There have been a bunch of articles about VCs being replaced by Angels and Bootstrapping, but really those articles should just be saying that software businesses have matured to the point where VC funding might not be necessary at all.
At what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point.
In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.
But if a restaurant goes under, you have all the capital right there (pizza ovens, tables). Software consumes its capital. Banks aren't the answer. If it fails, what are they going to get back? That year of your life?
What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.
But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as, you know, SELL SOMETHING to SOMEONE? No giving up equity and you still get the "funding".
The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
But isn't it also true that "crowd-sourced, micro-equity" can easily be understood as [bootstrapping]?
No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares.
If a restaurant goes under, whoever provided funding takes a big hit. Losses = value destroyed. Liquidation values on fixtures and equipment are low.
BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
When we started GitHub, I looked into getting a loan from the SBA because we didn't want to go the VC route, but the requirements were off-putting to say the least.
Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all.
Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.
My parents did this when they started their software company in the early 80s.
It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool).
At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.
Since the capital requirement is no longer a large barrier to entry for web startups, I am wondering this mean:
- a startup should stay in stealth mode longer in order to give it a bigger legs up on its possible competitors
- silicon valley connection to VC money becomes less critical and the team makeup for execution becomes more important. This may mitigate some of the advantages of starting in the valley.
Working on a web startup in Europe the big majority of advice I get is saying "Go to the Valley".
The thing is, in Europe, nobody takes web startups seriously yet. The web is still seen as something that neighbour kid does perfectly well. Why start a company based on that when some kid can do it for a fraction of the price and just as well?
In the Valley, I hear, the attitude is a lot different and if nothing else that means it's a lot easier to get traction.
Yes I can see the value of an open attitude towards web startup would help you hire or partner. And if you are trying to solve a technology problem, you also have an easier time to reach your target customer (other techies). But if your web startup is not tech focused (i.e e-commerce, b2c), does the valley really help you any more in getting traction by growing your user base?
User based growth, I would say no, the valley doesn't help grow that base is not tech focused. But word of mouth exposure, and the possibility of doing face to faces with potential experienced engineers/managers that you want to join,
If you already have all the pieces for partners, and your user base is dispersed, and you don't need capital for growth, then headquarter somewhere cheaper than the Valley (housing and office space can be half to a third the prices you pay here).
Just look at zappos.com. They moved away from the Valley, partly to be in a customer service hub in Las Vegas, and partly because is was just play cheaper.
Thing is, the valley has a really lovely concentration of early adopters. While there are lots of early adopters around here too, it's still different.
Like for example, we're making an iPad app. Just because we're from Europe we were a few months behind people from The Valley simply by virtue of the iPad becoming available much later.
No matter how much we try to hide from this fact, the web happens in the valley and "far from the eyes, far from the heart" rings all too true.
I guess the grass is always greener on the other side of the fence... Sure, people in Silicon Valley usually have a great attitude towards the web and entrepreneurs but it's also cut-throat competition out there. Don't believe that being based in the valley alone will make your life much easier. If you already have a complete team, a minimum viable product and some traction, then you'll be able to meet there people who know how to build up your audience and maybe get funding. There's definitely more experienced people there per square meter than anywhere else. But it's also a very expensive place in terms of housing/office space and talents.
Europe might not be as web-friendly but there has never been a better time for startups there. Think Seedcamp in the UK, startup bootcamp in Danemark, Hackfwd in Germany and many, many more.. There are loads of people in Europe taking startups very seriously.
At the end of the day, users don't care if you're based in Singapore, London or San Francisco. Also, you should be able to get an iPad not too long after anybody else in the US :)
Especially with CDNs and distributed infrastructure providers even latencies are becoming less of a problem. Technological conditions can only improve in the long term.
While I develop my first prototype in Mallorca I´m observing what's happening in the continent and speculate about the emergence of a fuzzy system of VCs, talented geeks, developers and researchers, with the same virtues of Silicon Valley. I dare say that the event here in Europe will be a Silicon Landscape instead of a Valley. We have the funding and the technical systems. The economic one will develop slowly. I see the main constraints within the policy-political system, which is based on command-and-control and top-down hierarchies, making it very difficult to emerge from the bottom.
Still we have great successes like Skype & Playtech, or on earlier stage Spotify in Europe, just to bring a few examples. There are thousands of other exciting startups.
Seedcamp had 10+ events this year with 20 selected startups presenting at each and hundreds applying to some of these. That's up to 1-2 thousand ambitious startups out there. Each of the countries, even the smallest ones like Slovenia and Estonia, have tens or hundreds of exciting teams.
Valley has huge pluses for growth. At the same time, it has cut throat competition for getting noticed or even getting meetings with investors.
Getting traction depends on product. In Valley you understand, how competitive it really is to get traction.
This article raises an interesting point. However, I would argue that the startup costs have fallen across the board, whether you're a software startup or a startup in another field. First, it's much less expensive today for startups to obtain key services due to the prevalence and availability of offshoring. Second, new technology enables many startups to handle some services in-house, whereas before it required hiring an expensive service provider (e.g., Google AdWords). Third, there is a shift in mentality towards a leaner, smarter mode of starting up. Founders no longer feel the need to obtain overhead that (a) requires substantial investment and (b) creates little direct value for customers. If I remember correctly, a story from the dot com bust was when eToys used some of its funding to BUY a high-rise office building in Los Angeles.
Your second point: Isn't Google AdWords an example of a good third party service that replaces an expensive in-house specialist (or hired outside specialist)?
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[ 1.9 ms ] story [ 63.9 ms ] threadAt what point can I walk into a bank and get a normal business loan for my web app company? I think we're approaching that point.
In my mind you can bootstrap the average web app company, and when you actually acquire some revenue and need capital to grow, get a small business loan. Is the risk in these kind of companies any greater than the average restaurent? I don't think it is. Software has lower capital requirements at first, lower operating expenses, lower overhead, but for some reason the norm is still to trade equity for cash. Forget that, just trade debt for cash like a normal business. I'm not sure banks will go for it yet but I think we're approaching that point when it is possible.
What we need is crowd-sourced, micro-equity. Anyone who thinks an idea is good to invest small amounts for small stakes of equity. The barriers have been regulatory legal issues, but those will be soon eliminated. OpenStarts is one such initiative working on this.
The thing is, that's called bootstrapping and the problem with bootstrapping is that it's just very damn slow. Sure you can do it, but you won't get the anorganic super fast growth you need to compete against the whole world. It works when you're doing stuff locally, now that everybody's shooting for global markets via the internet it can be a dash troublesome no?
No. I'm talking about something else. Micro-equity means giving up a small amount of equity for a small amount of money. Instead of an angel getting 100,000 shares for 200,000 dollars, you get lots of investments of 50 dollars for 25 shares.
Take a look here: http://www.me-vc.com
BTW, here's a good rule of thumb for investing in restaurants as a non-controlling partner: Don't. I never heard of a good ending, even if it was good for a while.
Stuff like "SBA requires the borrower to have invested between 25 to 50 percent of the amount requested." So, you'd have to toss in 5k just so they'd give you 10k-20k and for that kind of money, it didn't seem worth the hassle at all.
Banks won't ever give out tech company loans unless you have the personal collateral to back it, because they can't repossess your code.
It only happened because a group of their friends was starting a bank -- they got a sweetheart deal that included a mortgage for the neighboring apartments in the co-op they lived and worked in (later combined into one 1700 sqft apartment). My mother worked out a sweet tax deal where the business paid them rent on the office portion of the apartment, including the 'executive washroom' (complete with kiddie pool).
At some point in the 90s the bank got merged and acquired a dizzying number of times. I'm pretty sure the business loans got paid off before that, but the sweetheart mortgage remained.
- a startup should stay in stealth mode longer in order to give it a bigger legs up on its possible competitors - silicon valley connection to VC money becomes less critical and the team makeup for execution becomes more important. This may mitigate some of the advantages of starting in the valley.
What do you think about the assertion above?
The thing is, in Europe, nobody takes web startups seriously yet. The web is still seen as something that neighbour kid does perfectly well. Why start a company based on that when some kid can do it for a fraction of the price and just as well?
In the Valley, I hear, the attitude is a lot different and if nothing else that means it's a lot easier to get traction.
If you already have all the pieces for partners, and your user base is dispersed, and you don't need capital for growth, then headquarter somewhere cheaper than the Valley (housing and office space can be half to a third the prices you pay here).
Just look at zappos.com. They moved away from the Valley, partly to be in a customer service hub in Las Vegas, and partly because is was just play cheaper.
Like for example, we're making an iPad app. Just because we're from Europe we were a few months behind people from The Valley simply by virtue of the iPad becoming available much later.
No matter how much we try to hide from this fact, the web happens in the valley and "far from the eyes, far from the heart" rings all too true.
Europe might not be as web-friendly but there has never been a better time for startups there. Think Seedcamp in the UK, startup bootcamp in Danemark, Hackfwd in Germany and many, many more.. There are loads of people in Europe taking startups very seriously.
At the end of the day, users don't care if you're based in Singapore, London or San Francisco. Also, you should be able to get an iPad not too long after anybody else in the US :)
Seedcamp had 10+ events this year with 20 selected startups presenting at each and hundreds applying to some of these. That's up to 1-2 thousand ambitious startups out there. Each of the countries, even the smallest ones like Slovenia and Estonia, have tens or hundreds of exciting teams.
Valley has huge pluses for growth. At the same time, it has cut throat competition for getting noticed or even getting meetings with investors.
Getting traction depends on product. In Valley you understand, how competitive it really is to get traction.
http://www.cbinsights.com/blog/venture-capital/there-are-two...