Another philosophical post on what seem to be misaligned values in Silicon Valley. We seem to judge people’s glory and success on how much money they’re able to raise from venture capital – not how much money they actually manage to make.
The real glory, in my estimation, comes from the company that manages to succeed in a big way raising the least amount of money possible, not the most.
The greatest glory comes from strictly bootstrapping.
And this isn’t just playing a game on ‘hard’ mode, either. The benefits are legion. The amount of scale you need to achieve amazing personal financial success and create a very healthy, thriving company, is orders of magnitude smaller than the one you need to achieve when you raise institutional funding.
The perfect example of this is Casper vs Tuft and Needle. Both essentially identical companies with identical business models – selling mattresses and associated sleeping goods direct to consumers over the internet. Casper, on one hand, raised over $70,000,000 dollars to blow the shit out of their growth metrics and explode as fast as possible. Tuft and Needle, on the other hand, was entirely bootstrapped without any institutional funding.
They personally wrote an great post about it: https://m.tuftandneedle.com/no-vc-d50cd26e38b7#.3l33bbbd2
And currently do over $100,000,000 in revenue, apparently, with zero outside funding.
That’s the dream – an incredibly healthy, cashflow positive business where you reap 100% of the benefits. Every year, whatever profit they make is directly theirs – $10,000,000? Great, that’s all yours.
Sell your company? All of that profit is instantly yours. $100,000,000? Wonderful. Take it and enjoy it.
Compare and contrast with taking funding. Raise 100 million, retain 20% ownership, and end up selling your company for 100 million or anything less, and you might end up with nothing or next to nothing thanks to preferred liquidation rights.
Hell, if you’re so unlucky as to have participating preferred stipulations, you might sell your company for 200 million and end up with only 20 million, as the investors get all their money returned and then also share proportionally in the remaining proceeds: http://venturebeat.com/2010/08/16/beware-the-trappings-of-liquidation-preference/
In contrast, if you own your company outright, you could sell for 10x less, at 20 million, and pocket all of that.
Personally, I look up a lot more to T&N than Casper, and I wish more other people would, too. I almost never hear about revenue and profit metrics in SV, but am constantly inundated with amounts raised.
Certainly, there’s a subset of tech and other industries where the rewards are binary – it’s go big or go home. But so many more businesses, both in tech and out, could easily be bootstrapped or leanly funded entities that achieve a large level of self sustaining revenue and profit success early on, and don’t need to chase the funding ladder ad infinitum.