Raising Money and Buying a Business: Two Unrelated Articles to Read

The interesting thing about these two articles is the fact that one is about startups (high growth) and one about lifestyle business.

The first one is Paul Graham’s article about raising money. I’ve met almost all the things he’s talking about there and it’s an article I would’ve loved to read about a year and a half ago. Still, even if you read it now and go look for investment afterwards I still think you will do as you think (after all, I would do it).

Most startups that raise money do it more than once. A typical trajectory might be (1) to get started with a few tens of thousands from something like Y Combinator or individual angels, then (2) raise a few hundred thousand to a few million to build the company, and then (3) once the company is clearly succeeding, raise one or more later rounds to accelerate growth.

Reality can be messier. Some companies raise money twice in phase 2. Others skip phase 1 and go straight to phase 2. And at Y Combinator we get an increasing number of companies that have already raised amounts in the hundreds of thousands. But the three phase path is at least the one about which individual startups’ paths oscillate.

Anyway, go read the article. Just be careful, it’s a long and detailed one.

The second article (articles, actually) are from a blogger that likes bootstrapping businesses, doesn’t want VCs involved (he is more comfortable this way). He is involved in software business and he writes some great articles about it. The ones I’ve read are about a business he’s bought (HitTail) and what he’s done to turn it around. The process is still ongoing, so I think he will write more about it. Here is the first part (out of three): The Inside Story of a Small Startup Acquisition (Part 1).

I’m all about figuring out what’s going to make a person happy and then going after that with ravenous determination, instead of pursuing what we’re told is going to make us happy by the tech press (raise funding! exit big! lose control of your company and get fired by the board!).

So I tend to focus on ideas that have a 1000x higher chance of success than the next un-monetizable social website you have in mind, but the success I strive for is a bit more modest. Probably close to 1/1000th of the payout of a big exit.

He also explains the process of acquisition, including the metrics he looks at when doing this kind of purchase. I think you will really enjoy it, so go read it. And remember, it’s about lifestyle business, don’t compare it to the article about VCs and startups above.