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Reflecting on My Failure to Build a Billion-Dollar Company

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2101 points jamesjyu | 3 comments | 07 Feb 19 15:28 UTC | HN request time: 1.001s | source
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holman ◴[07 Feb 19 16:22 UTC] No.19106188[source]▶
Really love this post. My favorite line is:

> Every month of less than 20% growth should have been a red flag.

I think that's pretty insightful. 20% growth is great for a normal business, of course; for a VC-backed startup it can show some warning signs about future hard decisions you might have to face.

I think there's certainly lots of discussion that has been had — and should be had — about "should I or shouldn't I raise money?", but there still are plenty of companies and founders who will raise VC, and paying attention to those early warning signs are important if that's the choice you make. It's important to worry about it each month and each week rather than the two months surrounding the raise of your next round.

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PhasmaFelis ◴[07 Feb 19 17:56 UTC] No.19106916[source]▶
It is still baffling to me that the tech world has glommed onto a business model where steady growth and a solid core of loyal, happy customers is considered a failure.
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1. kokokokoko ◴[07 Feb 19 20:10 UTC] No.19108096[source]▶
It is because a startup is an investment vehicle, not a business.

If someone had X amount of dollars they want to maximize the rate of return on that wealth. The point of growth in investing is that you can see the future before it happens and pocket the difference.

For example if I invest in company Y and they are growing at a certain rate, I can sell my portion of the company based upon expected future potential. If the buyer of my shares believes the company will become 30% larger in 5 years, that is not much more than they would earn if they had some investment that return 5% a year. If the buyer of my shares believes my stock will be worth 100% more in 5 years that would now be equivalent to a return of 15% a year.

So here comes the trick. Even 10% a year would be a great rate of return. So I can sell my shares at a premium. Pocketing the 5% today as opposed to waiting 5 years. If I can pocket 7% or even 10% of that would be even better. Now if this company will be worth 500% more in 5 years, you can see how I would stand to make a large amount of money today by selling my asset that will be worth much more later.

With a company growing at a normal speed, there is not much of a premium I can extract for future growth to a potential buyer of my shares.

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2. PhasmaFelis ◴[07 Feb 19 21:25 UTC] No.19108734[source]▶
Indeed. I guess I should say, I understand the appeal for investors, I just don't get why so many founders are getting suckered into it.

I suppose the investors are selling them a dream of fame, fortune, and early retirement, shored up with the implication that "if all these financial wizards want to invest in me, I must be on the right track." The fact that the investor expects most of his investments to fail, because he only needs one big success to wipe out all the failures, is glossed over.

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3. chii ◴[08 Feb 19 22:38 UTC] No.19119364[source]▶
> I just don't get why so many founders are getting suckered into it.

because they either don't understand what's being done to them (after all, VCs can be very smooth talking), and the prospect of faster wealth gains for the founders also doesn't help.