[coffeemug]

You seem to be attaching a moral axis to the decision on whether to raise capital. Consider that people look at you like you have two heads because you're making an irrational decision.

Capital usually comes with two strings -- giving up a part of your company, and giving up control (both of which are correlated, but not the same thing). In the current climate, if you could raise a seed round while giving away a minimal amount of your company and not giving away control, why wouldn't you?

Put a different way, how good would the terms have to get for you to take the money? In the limit case, if someone wrote you a million dollar check, no strings attached, what would you do? How far are the current market conditions from this scenario?

[erikpukinskis]

> In the limit case, if someone wrote you a million dollar check, no strings attached, what would you do?

There are never no strings attached. At the very least there are social expectations. Some people feel expectations very acutely and try hard not to set expectations they aren't sure they can fulfill.

> if you could raise a seed round while giving away a minimal amount of your company and not giving away control, why wouldn't you?

You have no idea when or if a liquidity event might happen or how big it might be and you want to make as few promises as possible to keep your options open, including holding no substantial assets at all.

You don't want to add another person to the list of people you have to loop in to conversations.

You don't want to leak information into the tech establishment.

You expect big dilutions later on and you want to keep as much equity as you can initially.

[jdoliner]

> There are never no strings attached. At the very least there are social expectations. Some people feel expectations very acutely and try hard not to set expectations they aren't sure they can fulfill.

Starting a company is filled with social expectations and refusing to raise money is certainly not going to spare you from them. Founding a company is an exercise in setting expectations you're not sure you can fulfill, you'll certainly be setting those expectations with your early customers, by definition you'll be making some sort of agreement with your first customer that you've never fulfilled for someone in the past. You want to manage the expectations of course, but to say that raising money implies expectations and thus the best course is to not consider raising money is foolish. You'll likely just compromise your ability to meet other expectations.

[mwfunk]

This assumes that (a) they need the money and/or (b) they could even do something they want to do with the money that they aren't already doing. I could imagine all sorts of cases where neither of these things are true, and everything's going well and according to plan. If everyone's expectations are already being met, what's the point in putting yourself on the hook to someone else for something more, regardless of how much money it is or how low the additional expectations are?

I could see the logic from a VC perspective- VCs aren't going to make any money from companies that don't take funding from them. Companies that don't take funding may as well not exist to them. VC firms themselves are businesses that make money by nurturing other businesses. That just means that all VC firms need startups to nurture, it doesn't mean that all startups must be nurtured by VC firms.

[jdoliner]

> This assumes that (a) they need the money and/or (b) they could even do something they want to do with the money that they aren't already doing.

edit: I realized my response references a different comment I made. Sorry about that, I've modified it.

If there's nothing you could do with the money then I agree it makes no sense to spend time and energy raising. That doesn't seem to be the OPs position though, instead there seems to be a moral reason for not raising money. I'm not arguing that all startups must be nurtured by VCs, just that saying there's no conditions under which you'll accept money from a VC isn't a rational stance.

[sanderjd]

I'm not sure where you read all of that into OP's comment. I don't read it as there being a moral reason, I read it as them thinking they have better things to do right now than to seek or even entertain finding offers. Taking other people's money is a total pain in the rear, and worth avoiding if you can build the company you want to build without it.

[rurounijones]

Since, in my mind anyway, a lot of companies that take VC money appear to be acquihired or bought out and have their services shuttered: As a customer, seeing them not taking VC money is a plus in my book. VC money adds uncertainty to the long-term viability of the company.

[ethnomusicolog]

I don't want to go into the details of this specific case. I just want to point that what you call rational is in itself a set of values someone has to suscribe to. It is a moral decision. It just happen to be the most common.

[xapata]

"not entirely sure" doesn't sound like an obstinate position.

[TheGillis]

This is a good point. Having been in both positions, a startup that has taken on lots of funding, and going the DIY route, the DIY route has been much more effective.

The business model would need to support it though. The business model taking on lots of cash needed a community to be effective and would have been extremely difficult to achieve without those resources. Being able to self fund and find paying customers early is not always an option.

[yesimahuman]

Agreed. Having both bootstrapped and raised VC, it doesn't matter how much you raise or from whom, raising the money changes the company and how you feel about it, period. If you feel like your heart is in owning your whole business and not raising money, don't. It matters.

However, 37signals seemed have done a really unique deal with Bezos so who knows. I wouldn't bank on you getting that same deal though!

[crazy_ant]

It has nothing to do with morality, it has to do with building a sustainable business while retaining full ownership. The notion that you absolutely need to accept funding is getting tired because it's not supported by facts and grounded in reality.

I am currently bootstrapping a business and I have been approached by VCs who asked me to please take their money. I have turned them down because, as I politely told them, I don't need it, AND I am not looking to simply flip the company some day (no sane investor will invest unless the company can be sold in some form and they get their money back). Some people may also wish to avoid having a boss, and if you think your VC is not your boss in some capacity at least, you're in for a rude awakening.

Calling someone's decision to avoid raising money irrational and attaching labels (morality?) is presumptuous. There are certain goals that are incompatible with accepting funding, such as: operating a lifestyle business, not reporting to anyone, freedom etc. I am not sure what's so difficult to understand about that.

[rdtsc]

> Calling someone's decision to avoid raising money irrational and attaching labels (morality?) is presumptuous.

It happens because either they had to make the decision and they accepted the money, worked for someone who has, or they are the VC who are offering the money and looking for deals. People usually project whatever they did as being a rational, right decion, and those who don't don't agree as being irrational.

Also, this forum is probably one of the most biased forums when it comes to startup "things", so I wouldn't get too upset about stuff you read here.

[exelius]

> There are certain goals that are incompatible with accepting funding, such as: operating a lifestyle business, not reporting to anyone, freedom etc. I am not sure what's so difficult to understand about that.

Nothing wrong with it at all; but keep in mind you are posting on the message boards of an organization (YCombinator) that is deeply invested in the Silicon Valley venture ecosystem. The "growth at all costs" mentality is bound to be quite prevalent among the posters on here as a result. It's just the audience that HN draws.

[pop8row9]

> It's just the audience that HN draws.

The content of this thread seems to contradict this claim.

[onewaystreet]

It's irrational for someone running a startup to be categorically against raising money. It's not for someone running a lifestyle business. A lifestyle business is not a startup.

[privateersman]

A startup is a new business. It's not anything special.

It looks like you are falling for propaganda. When someone wants to purchase a car or a home, there's such a momentum behind the idea of financing that a customer who uses their own savings is viewed as odd... perhaps even a money launderer, yet it's perfectly normal.

I mention that because there's a similar momentum behind business financing. If you build software for a living, then you can build a new business with no overheads, no ties, no time limits, no favours, no budgets, no business plan and low risk. It's pure freedom to do what you want.

[erichocean]

> A startup is a new business. It's not anything special.

Your host, Y Combinator, strongly disagrees: http://www.paulgraham.com/growth.html

First two sentences in the linked article:

> A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup.

[TheOtherHobbes]

Of course he does.

A successful startup in the eyes of VCs grows fast. It has to, so VCs have some hope of making a non-stupid return. Which is why we get all the drama around unicorns etc etc and more etc.

Does that mean that you, as a founder, have any obligation to play that game?

No. You. Do. Not.

If you choose not to, that's very much your choice. It gives you a number of advantages, including no loss of control over direction or everyday running, a very much lower danger of being fired from your own project, and a wider choice of potential investment sources when you've been running profitably for a while. (Are VCs the only money source in town? Not even close.)

And if you have a solid business model, it significantly raises your prospects of still having a business - and a job - when the unicorn hunter scene crashes and burns around you.

Which it inevitably will - possibly quite soon.

The disadvantage? If the business is seriously viable with many real customers and profits and such, you may to have to settle for being a multimillionaire instead of a billionaire.

Tough break.

[hyc_symas]

African proverb: "If you want to go fast, go alone. If you want to go far, go together."

Startups are designed to go fast and cash out. The founders make a fortune and move on to something else, life doesn't really change for anyone else. A business with real longevity will go more slowly but everyone in the business will share in the ride.

[crucini]

I guess there is no right answer to a question of nomenclature, but "startup" is a useful term and probably shouldn't be applied all young businesses.

The opposite kind of small business, to me, is the "organic" company which funds growth out of earnings.

This is quite aside from our like or dislike for startups.

[onewaystreet]

The corner store and Snapchat are both businesses but they aren't the same. Saying this isn't the same as saying that startups are better, just that they are different.

[wcdolphin]

Is there any difference between a startup or a small business in your mind?

I see the two forms of business sometimes differentiated in that way.

[jrpt]

Actually, in this market, it's smarter to take out a home mortgage, and invest the remainder. Mortgage rates are low. If it were the opposite, and mortgage rates were high, you'd have an argument, but that hasn't been the case in decades.

[danenania]

It's true in this market, but not true if, for example, the stock market crashes and/or we have a deflationary depression.

Not saying that's particularly likely, but avoiding debt does remove risk in such scenarios--if you never take on debt you can never go bankrupt, even if your upside is also lower. People make different choices about how to balance risk, reduce stress, etc. It only looks irrational when one person imposes their values on the decisions of another.

[gist]

The OP hasn't actually said that he turned down funding just that he wasn't looking for it and not sure he (?) wanted it.

This is really similar to someone saying they aren't looking for a job. It's implied I guess that if someone offered them a million dollar job (where they had been making $100k) with complete freedom and great working conditions they'd at least consider it.

Your point is taken though and very possibly might also mean "I take the high road and would turn it down no matter what". (Which doesn't mean they would of course just that they say they would).

[ritchiea]

Doesn't capital also come with the expectation/pressure you need some sort of liquidity event in the next X years because the VC's fund depends on it?

[coffeemug]

Theoretically you could negotiate a deal where you don't have a responsibility of reporting to your first round investors (not far fetched given the current climate).

In practice seed investments consist of multiple $100k-$250k checks, which are generally too small for the investors to put any pressure on your startup. Seed investors write dozens or hundreds of these checks, and they don't have the bandwidth (nor desire) to put any pressure on the founders. The pressure kicks in when you raise series A and get partners on your board who only make a few investments per year.

[dasmoth]

Is it really true that you could take a $250k seed round, build something profitable-but-not-huge, then just quietly run the resulting business? I thought that carried a pretty strong expectatation that you'd be hiring employees and looking for series A pretty soon.

Definitely interesting if there are other good routes for "slightly-too-big-to-bootstrap" ideas (beyond the obvious "savings" and "transition from consulting")

[daniel_levine]

Wufoo did YC then didn't raise a Series A, before eventually selling to SurveyMonkey. Olark raised from YC, then a Seed and that's it. Statuspage did YC and then Seed and then sold to Atlassian. These are just some examples off the top of my head, I'm sure I could come up with a ton more.

[dasmoth]

Thanks for these examples. Going for a relatively early sale/acquisition/acquihire returns capital to the seed investors, so not really quite the scenario that I was thinking of, but the Olark example is very interesting.

I wonder whether they've paid dividends to YC?

[daniel_levine]

In the instances of those acquisitions, it was purely the choice of the founders as the investors have no control over that decision.

[jdoliner]

Absolutely, it of course depends on the terms. But in my experience investments for that amount never involve a board seat and normally involve a smallish amount of equity so investors have no means to pressure companies into taking an A later if they don't want to. There is some expectation that you'll do something with this money and normally for early stage companies that means hiring people, but I've never heard of an investor strong arming an entrepreneur into hiring people when they didn't want to.

Where does your belief that they do come from?

[crazy_ant]

You must have never heard of situations where a founder gets pushed out of their company by the VC because they are not meeting certain targets.

[runesoerensen]

Pretty sure parent has heard of those situations since he explained why this wasn't one of them.

[billmalarky]

That situation is not possible in a scenario where the investor has minority control of the company (ie a seed round).

[michaelkeenan]

> You seem to be attaching a moral axis to the decision on whether to raise capital

Which part of their comment makes you think that? I don't see it, and I'm curious about how it's coming across differently to others.

[Retric]

There are far more 10 million dollar companies out there than 10 billion dollar companies. Which hints at the fact taking money to grow increases risks of failure. So, if you don't need funding you are better off not taking it.

[optimiz3]

Is the million dollar check going to me or the company? In the later case the company might not need it.

[bootload]

"Consider that people look at you like you have two heads because you're making an irrational decision."

The observer is basing this on imperfect information.

[metaphorm]

that's not the limit case. that's an absurd statement, and venture capital isn't differential calculus.