickly get to cash-flow break-even..."
I've been watching Zecco.com in the retail financial services space...describes them to a "T"...you get some very interesting business models with vc funded companies...Zecco is offering "free trades" for which they actually have certain costs...trying to make it up on advertising revs and the interest spread on margin loans...
One of topics is you really miss in startup section is bad times in startup world which would mean Layoff's in the company. What happens is the How relationships /politics play in this stupid game. What should founders do to minimise politics ..
Dharmesh - good information which makes me wonder about how heathy this is.
I think your post implies that among the VC-funded "failures" are some companies that would have been successful had they gone the slow-burning road. So, some ideas or technology, funded on the home-run basis, are never getting to market. The result is a marketplace of fewer bigger ideas (companies). This contradicts the "long tail" argument about selling less of more. Is there really something structurally wrong in the current funding picture that prevents more ideas from making it through? Is VC funding really happening in some "old" home-run style when steady small hits may be better? Which outcome is really better for the American economy?
Fantastic exchange of views, that's really instructive on various minds attittudes around the table .
One can also understand that having had such or such experience (i.e boostrapped without VC, or Cash burn by to much pressure and bad alignment of strategy and tactics over time /under the pressure of VCs who wants to boost their investment too fast) does not lead to the conclusion that it is all black or all white.
One key is the ability to exchange on a sincere and detailed basis with the VC on board, never stop convincing him about how "tactical" moves are aligned with the strategy, accept to spend time trying to understand deeply why the VC has these different views your business and its market...
Remenber VC tries to view things with other eyes than the founders eyes...(Is it called 360° & lateral viewing ?).
Well, also one solution is to find another VC not mentionned hereupper, when to find new ways in front of a competior newly fueled by a VC, is to arrange soem deal with another VC at better condition than the one which was offered by your competitor, explain why your project , with the help of the new VC , will be superior in returns than your competitor...
--> Answer to a competitorfueled by VC by signing a deal with a competitor VC with better connections !
By the way I have observed recently as an investor the opening of a new web site located in europe for startup funding (seed money, up to a few Million euros ?) though pixel ads mean, and I am positively looking forward to see which are the projects who will be seeking VC and investors through that possibly efficient way (link iswww.firstmillioneuros.eu
Did any entrepreneurs blogging here have seen this or tried to obtain funds from European VCs or bi national investors trying to bridge markets over already ?
This could be another way to find a VC to face a competitor fueled by a local VC ?