[jasode]

>In fact, it’s possible to create a huge tech company without taking venture capital, and without spending far beyond your means. It’s possible, in other words, to start a tech company that runs more like a normal business than a debt-fueled rocket ship careening out of control.

The author, Farhad Manjoo, is romanticizing a bootstrapped business as "good" and (via his prosaic examples of restaurants and dog walking) dismissing the VC-backed businesses as "bad."

It should be obvious that the opposite can be true: a bootstrapped business can also be dysfunctional and a VC-backed firm can be disciplined with its money.

Bootstrapping is great strategy especially if you're company that doesn't benefit from "network effects" such as Mailchimp/Sendgrid. You acquire customers one at a time and offer a good enough value proposition for them to subscribe or pay. A lot of SaaS/enterprise companies and lifestyle businesses can grow that way.

Venture capital is really helpful when you need to deliberately grow exponentially faster than bootstrapping will allow because you're trying to build a giant footprint for the network effects. Snapchat is a good example of this. It wouldn't make sense to try to sell the Snapchat app on App store for $4.99 each so it can be cashflow positive and pay for programmer salaries. The first users of their apps were teens in high school and they can't just purchase an app like that without their parents' permission. If Snapchat charged money for the app, they wouldn't even know that teens were the leading edge of that trend. In that case, you need to wisely use vc funding to pay the bills while you grow the audience. Hopefully, Snapchat will end up profitable like Facebook instead of losing money like Twitter.

If you're a "network effects" startup that insists on bootstrapping as the only funding, you will be beat by the competitors that are willing to live with $0 revenue for a few years while their equity financing allowed them to build their user base faster.

[jseliger]

The author, Farhad Manjoo, is romanticizing a

I started feeling Murray Gell-Mann amnesia (https://seekerblog.com/2006/01/31/the-murray-gell-mann-amnes...) reading him a while ago and sent him a tweet about an important thing not discussed in some article, and his sarcastic response made me realize that he doesn't care very much about getting stories as right as he can: https://jakeseliger.com/2015/07/03/why-you-really-cant-trust....

[SonicSoul]

another way you could look at it is "here's what's good about doing it this way" w/out necessarily dismissing VC's as "bad".

as a founder you do have a choice of the kind of business you start. I think he just points out that debt-driven is not the only way to grow a successful company.

[mazeway]

But it then bears the question that if the so called "network effect" companies has any real value (that is to generate profit in the future) or are manifestations of a bubble?

[kartickv]

I think any network with tons of users has some value. Whether that value is what founders or investors hoped it would be is a different question.

[chatmasta]

It's pretty clear that they have value, or the entire VC industry would not exist.

At least, enough of them have value to pay for the ones that don't.

This is basic economics.

[icebraining]

That means they have value for the VCs (usually in the form of "exits", ie, selling to other investors), but the question was whether they'll produce profits (and consequent dividends).

[Natanael_L]

You're mixing up long term probabilities with short term variance and uncertainty. People can make very big bad choices and not see the consequences for years, because not everything unfolds rapidly.

"The market can stay irrational longer than you can stay solvent".

[_pmf_]

> It should be obvious that a bootstrapped business can also be dysfunctional

But it cannot continue to be so for half a decade.

[spitfire]

Oh yes they can!

I have met absolutely incompetent business owners who just happened to stumble into goldmines and through their own incompetence have locked in customers.

Start looking at software for an unsavoury infrastructure industry and you'll find this stuff abounds. Particularly in industries that were early adopters of computerized databases.

[_pmf_]

But at one point in time, they actually met customer demands.

[maneesh]

How is the position of WhatsApp significantly different than that of Snapchat? WhatsApp didn't need outside funding to grow huge...

[jasode]

WhatsApp raised "outside funding" of $250k from ex-Yahoo employees before publicly launching the app in November 2009. They then got another $8 million in April 2011 from VC firm Sequoia Capital. However, Jan Koum was already talking to Jim Goetz of Sequoia a year prior to that (Spring 2010) and it took several months of negotiation to close the deal. I don't think people would call Whatsapp a "bootstrapped company".

Whatsapp did charge for the iOS App and also a 99 cent subscription but it's not clear if they were break-even or profitable from November 2009 to April 2011. Since they were a private company, I'm not sure if they have ever disclosed their financial details before the 2014 Facebook acquisition.

[1]https://www.crunchbase.com/organization/whatsapp/funding-rou...

[xiaoma]

WhatsApp actually used pricing as a way to slow their growth and give Jan Koum's team time to scale their infrastructure. He talked about it in startup school a couple of years ago:

https://www.youtube.com/watch?v=8-pJa11YvCs

[jasode]

>WhatsApp actually used pricing as a way to slow their growth

Yes, I've seen that video. Increasing the price to slow growth is a separate tool from weighing pros/cons of VC money to grow huge. At the time of Sequoia's 2011 investment, WhatsApp was estimated to have ~30 million users. It seems that Jan Koum felt it made more financial sense to get $8 million from Sequoia rather than from his customer base. If JK could raise subscription prices higher ($2? $5?) without his customers complaining to "self-fund" that $8M, that would have been financially better than giving up 10-15% of company ownership to Sequoia. He must have liked the first vc financial deal because he went back to Sequoia again for another $52 million.

If JK is ever on stage again, maybe somebody can ask him why he didn't get that $60 million from his user base. It would be interesting to hear his thought process.

[replicatorblog]

One of the important things about Whatsapp is that they raised only $60M. Comapare that to the the median $285M that the average active unicorn raised. I think it's less a story of billion dollar rounds vs. bootstrapping, and more a case for being efficient with capital.

[maneesh]

You are correct --- I was mistaken about WhatsApp. Thank you for the reply.

[kartickv]

Great point. But, if a startup doesn't benefit from network effects (like an email or camera app), do you think VC money has more benefits than costs?