The startup I work for just hit profitability and we're basically giving up on funding. The offers that we were getting weren't good enough. We'll grow slower, but we won't get dilution unless it's really worth it.
What I'm curious about is that I thought the purpose of VC was not just to stay in business, but to grow fast. I'm pretty sure PG said in a previous essay or comment that if you skip out on VC and someone else takes it you can get overtaken or not be able to catch up to the market leader.
That's an excellent question. Begs these questions:
How much speed does the investment buy you? How much is speed really necessary?
Take the viaweb example: Supposedly, their advantage was in being first. A 6 month head start was a great thing to have when the concept of an online shop was 3 yrs old, the concept of an online shop builder 2 years old & the concept of an online online shop builder 1 year old.
But was it such an advantage? Sure it was from viaweb's perspective. That may have been what allowed them to sell. But what did Yahoo (the buyer) gain from this extra 6 months?
There are still companies making & selling online shop builders of various sorts. They are still largely built by startups. A 6 month head start is virtually meaningless in that market. Yahoo stores is older then any of the players, & it doesn't stand out really. It's a player with a piece of the pie in a pie industry.
Yahoo search on the other hand could have used a 6 month head start. If Google had left them a couple of years to realise they were losing search share, realise how important that was & do something about it, they mightn't have to sit in fear of a hostile takeover.
What am I saying? I think I'm saying that from the early perspective, it's difficult to know if moving first is important. Since when it is important, it is very important, acquires will buy early leaders so the problem is theirs not founders'.
On the other hand, I think it seems likely that the winner take most market is not going to remain the default target. That changes the game. If it's 1997 & you are building an online shop builder to be a serious player with a serious slither of the market in 2017, you can afford a six month break. If you expect a winner to be declared in 18 months, you need any speed available.
The catch 22 is: If speed isn't that critical, you need a different advantage against big companies. But then I think there is one somewhere. Most online shops are not made by huge companies.
It's true that it can be dangerous not to take VC if your competition takes it. But it's not so dangerous if the reason you don't take it is that VCs are saying no to everyone, because that implies your competitors are also less likely to get it.
Yes, but the question the essay is setting out to answer is: what happens when the VCs recover?
I think one of the last points I need to buy into the essay is that it isn't just the starting up costs which have gone down. The commoditization of computing in the cloud means that as long as you're profitable on a per-user basis the cost of scaling is also way down (although the amortized cost might be up).
The other danger is not being able to hire enough of the right people, but the number of people necessary does seem to be going down as the tools get better. The startup I'm working for has just decided to stop looking for funding and do our hiring more slowly over the next year, so I suppose we're a part of that trend.
Yes, but the question the essay is setting out to answer is: what happens when the VCs recover?
I've been thinking about this a lot recently. I think that the answer is, that VC's aren't going to be able to fund web based software startups as much. We just don't need the money.
Who does need the money? Green Tech, Biotech, hardware/embeded, enterprise software. Those companies can use the capital and might actually be willing to jump through the hoops necessary to IPO. VC's only really get paid off when companies IPO or get acquired for huge sums of money.
I think that this is going to be a water shed in Silicon Valley culture. One of the reasons that there are so many software engineers in the Valley, is because there have been a lot of VC funded startups and jobs since the first bubble in the 90's.
VC money is going to start chasing different kinds of companies, which means more green tech, biotech and hardware/embeded, enterprise software jobs. That means more electrical, genetic and chemical engineers and less software engineers in the area.
This in my mind is the interesting question ... does cloud computing provide the means for scaling. No doubt a web business can achieve profitability on much less than before, but the question of whether VC is needed is in scaling that business to something other than a small profit maker and/or an exit to a larger company.
What I'm curious about is that I thought the purpose of VC was not just to stay in business, but to grow fast. I'm pretty sure PG said in a previous essay or comment that if you skip out on VC and someone else takes it you can get overtaken or not be able to catch up to the market leader.