Startup Question: Why Venture Capital for Web Startup?
This is probably a silly question, but this seems a good forum to get an answer: It seems to be taken as a given that any founder will sooner or later apply for VC funding. Why would a founder of a web startup ever bother with venture capital? A web startup can be built by a team of 1-4 people working on it part-time (so no need for anyone to quit their full-time jobs). The time required to build such a web system would probably be on the order of 12-18 months. Because servers, bandwidth, and/or hosting services are cheap, this can all easily be self-financed (for ~$5000-$10000?). What have I missed here in this analysis that makes venture capital desirable or necessary?
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[ 2.9 ms ] story [ 72.0 ms ] threadWith regard to your point on calling it a 'hobby' though. Because its possible for someone to put in 30-35 hours a week (over and above one's full-time commitment at the day job) if they're willing to work hard during 'free time', could this not serve as reasonable mitigating circumstances?
I've found that nearly all my completed projects have required the ability to say "Fuck it" to all my other commitments and just concentrate on them. My first project for FictionAlley was done during summer vacation. The big rewrite of FictionAlley lingered for 3 years while I kept putting it off for college coursework, and only got finished because I put in a 4-month gap between graduating and getting a job. Scrutiny was done instead of studying for my physics final exam, which I ended up flunking anyways. My most successful project at work involved blowing off all my boss's requests for busywork, which made him pretty mad at me until he saw the result. Once I had to start paying attention to his busywork again, my productivity dropped way off.
"If you build it, they will come" sometimes applies but not usually.
I guess my point is that sites need some kind of marketing to succeed, unless they build something that "goes viral" and it takes luck and a product people truly want for that to happen.
An advantage of the VC funding is that the investors will make sure you worry about marketing. I'm just thinking of a recent post on here where a guy said "I launched my startup. I need more traffic. What do I do now?" So as long as these guys have some kind of plan for marketing, they can do it themselves.
I could be wrong but I would think it would help more if you figured out good SEO and maybe targetted some heavy bloggers in your industry... and if your product is good enough - people like Arrington, Needleman, and Malik will talk about it for free.
Angel money is good enough in most cases (unless your site is cash hungry like say another Youtube).
What if the startup includes mobile features (twitter), or deals with video/music (Slacker, YouTube, etc).
Licensing, lawyer fees, scaling, development costs - they are all relative to what action your startup is taking.
Yes, if you are just building a blog or the next MySpace-killer (which will fail and you suck at life if that's what you are attempting) - yeah, you could pull it off by yourself with a $7 per month shared hosting package.
http://www.paulgraham.com/venturecapital.html
yeah unless you're doing hardware (or some other capital hungry biz), I think angels are better
It's kind of like multi-threaded programming... don't do it if you can avoid it
Then again there are VCs with special terms nowadays like Charles Rivers and Bay Partners....
However, there are a number of reasons taking VC money would be "desirable or necessary." Here are some I can think of:
1) Good VCs are often hooked into potential acquisition targets. They can get you noticed and possibly help you fetch a higher price.
2) If you need good targeted seed traffic to get you going, that might take a substantial amount of money. This can take many forms, e.g. a PR firm, adwords, traditional advertising, etc.
3) If you have a working customer acquisition channel that requires money, and more money will help you grow faster, you might want to do it just to grow faster, outpace competition, etc.
2) VCs are advisors, and are likely smarter than you about lots of things-- especially how to sell a company. If you want a lifestyle business (37Signals, for example), then avoid VC. If you want to sell a company, you'll have a better chance (and sell it for more money) with a motivated VC.
3) Sales, marketing, and support cost money, for most businesses. If you've got paying customers, telling them "sorry, I'm at my day job" just won't play. For a consumer play, this is less of an issue.
4) A lot of ideas (b2b, mostly) just aren't simple enough to bootstrap with 3 people and 18 months. Of course, it's easy enough to avoid those business ideas. ;-)
5) Businesses are ticking timebombs. Stretch out your development time and your stretching out the opportunity for disaster. A team member can lose interest or get a great job, a killer competitor can manifest and snatch up your customers, etc.
6) Momentum. I can say with experience that it's REALLY hard to keep momentum going with 3 people working part time (I'm doing it right now). When you put a startup on the back burner, it's rare that you all get to focus on it at the same time. When you're rarin' to go, your partner is "really slammed this week".
7) Necessity drives success. When your startup is your full-time job and you have an investor looking over your shoulder, your going to work harder and better. If you've got a job, startup failure is more of an option and delays aren't very painful.
8) Debt or VC can get you to the point where your growth curve starts quicker. When you are confident about the fact that you're on track to build a zillion dollar business, $100k of debt/equity financing get get you there a LOT faster.
All that being said, I've sold two bootstrapped companies-- it works.
I'd advocate for bootstrapping your way to the point where you know if you're on to something. If you can prove that the market desperately wants what you're building, then it USUALLY makes sense to get some cash (via debt or equity)... Assuming you want to focus on growth/exit events instead of profit/lifestyle.