I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.
Local banks can provide the capital, often collateralized by your house. Also small business loans from the government and accelerator awards can provide 6 figure amounts. I know some "generic" business people who are fairly wealthy and they own things like food franchises and apartment complexes.
There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
My question is why does everyone with the next CRUD SaaS app think they need to hire the “best people”?
I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently.
And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
A 10x programmer can get things off the ground very fast.
Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
I consider myself a “regular guy” (and 80% of drivers think they are above average). But I believe I can go through my LinkedIn profile and find a bunch of “regular guys” that I’ve worked with through the years that if you combine us with a “product guy”, an empty AWS account and a budget. We could put together a standard SaaS app.
Also there was a time when "lifestyle business" was getting shade as if it an inferior product for inferior people. I think that was probably just VC shade being thrown at it because they couldn't do anything with the kind of business. That and platforms probably ate away at their core offerings...
Of course, they are on the back foot. If you have a successful indie business, make good money why would you accept VC investment? If you do it's on your terms and that often means worse deals for VC's. I can't blame VC's because their business modal is really different, they need to make a 100x not a value investment.
As someone who owns a lifestyle business, I think the domain of lifestyle businesses is almost entirely distinct from that of startups. Something that has the potential to be a startup (massive growth), could not be "held back" to remain a lifestyle business. And things that are lifestyle business generally cannot be grown at the pace of a startup.
Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large.
Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC.
That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
This framing assumes that venture capital is both efficient and perfect at identifying potential for massive growth. In reality, there are many technology companies with potential for massive growth that are under-appreciated by the venture community - they don't fit into the right boxes, and if they were to get on the "fundraising treadmill" as the OP describes it, they'd be stuck in a situation where they're forced to spend aggressively without being able to rely on future fundraising making that burn sustainable. The good news is that would-be competitors would be in the same situation. So it's very possible for such a company to think like a startup in terms of its goals, but move at a more sustainable pace than if it were given hundreds of millions to burn. And those startups can still raise from VC when they've proven out their model, if they choose to do so - but it's important that they have a path to success as a startup that doesn't require those levels of cash injections.
Might be an effort by VCs to sell their own lifestyle. "Start a company in your dorm and become a billionaire by 25." Is possibly more compelling than "Start a business that might make 5M a year in 10 years and then live a relaxing well funded life."
> top-tier VC returns by building a portfolio of Mittelstand businesses
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business".
I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle.
I think it's the latter type that the article is referring to.
Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"?
My interpretation of the comment was that tons of business are just clumped into the “lifestyle” category just because they don’t aim to maximize valuation.
Lifestyle business doesn't mean what you think it means. Supports a persons or family lifestyle (i.e. you need a place to live, food, essentials, and could be more than just that...), rather than being for investors to make equity growth.
That definition is still horrible. Plenty of investors interested in buying equity in a franchise or retail shops. What that has to do with "lifestyle"?
No. The definitions of these are clear. It's pretty easy to define what is a franchise and what is a retail shop.
The problem is with this definition of "lifestyle business". What is the cutoff? What does it mean to "support a lifestyle?" If a company makes 10M/year and it is growing at a healthy pace without VC capital, is it "lifestyle"?
If someone makes a living of investing in fast food franchises, each shop by itself taking 500k of initial investment and then returning $100k/year in profit, do you count each individual franchise as a "lifestyle" business or the whole thing as an "equity investment"?
Like others said already (and maybe that is the point of TFA), this definition of "lifestyle business" seems to serve only as a way for VCs to downplay the significance and importance of so many businesses that exist in every sector.
Clear and broad at the same time. A Times Square McDonalds store and a country town uniform shop fall under this umbrella.
Cut off is “would an investor buy equity for growth”.
Some people own say 5 mcdonalds franchises: the owning business might be a growth one if they are planning to expand. Might be lifestyle if they don’t. Dynamics
matter as much as a static snapshot view.
Might be a middle ground but I think it is small. Coops for example.
and you can always just be an investor in a business with simple % ownership and splitting net revenues at any interval you want. no multiple share classes, no liquidity preferences, no need for infinite growth or growth at all
This is where the term "Mittelstand" gets lost in translation, and speaks to the Author's point that the Americanized definition of start-up has become too polarized and absolute.
It is neither a lifestyle business nor a shareholder-driven business.
Mittelstand doesnt even have agreed upon definition here in Germany. I've heard people call everything and anything that lies between your local mom and pop show and Volkswagen "mittelständisch".
My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them.
Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
Is Berkshire Hathaway a lifestyle business? Because it started out as one.
That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
> Is Berkshire Hathaway a lifestyle business? Because it started out as one.
My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
Yes, but why would you say that it was a lifestyle business? I mean, it's not about size or being family-funded, I'd argue that this hedge fund was something entirely different from a lifestyle business since day 1.
Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.
Yes, I feel more useful information would be a story from someone who failed a bunch of times, then finally found success, and what the differentiating factors would be in his particular case.
I think it's important to take advice from a lot of people. It's up to you how to frame what to do with it or how much you think it applies to your current situation.
I'd just recommend not painting with too broad of a brush.
One of my favorite stories about Dabo Swinney, Clemson's football coach, came when he had just gotten the job and very few people had any confidence in him. ESPN rated him as a D+ hire at the time. He sat down at a coaches dinner event and a much older retired coach named Bill Curry was at his table. They struck up a conversation and Bill said, "Dabo, congratulations on the job! Can I give you 3 pieces of advice?"
And Dabo took out a pad and pencil from his pocket.
The advice was good, but the fact that Dabo was humble enough to actually take notes. Think about how much advice we just let go in one ear and out the other.
Now he's the best coach we've ever had and won 2 national titles.
I'm not 100% sure I agree, but I do think that people who have hit wild levels of success generally don't have advice that tangibly applies to most people.
Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my position, where I have $100 MM. 10 years ago, when I was broke, the advice he's giving me now would have just put me further in insurmountable debt."
Most ultra-successful people somewhat forget the baseline that most people live in. For example, if they were to "restart with nothing", they usually assume that "nothing" still implies a good credit score, housing, food, healthcare, etc. which most of America is really spending all of their time trying to fight to secure. This translates to the out-of-touch and generally vague advice they give.
Yes absolutely. It would be a great experiment to see what any ultra-successful person would do with even that massive leg up - which puts you in the top 10% of the US, if not the top 5%. And no, they aren't allowed to use any of their connections ;)
The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.
Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)
Of course, they still find things to complain about - as do I.
There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.
I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor (this story is in the post). We would've been better off raising less money and going for profitability earlier. Labdoor made it to the middle class the hard way, and I'm trying to help others avoid some of my pain.
Thanks Neil - I certainly do not mean to disparage your success or work done with your writing. I think part of my comment is driven by the need for someone on HN to post something cynical.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
> I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
If someone has been massively successful, that means they know how to be successful. It must be the case they have something of value to say. How can you make the argument they have nothing of value to say?
You’re getting downvoted because it’s almost always parents and their friends.
Pull like any tech big shot at random, their parents are rich and bought some part of their success. Gates’ folks had an IBM mainframe installed in his fucking high school.
Oh myGod, this kid Bill Gates is way ahead of the curve on computers.
First, I would argue that your statement is not true that successful people always or even generally or on the average know how to be successful. But even if it is true, because they are good at one thing (starting businesses) does not mean they have anything valuable to say, or that they can say it in a way that transfers value to others, or that they are good at anything else, really.
Anyway, you're attacking a premise I didn't put forward - I didn't say his advice was not valuable, I said I feel that way when presented with articles like these by wildly successful people.
If somebody has been massively successful from nothing multiple times, it means they probably know how to be successful. If somebody has been massively successful once, it means there is a definite possibility that they know how to be successful, and also a definite possibility that they had connections and/or luck.
Simple. Survivorship bias. HBS and other business journals have done many studies where they look at the key attributes of a successful entrepreneur and it's always the usual stuff like: hard work, persistence, willingness to take risks, etc. The problem is that if you surveyed the key attributes of UNsuccessful entrepreneurs you'd find the exact same attributes.
> Am I the only one not interested in taking advice from someone who has largely been massively successful?
I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.
So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.
Or just, good food, decent connections, a good education, and general support during your most important developing years. That goes a huge way and almost no one has these things.
Depends on your definition of all, successful, and lucky.
If you change successful to be defined as people like OP, I believe a large majority of successful people are extremely lucky. Probably over 99.9%. They owe their success to being extremely fortunate in a combination of many factors, not limited to:
- Where they were born
- Who their parents were
- What food their parents gave them when they were kids
seems like a not useful definition. If we go with this what is not from luck? Someone works hard? That's because they got lucky with the right genes and upbringing. They're smart, born to the right parents. If we go with this then everything in life is a matter of luck.
Someone once asked the Duke of Westminster for career advice: “Make sure they have an ancestor who was a very close friend of William the Conqueror.” At least he was honest.
Understand your motivations. There are plenty of detestable successful people that still have plenty one can learn from.
It is up to you to be able to filter good information from bad. Wealthy founders do share some opinions that will help you be wealthy. However you need to learn to discriminate between good advice and bad advice. Your blanket ban seems poorly thought out to me.
Bonus unwelcome advice: you appear to be using the word successful to mean wealthy. Perhaps deconstruct your worldview a bit.
IMO it's good to take the advice of consistently successful investors who seem to prioritize honesty. Warren Buffet, Charlie Munger, and Chamath Palihapitiya are my favorites. My reasoning is that you can't make consistently good investment decisions without having a reliable mental framework for how to look at the world.
For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.
IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.
Yes, but there will always be niches where you can make good money, but not enough for the big fish to be interested. For example, my wife uses some statistical software that is apparently pretty popular in her field, but it's still only used within a niche of academia. You might be able to find a niche that brings you $10M/year in profit which is enough to live a lavish lifestyle, but not enough for VCs to fund you or for Amazon to bother competing with you.
...which is why you need strong regulatory oversight if you want the software market to have any functioning level of efficiency.
The economies of scale are enormous in software (and data-oriented businesses in general). That's good for the efficiency of any given enterprise, but it pushes very heavily towards monopolization and zero competition without regulatory force to counterbalance.
That doesn’t hold at all unless there is significant lock-in that raises switching cost. If there is a company sitting there with no overhead collecting $10m/year for software all of its customers hate, it’s ripe for competition to take it overnight.
Great note/outline format, if I already know the key ideas/takeaways and where they are relative to each other, but really awful to follow reading it for the first time.
There are a lot of random "startups" or rather, tech companies that managed to keep their customers happy while never really seeming to explode to huge capsizes.
While some comments here are criticizing the author, I'd like to add that what the author says matches with my (extremely) limited experience. The most "glamorous" are YC-type funds, while others seem to be built with money more locally pooled from friends/family/banks. There are a few <X City> entrepreneurship centres and startups, but these unsurprisingly aren't as famous as funds with billions of dollars. I wonder if there's a way to increase the visibility of the middle kind of organized-but-not-10s of millions of $ funds - both as a social experiment but also as an aspiring entrepreneur.
Please yes. As a founder aiming for the kind of outcome described above, finding the original 500k of funding is the hardest part right now. No idea who to ask or what they expect.
I don't think it's an issue of making middle-sized businesses "cool", I think it's an issue of capital, right?
The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.
Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.
If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".
The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?
Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?
I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?
I'm a fan of bootstrapped companies and have started and operated a couple of them, sometimes quite successfully. But I don't understand how the economics of funding them are supposed to work. VC is a star-search business. Most businesses fail, and that includes businesses run conservatively with organic growth. In a portfolio like that, the winners have to pay for the losers, or the math just doesn't work.
I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy.
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
I wonder if the numbers you're giving are tripping up a mismatch between what you mean by "Mittelstand" or "mid-market startup" and what HN generally thinks of. You're saying the numbers are attractive given a "mid-market" definition that spans all the way to 9 figures of annual revenue. It's true that there's much less risk in quickly getting a company to 6 figures of annual revenue and growing organically from there. But there's a lot of risk --- risk equivalent I think to the typical VC-funded startup --- trying to get it to 10MM/yr within the time horizon of a typical VC investment.
Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.
I think one thing that can help is many businesses (we read about them on HN all the time) are "successful" and could be $1m, $10m, even $100m/yr - but they have to be pushed to $1b/year or more to satisfy the ICs.
Somehow to allow them to "exit" at 1/10/100 instead of trying for 1b or crash would be nice. But it would need a different type of "VC" partner.
One funding mechanism could be something akin to "guilds" - once you have a group of ten or so of these businesses "together" they could help fund additional ones. A "guild-like" setup (think Union of workers that owns a percentage of the companies, perhaps) could be used to fund new ones starting out.
Again: the winners have to pay for the losers. The unusually large successes are what makes the model work. I'm sure they're pushed past the point where they need to go to be economically viable, but by the time you've reached that scale, you're already out of the "mid-market" bracket.
If you’re able to pick successes with 90% accuracy at the stage where they’d benefit from this level of investment, I’d like to borrow your crystal ball.
Right, where I think you're seeing pushback is on the idea that you can reasonably get anything resembling 9/10. Think about what that's saying: we're talking about businesses doing 8 figures of annual revenue. If there's a playbook for reliably creating those --- "reliably" meaning "you can build a portfolio of them run by different people serving different markets, and make money" --- what is that playbook? Getting a 10MM/yr company off the ground is not a small achievement.
Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.
This thesis doesn't hold up for me, I feel like I have to be missing something.
Choosing safer paths does not bring you from 1/100 of success to 9/10 - perhaps it brings you to 3/100 or 1/10, but at that level you still have to have the winners making it very big to pay for the losers.
As someone that has been working hard in this domain, there is one major problem to this in software.
Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.
There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.
I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.
There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.
But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.
Whoever find out how to provide them this will unleash massive growth on the world.
>> Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)
Totally considered. I did my bootstrapped startup while working a day job for the first year. The point is the value of your free time is 250k/yr. If you are smart and motivated, your time is incredibly valuable regardless of what your employer is paying you -- because you cannot easily hire that skillset with VC money.
In my case, when I was raising in 2012, the typical VC line was "go move to SF/SV and work for ramen-pay", which is ridiculous and only something rich people can do (things have changed now.) So I bootstrapped and built it myself on my spare hours (note, of course the start up should not be competing in the same market with your dayjob which would be a conflict of interest.)
Once you have a prototype and de-risking, the tables turn and VCs chase you
I mean, what is the alternative? See the GP comment I was replying to:
>> There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
If you're not in the circle where VCs are throwing money at you for some juice squeezing appliance, then you just have the option i've presented...or the option of not playing at all. But i'm very interested in the topic, i'd love to hear what your proposal is...because I think "poor people cant found tech startups" is not the world I would want to live in.
I mean the problem is not only poor people. It is that access start at 250k a year which is really hard to get even in tech.
The reason it is harder in tech to get funding for these good ideas that could be profitable has multiple factors
1. As pointed, decoupling of relationship between entrepreneurs and "old money". This could be rebuilt even a the local government level with reach out actions
2. The untangibility of tech assets make banks loans near impossible to get
3. People cannot afford the risk. Better safety net would help. Obamacare was a good first step. Far more are needed.
4. The winner take all model has failed to generate profit. It generated capital returns but as pointed out by OP, pretty bad one. But it needed a lot of capital and LPs had a lot of money to throw around. The current inflation and folding back to Value investment will help. But we need to make the point.
5. The rise of passive investing has reduced the amount of money available to these kind of "semi anateur small rounds". The return to a less bullish market may help.
6. Housing. A lot of money and security rn for young people is sinked in rent
7. O'Reilly had amazing result with Indie.vc. The LPs refused to invest. There is a story that need to be told more. We need dozens of people banging the drum on this.
In the end... i don't have a solution sadly. We need a return to fundamentals to make the story of these models work. Focus on real possible profit and not some "we will control the world". FAANG are the exception. Not the rule. LP need to realise that.
>> 2. The untangibility of tech assets make banks loans near impossible to get
Avoid bankloans and explore PIPE financing or similar non-dilutive financing
>> It is that access start at 250k a year which is really hard to get even in tech.
Not really. If you aren't VC funded, you can hire anywhere and anyone. You make the rules. At that point, you can hire in India, Indiana, Ukraine, Pakistan, or Pennsylvania. You get a lot for your money. We hired entirely outside major markets and saved a lot. Unfortunately once you go the VC route you get forced into hiring expensive talent and end up burning money.
No founders are paying themselves $250k/each/yr until MANY rounds of funding in. If you get seed/angel funding, you'd be paying yourself like $40k in the U.S. if at all. Founders take a lot of risk too, not just "play with funding money earning a job salary"
I like your concept - few come to the realization that you do. I come to a different conclusion. I believe founders can make good progress using their income to replace themselves the first months (eg: outsource as much as they can) rather than to initially work full time..
Sounds to me like those founders don't really have the work ethic required to start a company if they immediately set out a red line that they won't work for less than $250k/yr. Who the hell makes that kind of money anyway? Only a very very few do.
There is a simple solution. It also give middle class an actual shot at an exit even without hitting a unicorn. This is for the groups that went to state schools not the Ivys.
Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find a problem and start finding customers. No salaries are needed as each parent takes care of their own kids. This gets rid of the problem of just giving 22 year olds $10M and hoping they figure it out. The middle class doesn't have that kind of money, they have to be smarter but it is possible. Someone who has the knowledge could make a template that others could just use even without the know how. I wish my parents would have done something like this. I didn't have the chance to mess with a start-up after graduation. I worked 40 hours/week while in college. Graduation was about getting money asap to start digging out. This is the thing that the 1% have over others, a huge backstop and support self in case they fail.
If they can't do that, then it's not an initial funding problem (which the parent post tries to solve) but that their business just should not get started.
I dunno. I feel like the first 500K aren’t really the big problem, since growing to, say, a 500M valuation as an upper limit is still quite the upside. Also, non traditional funding options are on the table at that level (some cash from you and family, some equity in your home, perhaps some state funding or loans).
I feel like the next rounds may become much more difficult. How can I raise the next 10M, …, 200M if the company is unlikely to grow beyond 500M?
> The current young people simply are too unstable and too close to poverty to take the risks.
One piece of the solution that is very clear to me and contains many other upsides is better access to healthcare. The fact that Americans mostly get healthcare through large corporate jobs significantly ratchets up the risk of entrepreneurialism. A better healthcare safety net would make it safer to leave the safe confines of a corporate job that provides health insurance.
If you are an entrepreneur under say 40, can’t you just roll a D10 and hope you don’t get a 1? Surely most people before middle-age won’t need expensive healthcare?
A 10% chance of a million-dollar healthcare bill you can't pay and will spend the rest of your life dealing with is still shitty odds on top of all of the other risks involved in starting a business.
Also: parents. Childbirth is expensive and most parents want some reasonable level of certainty that they can afford good healthcare for their kids. Or, to put a finer point on it, when forced to choose between health stability for their children and starting a business, most will sacrifice the latter to get the former.
This resonates with me. I have close friends who would be great co-founders, 3 out of 4 have moved in to camper trucks or vans. They work easy remote jobs and just enjoy life. We are mostly in our early 30s, worked in startups together over the years as engineers, sometimes as first or second hire. It's going to be quite hard to talk one of them in to being a principal co-founder at this point.
Disagree. This is like complaining rent in the big city is $4k/mo and impossible. No, spend a week on craigslist and get a great place with a roommate for $1.8k/mo.
The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.
I have a total free time to do non essential things per week of 3h. And i already have insomnia which is the only reason this time is not in the negative.
"Medium scale/growth/etc startups should be feasible.
And
"Middle class startups should be feasible for people of all time/energy/financial constraints"
---
My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.
> but the first 500k are near impossible to get without a network in old money
Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal
You sound like you are making a lot of excuses, but I actually deeply agree with every negative point that you make.
As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.
This is an English-speaking board where people have individualistic preferences so it isn't surprising that people default to an answer from private capital, but in Europe the government does this, and it works. Starting a company in the Netherlands was a breeze, and the tax breaks are very generous in the first few years.
I am in France, and i can tell you, the government only really support "want to be a unicorn" or companies that are already established or company that generate a ton of local jobs.
I went to talk to our local chamber of commerce and industry, which handle navigating the subsidies, and their answer was "how many local jobs are you creating ? Just you for now ? Then we cannot help you, come back when you create a dozen in the region"
Businesses that are shooting for the "middle class" (say, less than $50M in earnings at their peak) are of course possible and healthy and good for the economy. What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is. To use the article's definitions:
* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!
* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.
If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:
* Less availability of capital
* More dilution
* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
* Long and protracted due diligence processes before the check even lands
All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.
The key is that Mittelstand businesses are much less likely to fail. (This is why PEs on average outperform VCs. I go into these economics in my post.)
This can be the Goldilocks deal for founders where you raise <$5M from angels or PEs who are happy with consistent 5x returns and get to $10M+ revenue and $50M+ value with majority ownership. And there are orders of magnitude more of these opportunities available vs. VC-backed unicorns.
And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero.
I hit the wall at Series B with my startup Labdoor. We pivoted to profitability and are now headed to Mittelstand land, but this all would've been way easier if we just headed straight to middle class.
> The key is that Mittelstand businesses are much less likely to fail
I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence phase, bringing back a bunch of things that tech founders have eschewed: detailed business plans, fundraising towards specific initiatives (as you point out in your post), and harsh measurement of progress towards those goals in board meetings with rapid consequences if goals are missed.
I don't have a definitive answer, but I'd venture that that's is something that can be addressed by your pitch, how high you are aiming, etc...
Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
>The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
It's a stereotype that startups don't have things like estimates of revenue, a clear business plan, clients, etc... A few crazy outliers get all the attention but the vast majority that get funding have a clear and convincing plan to get to profitability, and often clients or at least partner businesses (in other words clients that aren't paying yet, but are willing to spend their own resources working with you).
The problem is that most new businesses fail, so if you're investing in new businesses the winners can't just make you a little money, they have to pay for multiple losers too.
You also need to convince investors that it's worth putting their money into these risky businesses instead of say Microsoft/Apple/Google/Amazon/etc... which will not go out of businesses anytime soon and produce respectable returns.
Even startups not aiming to be the next FAANG company have trouble estimating revenue, product development time, etc. It's just extremely hard to know all the unknowns when you are starting a new business, especially since it is likely that you are only an expert in one of the required fields (eng, product, marketing, sales) to bring your product to market and will have to learn everything else on the fly. Most business plans for startups are useless.
> I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail?
By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
> You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
In the US, unless you can put up property like a house or land as collateral, or plan to use the loan to purchase recoverable assets like industrial equipment (I suppose a data center would qualify, but actual computer hardware depreciates faster than banks like), you won't get the loan, even if it's a local bank you're approaching.
In theory a software business could use IP assets as collateral, but that usually doesn't apply to new software businesses.
Getting to the point where a software business could get a business loan from a bank more or less requires bootstrapping.
Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.
In Germany, there's the option to have the government secure your loan towards the investment bank. For the founder, that means you get capital into your new company and only the company is legally liable for it, but not you personally.
This seems to be why Germany has a lot of healthy middle / medium sized businesses, if indeed true on face value.
This is what the US should really subsidize, the ability to bootstrap and start a new business, especially first time business owners. I know the SBA does some things around this but it is very much focused on "mom & pop" type stores, I don't know of any software businesses started with an SBA loan (though I imagine due to time and volume, there probably is one).
I think taking the risk out of it in this way would be a huge economic win, but it would definitely not be popular with the incumbent businesses that have the dominate lobby voice in US politics.
That's what I did, and that's not how it works. The Bürgschaftsbank guarantees the loan in case the founder fails to repay. I'm going through that right now.
most new businesses in the US are still bootstrapped, usually through a combination of family (non-)wealth, non-professional investment, (small) bank loans, supplier credit, and plain ol' hard labor. most of those will be small businesses, but many will grow to mid-sized businesses. most will not be software businesses.
software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.
what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.
I had not considered the way crypto/nfts have been commandeered to be a side effect of wealth not being able to be allocated fully anymore. That's an interesting take. I wish there were a way for that kind of wayward money to do some real work improving our communities while it waits for something more profitable to do.
I don't necessarily mind that people are trying to make money with their money, but it is a shame that so much capital is caught up in financial instruments that don't do any real work while it's holding onto it.
that's exactly the crux of the problem: a misallocation of resources due to the increasing distortions caused by increased wealth concentration. it's directly observable in investment markets like software startups or crypto, but it's effects are felt all over the economy.
like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).
at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.
> I had not considered the way crypto/nfts have been commandeered to be a side effect of wealth not being able to be allocated fully anymore.
If I point out that Marxist economic theory talks about a "crisis of capital accumulation" where capitalists (meaning those with capital to invest) don't have enough places to invest their capital succesfully, and that this is related to "financialization" as a method of opening new places to put capital (also in some circumstances "imperialism"), and that in different periods this can go up and down... in the past I usually get down-voted.
> The key is that Mittelstand businesses are much less likely to fail.
Citation needed.
Around half of new businesses in the US fail after five years[0], and it is reasonable to assume the vast majority are small.
Mom and pop businesses fail all the time, we just don't hear about it very often.
Also, one of the key properties of Mittelstand, as I understand it, is that you don't need, or indeed want, an exit. It's (ideally) a cosy, lifestyle business.
I agree that this is a healthy approach and more people should be aware this is a viable option, but I'm not so sure it can be mixed with PE or VC (for the reasons I mentioned).
I think this would be much more healthy than the multi-phase aim-for-the-moon approach everybody takes today. And quite likely brings better results for both the investor and the founders.
If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss.
Your points also seem a bit odd:
> Less availability of capital
There's no reason for that. If the investments are less risky, there should be more capital, not less.
> More dilution
Yep, at least more dilution per round. Companies doing that shouldn't do multi-round or have a very small first round followed by a second one.
> Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
Hum... Bringing management is a VC only thing. Their desire to bring management is clearly one of the forces stopping them form investing on less risky ventures. It's a non-performing choice for risky startups, and it's a non-performing choice for less risky ones. I'll just not call it stupid because there are handful of contexts where it's not, but doing it by default is clearly stupid. The good thing is that it's not viable for less risky bets.
> Long and protracted due diligence processes before the check even lands
Concerning "And quite likely brings better results for both the investor and the founders.":
That "[it] brings better results" for some groups does not imply that it more healthy for this group. Also the other way round: "more healthy for some group" does not necessarily imply "better results for this group".
In this sense I did not think that this phrase was to be considered an answer to my point.
Hum, ok. You are interpreting "better results" in a strict monetary sense, without accounting for second-order problems from bad deals.
It looks more healthy for both groups. I do expect it to bring better both first-order and second-order results. (Those two are always correlated, and on investment relationships they are very strongly correlated.)
>If the investments are less risky, there should be more capital, not less.
That's not the right metric. An investment balances risk and reward. If the reward of the less risky business is too low, then there will be less capital. If I guarantee your money back, and also zero growth (I'll just hold the money then return it), no one would invest - not enough reward.
Next, you have to outperform other risk/reward outcomes, such as bond or stocks or real estate, etc. Otherwise investors should (and likely will) put their money elsewhere.
For some market to get significant investment, it has to do well on the risk/reward frontier compared to alternatives.
Those reasons are why there is not massive VC type funds investing in companies like these. It's not that VCs are stupid, or investors are stupid. It's that the risk/reward for such companies has to compete against all other options for that capital.
These deals work for smaller funds with fewer staff. The current situation stems from the giant funds. Not so long ago most A rounds were a couple of million or less.
> What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is.
I don't understand your definition of "founder-friendly." I want to build a business that delivers real value to customer and I want to do that from day one. I don't mind working harder or working on boring problems (if necessary) to do that.
FWIW the German "Institute for Mittelstand Research" defines Mittelstand companies as being fully owned by a family who is able to operate economically independently. This by definition excludes most forms of VC funding (having a board with seats held by people outside the family would defy that definition).
Even without this restriction the common definition in Germany is the equivalent of SME, i.e. less than 500 employees and less than €50M annual revenue. This includes some 95% of companies in Germany.
So unless he's asking VCs to invest without demanding equity or any amount of control that would interfere with the will of the family owners of the business and for the goal to be capped at €50M annual revenue, I don't see how "Mittelstand" is the right concept to use.
FWIW the resilience of (traditional, i.e. older) Mittelstand companies is likely more related to the same factors as the resilience of worker co-ops (which likewise tend to be growth-limited but stable across economical crises): the owners have a personal (often generational) stake in the company and the workers are assumed to be in it for the long run rather than being laid off at the next opportunity. Plus of course the owners' fortunes being so tightly coupled to the well-being of the company means that they're able and willing to inject their own capital as necessary to weather crises.
The problem with micro services is that your CEO drank the Kool-Aid. Now your CTO has to get it done and your VP of Engineering is stuck with a large bag of feces.
there are plenty, they're called 'business', or 'small business', or 'grocery store' etc. they have to make money first day to survive, unlike VC 'startup's that burns other's money without worrying about profits for a while.
I've made this comment verbally to a lot of people who seem to agree, but now that we seem to be in a firm correction maybe it's safe to say it here on HN:
The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.
It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.
The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.
These are the two businesses you see on social media. It does not mean the middle class doesn't exist. Perhaps they are busy delivering value to their customers to brag about it on social media and/or source their revenue from "building in public"?
I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.
I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.
Reminds me of talking to a VC who said that one of his investments 'turning into a $20MM company is the WORST outcome'.
The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...
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[ 3.0 ms ] story [ 312 ms ] threadThere are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently.
And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
Where can I find industry stats to explore this assertion?
https://www.mashed.com/178309/how-much-mcdonalds-franchise-o...
7-11 is between $50-$75K.
https://mobile-cuisine.com/franchise/7-eleven-cost/
Subway is about $40K a year
https://www.eposnow.com/us/resources/how-much-do-franchise-o...
Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large.
Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC.
That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential.
You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.
I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle.
I think it's the latter type that the article is referring to.
Seriously, please get out of the SV bubble.
By whom?
The problem is with this definition of "lifestyle business". What is the cutoff? What does it mean to "support a lifestyle?" If a company makes 10M/year and it is growing at a healthy pace without VC capital, is it "lifestyle"?
If someone makes a living of investing in fast food franchises, each shop by itself taking 500k of initial investment and then returning $100k/year in profit, do you count each individual franchise as a "lifestyle" business or the whole thing as an "equity investment"?
Like others said already (and maybe that is the point of TFA), this definition of "lifestyle business" seems to serve only as a way for VCs to downplay the significance and importance of so many businesses that exist in every sector.
Cut off is “would an investor buy equity for growth”.
Some people own say 5 mcdonalds franchises: the owning business might be a growth one if they are planning to expand. Might be lifestyle if they don’t. Dynamics matter as much as a static snapshot view.
Might be a middle ground but I think it is small. Coops for example.
all this is still around ya know
people act like they just forgot
It is neither a lifestyle business nor a shareholder-driven business.
My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them.
Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
One of my favorite stories about Dabo Swinney, Clemson's football coach, came when he had just gotten the job and very few people had any confidence in him. ESPN rated him as a D+ hire at the time. He sat down at a coaches dinner event and a much older retired coach named Bill Curry was at his table. They struck up a conversation and Bill said, "Dabo, congratulations on the job! Can I give you 3 pieces of advice?"
And Dabo took out a pad and pencil from his pocket.
The advice was good, but the fact that Dabo was humble enough to actually take notes. Think about how much advice we just let go in one ear and out the other.
Now he's the best coach we've ever had and won 2 national titles.
Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my position, where I have $100 MM. 10 years ago, when I was broke, the advice he's giving me now would have just put me further in insurmountable debt."
Most ultra-successful people somewhat forget the baseline that most people live in. For example, if they were to "restart with nothing", they usually assume that "nothing" still implies a good credit score, housing, food, healthcare, etc. which most of America is really spending all of their time trying to fight to secure. This translates to the out-of-touch and generally vague advice they give.
The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.
Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)
Of course, they still find things to complain about - as do I.
There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
Pull like any tech big shot at random, their parents are rich and bought some part of their success. Gates’ folks had an IBM mainframe installed in his fucking high school.
Oh myGod, this kid Bill Gates is way ahead of the curve on computers.
Anyway, you're attacking a premise I didn't put forward - I didn't say his advice was not valuable, I said I feel that way when presented with articles like these by wildly successful people.
I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.
So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.
If you change successful to be defined as people like OP, I believe a large majority of successful people are extremely lucky. Probably over 99.9%. They owe their success to being extremely fortunate in a combination of many factors, not limited to:
- Where they were born
- Who their parents were
- What food their parents gave them when they were kids
- What other types of nurture they received
- Where they went to school
- When they went to school
- Who they met at school
- Who their parents knew
- The time they were born
- The time they ...
You can go on and on here ...
It is up to you to be able to filter good information from bad. Wealthy founders do share some opinions that will help you be wealthy. However you need to learn to discriminate between good advice and bad advice. Your blanket ban seems poorly thought out to me.
Bonus unwelcome advice: you appear to be using the word successful to mean wealthy. Perhaps deconstruct your worldview a bit.
For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.
IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.
The economies of scale are enormous in software (and data-oriented businesses in general). That's good for the efficiency of any given enterprise, but it pushes very heavily towards monopolization and zero competition without regulatory force to counterbalance.
https://www.investopedia.com/terms/g/gazellecompany.asp
https://en.wikipedia.org/wiki/Mittelstand
The brighter highlights are intended to be the most important points.
Is that confusing? I can change the shade of the lighter highlights.
Great note/outline format, if I already know the key ideas/takeaways and where they are relative to each other, but really awful to follow reading it for the first time.
The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.
Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.
If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".
The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?
Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?
I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?
Making it "cool" means getting founders who'd otherwise take VC to target PE.
It also means convincing these PEs to invest earlier.
Thanks for the feedback. I'll try to center this more in my post.
I think this is the next opportunity for very large growth, but the ecosystem isn’t where it needs to be yet.
You mean a bourgeoisie?
https://nothingventured.rocks/what-startups-can-learn-from-t...
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
sure 13% IRR is amazing, but it is not going to make my neighbor jealous
Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.
Somehow to allow them to "exit" at 1/10/100 instead of trying for 1b or crash would be nice. But it would need a different type of "VC" partner.
One funding mechanism could be something akin to "guilds" - once you have a group of ten or so of these businesses "together" they could help fund additional ones. A "guild-like" setup (think Union of workers that owns a percentage of the companies, perhaps) could be used to fund new ones starting out.
Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.
This thesis doesn't hold up for me, I feel like I have to be missing something.
Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.
There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.
I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.
There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.
But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.
Whoever find out how to provide them this will unleash massive growth on the world.
I advice to look at what calm fund is doing. https://calmfund.com/
The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.
For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)
Maybe reconsider what i said and why.
In particular consider that what you said highly limit who can do this and how that limit heavily the kind of company that could grow from this.
In my case, when I was raising in 2012, the typical VC line was "go move to SF/SV and work for ramen-pay", which is ridiculous and only something rich people can do (things have changed now.) So I bootstrapped and built it myself on my spare hours (note, of course the start up should not be competing in the same market with your dayjob which would be a conflict of interest.)
Once you have a prototype and de-risking, the tables turn and VCs chase you
I mean, what is the alternative? See the GP comment I was replying to:
>> There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
If you're not in the circle where VCs are throwing money at you for some juice squeezing appliance, then you just have the option i've presented...or the option of not playing at all. But i'm very interested in the topic, i'd love to hear what your proposal is...because I think "poor people cant found tech startups" is not the world I would want to live in.
The reason it is harder in tech to get funding for these good ideas that could be profitable has multiple factors
1. As pointed, decoupling of relationship between entrepreneurs and "old money". This could be rebuilt even a the local government level with reach out actions
2. The untangibility of tech assets make banks loans near impossible to get
3. People cannot afford the risk. Better safety net would help. Obamacare was a good first step. Far more are needed.
4. The winner take all model has failed to generate profit. It generated capital returns but as pointed out by OP, pretty bad one. But it needed a lot of capital and LPs had a lot of money to throw around. The current inflation and folding back to Value investment will help. But we need to make the point.
5. The rise of passive investing has reduced the amount of money available to these kind of "semi anateur small rounds". The return to a less bullish market may help.
6. Housing. A lot of money and security rn for young people is sinked in rent
7. O'Reilly had amazing result with Indie.vc. The LPs refused to invest. There is a story that need to be told more. We need dozens of people banging the drum on this.
In the end... i don't have a solution sadly. We need a return to fundamentals to make the story of these models work. Focus on real possible profit and not some "we will control the world". FAANG are the exception. Not the rule. LP need to realise that.
>> 2. The untangibility of tech assets make banks loans near impossible to get
Avoid bankloans and explore PIPE financing or similar non-dilutive financing
>> It is that access start at 250k a year which is really hard to get even in tech.
Not really. If you aren't VC funded, you can hire anywhere and anyone. You make the rules. At that point, you can hire in India, Indiana, Ukraine, Pakistan, or Pennsylvania. You get a lot for your money. We hired entirely outside major markets and saved a lot. Unfortunately once you go the VC route you get forced into hiring expensive talent and end up burning money.
Id love to reach out offline, we should chat!
Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find a problem and start finding customers. No salaries are needed as each parent takes care of their own kids. This gets rid of the problem of just giving 22 year olds $10M and hoping they figure it out. The middle class doesn't have that kind of money, they have to be smarter but it is possible. Someone who has the knowledge could make a template that others could just use even without the know how. I wish my parents would have done something like this. I didn't have the chance to mess with a start-up after graduation. I worked 40 hours/week while in college. Graduation was about getting money asap to start digging out. This is the thing that the 1% have over others, a huge backstop and support self in case they fail.
This is easier said than done, no?
I feel like the next rounds may become much more difficult. How can I raise the next 10M, …, 200M if the company is unlikely to grow beyond 500M?
And sorry but as upper middle class, my family cannot fund 500k. 100k max. And young people do not have a home.
Welcome to the real world.
One piece of the solution that is very clear to me and contains many other upsides is better access to healthcare. The fact that Americans mostly get healthcare through large corporate jobs significantly ratchets up the risk of entrepreneurialism. A better healthcare safety net would make it safer to leave the safe confines of a corporate job that provides health insurance.
If you are an entrepreneur under say 40, can’t you just roll a D10 and hope you don’t get a 1? Surely most people before middle-age won’t need expensive healthcare?
In my case have a cognitive trouble. Allergy. All kind of disease you can catch. Breaking a tooth while tripping over something.
Being young does not isolate you. And the trip to poverty is far faster than getting out of it.
Also: parents. Childbirth is expensive and most parents want some reasonable level of certainty that they can afford good healthcare for their kids. Or, to put a finer point on it, when forced to choose between health stability for their children and starting a business, most will sacrifice the latter to get the former.
The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.
Thank you but no.
"Medium scale/growth/etc startups should be feasible.
And
"Middle class startups should be feasible for people of all time/energy/financial constraints"
---
My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.
Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal
* https://www.ycombinator.com/companies
YC is simply not shaped for the Mittelstands and honestly really not compelling. At all.
As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.
Selection bias is a bitch.
[1] https://jaredheyman.medium.com/on-600b-of-y-combinator-start... [2] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... [3] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...
I went to talk to our local chamber of commerce and industry, which handle navigating the subsidies, and their answer was "how many local jobs are you creating ? Just you for now ? Then we cannot help you, come back when you create a dozen in the region"
* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!
* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.
If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:
* Less availability of capital
* More dilution
* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
* Long and protracted due diligence processes before the check even lands
All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.
This can be the Goldilocks deal for founders where you raise <$5M from angels or PEs who are happy with consistent 5x returns and get to $10M+ revenue and $50M+ value with majority ownership. And there are orders of magnitude more of these opportunities available vs. VC-backed unicorns.
And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero.
I hit the wall at Series B with my startup Labdoor. We pivoted to profitability and are now headed to Mittelstand land, but this all would've been way easier if we just headed straight to middle class.
I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence phase, bringing back a bunch of things that tech founders have eschewed: detailed business plans, fundraising towards specific initiatives (as you point out in your post), and harsh measurement of progress towards those goals in board meetings with rapid consequences if goals are missed.
Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
It's a stereotype that startups don't have things like estimates of revenue, a clear business plan, clients, etc... A few crazy outliers get all the attention but the vast majority that get funding have a clear and convincing plan to get to profitability, and often clients or at least partner businesses (in other words clients that aren't paying yet, but are willing to spend their own resources working with you).
The problem is that most new businesses fail, so if you're investing in new businesses the winners can't just make you a little money, they have to pay for multiple losers too.
You also need to convince investors that it's worth putting their money into these risky businesses instead of say Microsoft/Apple/Google/Amazon/etc... which will not go out of businesses anytime soon and produce respectable returns.
By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
In the US, unless you can put up property like a house or land as collateral, or plan to use the loan to purchase recoverable assets like industrial equipment (I suppose a data center would qualify, but actual computer hardware depreciates faster than banks like), you won't get the loan, even if it's a local bank you're approaching.
In theory a software business could use IP assets as collateral, but that usually doesn't apply to new software businesses.
Getting to the point where a software business could get a business loan from a bank more or less requires bootstrapping.
Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.
This is what the US should really subsidize, the ability to bootstrap and start a new business, especially first time business owners. I know the SBA does some things around this but it is very much focused on "mom & pop" type stores, I don't know of any software businesses started with an SBA loan (though I imagine due to time and volume, there probably is one).
I think taking the risk out of it in this way would be a huge economic win, but it would definitely not be popular with the incumbent businesses that have the dominate lobby voice in US politics.
software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.
what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.
I don't necessarily mind that people are trying to make money with their money, but it is a shame that so much capital is caught up in financial instruments that don't do any real work while it's holding onto it.
like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).
at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.
If I point out that Marxist economic theory talks about a "crisis of capital accumulation" where capitalists (meaning those with capital to invest) don't have enough places to invest their capital succesfully, and that this is related to "financialization" as a method of opening new places to put capital (also in some circumstances "imperialism"), and that in different periods this can go up and down... in the past I usually get down-voted.
Citation needed.
Around half of new businesses in the US fail after five years[0], and it is reasonable to assume the vast majority are small.
Mom and pop businesses fail all the time, we just don't hear about it very often.
Also, one of the key properties of Mittelstand, as I understand it, is that you don't need, or indeed want, an exit. It's (ideally) a cosy, lifestyle business.
I agree that this is a healthy approach and more people should be aware this is a viable option, but I'm not so sure it can be mixed with PE or VC (for the reasons I mentioned).
[0] https://www.lendingtree.com/business/small/failure-rate/
If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss.
Your points also seem a bit odd:
> Less availability of capital
There's no reason for that. If the investments are less risky, there should be more capital, not less.
> More dilution
Yep, at least more dilution per round. Companies doing that shouldn't do multi-round or have a very small first round followed by a second one.
> Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
Hum... Bringing management is a VC only thing. Their desire to bring management is clearly one of the forces stopping them form investing on less risky ventures. It's a non-performing choice for risky startups, and it's a non-performing choice for less risky ones. I'll just not call it stupid because there are handful of contexts where it's not, but doing it by default is clearly stupid. The good thing is that it's not viable for less risky bets.
> Long and protracted due diligence processes before the check even lands
Hell yes. That's the largest difference.
Healthy for whom?
- startups founders?
- angel investors?
- VCs?
- national economy?
- financial markets?
- ...
But now that you enumerated more, you can add "national economy" too.
Concerning "And quite likely brings better results for both the investor and the founders.":
That "[it] brings better results" for some groups does not imply that it more healthy for this group. Also the other way round: "more healthy for some group" does not necessarily imply "better results for this group".
In this sense I did not think that this phrase was to be considered an answer to my point.
It looks more healthy for both groups. I do expect it to bring better both first-order and second-order results. (Those two are always correlated, and on investment relationships they are very strongly correlated.)
That's not the right metric. An investment balances risk and reward. If the reward of the less risky business is too low, then there will be less capital. If I guarantee your money back, and also zero growth (I'll just hold the money then return it), no one would invest - not enough reward.
Next, you have to outperform other risk/reward outcomes, such as bond or stocks or real estate, etc. Otherwise investors should (and likely will) put their money elsewhere.
For some market to get significant investment, it has to do well on the risk/reward frontier compared to alternatives.
Those reasons are why there is not massive VC type funds investing in companies like these. It's not that VCs are stupid, or investors are stupid. It's that the risk/reward for such companies has to compete against all other options for that capital.
I don't understand your definition of "founder-friendly." I want to build a business that delivers real value to customer and I want to do that from day one. I don't mind working harder or working on boring problems (if necessary) to do that.
Even without this restriction the common definition in Germany is the equivalent of SME, i.e. less than 500 employees and less than €50M annual revenue. This includes some 95% of companies in Germany.
So unless he's asking VCs to invest without demanding equity or any amount of control that would interfere with the will of the family owners of the business and for the goal to be capped at €50M annual revenue, I don't see how "Mittelstand" is the right concept to use.
FWIW the resilience of (traditional, i.e. older) Mittelstand companies is likely more related to the same factors as the resilience of worker co-ops (which likewise tend to be growth-limited but stable across economical crises): the owners have a personal (often generational) stake in the company and the workers are assumed to be in it for the long run rather than being laid off at the next opportunity. Plus of course the owners' fortunes being so tightly coupled to the well-being of the company means that they're able and willing to inject their own capital as necessary to weather crises.
They never raised money, never talked to VCs or consultants.
They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.
They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.
Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely
The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.
It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.
The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.
I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.
I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.
The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...