A Rebels Answer to “VC or Bootstrap?”
I read 37Signals post this morning about Not Taking Money. This is a common theme that 37Signals has been following, especially since DHH’s presentation at Start-up School:
They say you don’t need a big $100 million dollar idea and you don’t need Venture Capital.
They are right about the first one, there’s a lot of opportunities for making a well paying independent company without having a huge market and trying to IPO.
The second part is what bothers me.
Telling entrepreneurs to “do everything you can to avoid taking money“, without clarifying the type of business your talking about is some can be some very detrimental advice to give entrepreneurs.
Before making general statements like that, how about helping them identify whether their business opportunity is VC fundable or not?
The real problem is the entrepreneur thinking he has a $100 million dollar idea then shopping it around to VCs, getting shut down, and not pursuing it. When in reality he/she should of at least tried bootstrapping it, evolved the product and tested the market.
At the same time those who may have that potential might take that advice and miss an opportunity to fully realize their business.
Deciding on VC or Bootstrapping shouldn’t be about taking sides; being realistic about what your business needs, understanding the scope of your business and focusing on timing is a better strategy.
Who Should Aim for Venture Capital?
From my understanding, a VC fundable business has high growth potential that would give the investors a large return in 5+ years. Which is exactly why the VC would take such a high risk investing in you in the first place.
The businesses they invest in are often disruptive technologies in the high technology industry (IT, bio-tech, and clean-tech).
If your business does not fit into that category, then you probably shouldn’t be looking to VC’s for capital.
If I was considering bootstrapping or venture capital, I would be evaluating the opportunity instead of just following the “keep-it-small” philosophy at every step.
This is not about being different then other technology companies. It is not about screwing the big companies and keeping it small. 37Signals is playing the rebel to prove a solid point. Just be aware of the difference before taking their advice.
- By Dan McGradyAdditional comments powered by BackType
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3 Comments
I’m glad someone said this. I made a post on YC’s thread about the 37s blog entry, and it appeared directly underneath your post linking to this blog entry. You bring up a valuable point that I think people are missing: 37s can put out some good information but a lot of the time it’s very generalized and they do a poor job of making applications to targeted individuals. It’s a shotgun approach and if some eager enthusiast ready to get their thing going jumps in, takes the advice and has no financial cushion to their idea, they’re finished if there’s no way to extinguish the flames.
Great post.
Before addressing to a VC, get the business running, get the first customers.
In web services this is more feasible than in the ‘real’ hardware world, as developing a web service doesn’t require inventory of products.
The consulting business has also a low entry hurdle. However the problem with consulting is recurring revenue and finding the next customer. Whereas in web services the revenue is recurring during several months at least.
Everyone likes to simplify things to a point where it is blog-friendly. 37signals is definitely no exception.
The idea of a lifestyle business makes a lot of sense for certain people. What I don’t understand is why a 20-something team of a few developer would be at all happy with a 200k or $1million idea.
When you are in your 20s, 30s, single or at least don’t have kids and are oozing with raw talent, you are worth way more than just a few bucks a month.
Like anything, you have to stay open to all options. If you hit on an idea that is big, then it can be a lot of fun trying to hit that homerun.
Didn’t 37s take money from Bezos? They never mention that.