No Risk, All Reward – The Startup Career Path

The post on Hacker News had some interesting comments.  Here’s one that caught my eye as pasted below (bold emphasis is mine):

The model is a fairly quick development cycle, fast early adopter sales, quick conversion to cash flow positive. Well, that’s a lot of things that have to go right all in a row with only $100k to start…. It may be enough to start some kinds of businesses, but many will require significantly more in startu pcapital to brave even an accelerated road to break-even.

As to the model, the question is does it fully factor in the risk level? The idea is lower the goalpost and manage the cash burn more carefully, to ultimately obtain a faster break-even and then ride growth through reinvesting profits, to some point in the future when you can actually start making distributions. The premise, possibly flawed, is that by not shooting for the stars you should be less likely the fail. They don’t need to win as big each time, because they will win more often?

Businesses need capital to grow. It’s that simple. $100k is a bare minimum startup fund for a sole founder for less than 6 months. It’s not a serious amount of money. You can’t expect that $100k to buy enough revenue to sustain full-time employees and also be paying out a meaningful dividend.

If the idea is to really, truly, avoid VCs and institutional investors…. I think you need to be able to seed about $2m. For example, structured as a Line of Credit, drawn over 48 months, but with warrants to convert into common stock at some ratio. The conversion ratio in the warrants adjusts to provide anti-dilution as needed.

That would provide a real amount of money for a 2-3 person team to potentially solve a real problem. And that would give the investors a meaningful percentage of the company and choice between a cash payoff or taking shares. That would be a really appealing alternative to VC funding which some strong founding teams might take notice.

Here’s my diplomatic’ish answer on HN:

$2M just to get started?

If that is what one needs to just seed a company, then entrepreneurship has just become another career path with little risk (still get a decent salary) with upside only.

Capital is not a requirement for success although we do tend to celebrate it needlessly (1)

There are real tech companies out there (many mentioned in the post) that built a solid initial product, sold it, got customer feedback, made improvements, and sold some more. They didn’t have the luxury of $2 million or necessarily even $100k.

If you’re selling the shoot-for-the-moon, billion dollar IPO, “change the world” dream from day 1, $100k may be immaterial, but I know of many solid tech companies (ours included) that are growing quickly (we’re doubling headcount in 2015 from 25 to 50) who grew the old-fashioned way — by funding out of revenue and who started with no outside capital at all.

(1) Best article about the myth of VC –

What I really am saying “Are you f’n kidding me?”

I know I’m old school in that I think starting something requires taking on risk.  Instead, it seems, startups are another paycheck with a call option on some upside. Per the comment on HN, a solo founder needs $100k for 6 months which works out to a $150-175k salary.  Yup – you gotta be fucking kidding me. I looked at some recent S-1 filings of software companies and the CEOs of Veeva and Tableau got paid pretty well ($250k to $350k) but the difference was they’d built some shit of real value. It wasn’t the promise of something.  And when you’ve done that, you deserve to get paid.  Until then, you’ve not done shit. Sure raise a bit of money to cover your living expenses if you can’t get revenue quickly but $150k for one or $2 million for a team of 3 is entrepreneurial entitlement at its finest.

Maybe startups are just a vocation now (like being a banker or consultant or barista), but that’s not what being an entrepreneur is. People who need that type of safety blanket should just get jobs versus doing the wantrapreneur thing.  The hunger of an entrepreneur is not the same when they’re getting a market or slightly below market salary versus really having their back to the wall.

Again, I know I’m old school but c’mon.

There is clearly too much money sloshing around in startupland now.


3 Thoughts on “No Risk, All Reward – The Startup Career Path

  1. Pingback: Hatin' on MBAs

  2. Clement on January 4, 2015 at 8:36 pm said:

    I see a similar trend in Singapore where new founders focus on raising capital FIRST before building a product and getting market test. The whole concept of revenue-funded has almost became a hippie concept…

    • Anand Sanwal on January 4, 2015 at 8:39 pm said:

      Revenue has a hippie concept 🙂 love it. Thx for reading.

      It is after all much easier to sell the dream than to do the work to build and sell. That part is decidedly less sexy.

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