May 12, 2017

The delusion of investor supported startups

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I was reading a Reddit thread the other day. A guy was doing an AMA about his startup and had this to say about it:

As a result of this, we are now a pretty rare breed of business as we started with no finance, no VC Funding etc etc, we did it the hard way and are building it the ground up. We use our profits to grow and have no outside help.

Most of the businesses people build are not VC funded or started with huge financing. Most of the businesses are started with some savings and a lot of time put into growing it. I looked for some information on it and I found the infographic here, that gives you a better image of how people finance their own entrepreneurial endeavors.

I didn’t want to point fingers to this guy, though. He’s not the only one that thinks that most entrepreneurial initiatives are heavily funded by outside investors (especially semi-pro and professional investors, like angels and VCs). There are lots of people that think this (at least in the circles I move and read of). And I think we’re a little deluded. And I say “we’re” because I think I’m also heavily biased toward invested startups, as well. After all, MavenHut raised several rounds and this is how it got to be successful.

What’s wrong with the invested startup delusion?

It’s bad thinking that you can’t really start anything if you don’t have outside investment. That all you need is an idea and someone to put $50k-$100k-$500k-$1M in and you’re set, you’re gonna change the world. Because you should focus on doing something and improving your product. Instead, the wanna-be entrepreneur will waste time running after potential investors, “networking” the hell out of all the events in their immediate (and not so immediate) area and, in general, being annoying. Really, have you ever had a guy that never raised a dollar in his life explain to you how to raise money from VCs? Even if you’ve done this several times in the last years? It really gets on your nerves at some point.

Being annoying aside, even more important is that you deprive yourself of a lot of experiences that will generate the great ideas that will help you get a good company off the ground.

And I talk from my own experience: I started doing “business” online in 2005 with no savings or money whatsoever. I was lucky my sister allowed me to stay in a room in her apartment for a while, but that’s all I had going for me. I looked for work on what is now Upwork, this helped me understand SEO, that helped me understand WordPress, that started me on blogging, that led to a car blog that I wanted to monetize through a racing game that went nowhere. All this took about 6 years. By the beginning of 2012, I started a new project, a platform for 1 vs 1 single player games, with 2 guys that I worked with at the second version of the racing game I told you about. The project would later become Solitaire Arena and MavenHut. Without a doubt, the final result changed my life a lot for the better.

My entire online experience came from starting “something” online without any kind of financing. Yes, MavenHut was eventually financed by a VC and I’m happy for it. I still think starting an investor supported startup should be the natural evolution of your experience with entrepreneurship, not the start of it.

The next time you hear someone saying they just need a “small” investment and they’ll change the world, slap them across the head and send them to ask for investment from their close friends and family (the talked about FFF, the third being fools). If they can’t convince someone that knows them and should trust them, why do they lose time trying to convince someone they don’t know?

Finally, I know this won’t change, people will still dream about the VC fairy instead of just doing something with the resources they have. But if I get to convince at least 1 person to start anything, my job’s done ;)

Oh, and a plug for my Curated Reading List, where I often add articles about bootstrapped businesses. Subscribe and see for yourself.

P.S.: my sister got handsomely remunerated for the “investment” she’s put in more 10 years ago when she gave me and my cat the smallest room in her apartment. The cat didn’t care about rules, he got the entire apartment as hunting ground the next day. I didn’t :)