The comments here seem to forget that financing is ESSENTIAL to startups - even profitable ones.
As a reminder, 99% of the marketcap (value) of a startup is its growth, not its present size/revenue/etc. By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it.
You finance a startup with a mix of VC and debt. As the business becomes less speculative ($MMs in revenue) debt becomes more available, and is generally preferable to equity deals for a number of reasons including dilution, board control, etc.
Unclear to me if VC financing availability is disconnected from debt financing, as the blog author seems to imply: when the world tightens, I think it tightens.
source: 30 years of this nonsense spanning multiple booms and recessions.
"As a reminder, 99% of the marketcap (value) of a startup is its growth, not its present size/revenue/etc. By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it."
Autodesk did. Initial investment was $60K by the founders, and the company was profitable early on.[1] No VCs were involved. There were discussions with some VCs, and they were very funny. "In addition, the overall flavour of the deal seemed to us totally inappropriate for a company which was, at the time of these negotiations, generating sales equal to the size of the deal every month and generating after-tax profits close to the size of the deal every quarter." The VCs assumed they had a stronger bargaining position than they did.
The VC involved turned down a deal to invest about $500K for 10% of the company.
Autodesk's market cap today is $47 billion.
Plenty of tech companies have done just fine skipping VC money, or delaying it until they had maximum leverage, like GitHub or Transmit.
Autodesk isn't really interesting here, though. They IPO'd almost 40 years ago at a tiny fraction of their current value, and that tiny fraction is the only number that matters. Anyone could've jumped on at the IPO and still realized 99% of that $47 billion. The investors missed out, but it wasn't some big whiff. The IPO was mediocre by today's standards.
> By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it.
Untrue.
Sell enough annual SaaS plans and you get cash before your future costs - perhaps enough to self-fund growth depending on specifics for your SaaS. Skip to 14 minutes in of https://m.youtube.com/watch?v=otbnC2zE2rw for explanation.
Jason’s explaination for his own business: income from signups is structured so they get more money per month per user than their Customer Acquisition Cost “literally operate with an infinite marketing budget” - i.e. constraint isn’t marketing growth costs but their other business constraints. See from 15:45 to 16:30 of the video where he is talking about some figures for the business he owned at the time.
You are asking about what I would call founding/inception costs. I was replying to an absolutely wrong comment that was about scaling/growth/marketing costs.
From my own experience, I helped cofound a now-successful small business that we retain 100% ownership of. Founders used <1> the “sweat equity” of our own time (even with kids and mortgages), and <2> one person did some consultancy work, and <3> we had one initial large-business customer (although nowhere enough to pay our usual wages, it helped a little).
There is a lot of “bootstrapping-pr0n” videos and websites with a variety of techniques to build a business without extreme inception costs (e.g. techniques to avoid requiring paid staff when starting - staffing being the main cost for most software startups). The fabulously good video I linked alludes to some of that, and you can find other videos from those conferences.
If you do want to get initial funding, I think that ycombinator is an astonishingly valuable deal. Even applying should get you back more value than the time it costs you: https://www.ycombinator.com/apply/
Edit: I strongly recommend you avoid the “go big or not at all” culture/mentality: most founders fail and the median payoff for founders is quite negative. Venture capital and startup-pr0n encourages you to aim for billions: VCs can spread their bets; VCs have asymmetric information and payoffs; VCs only invest in less than 1% of the potential businesses they see; VCs get paid a base rate by their limited partners; VCs get preferential shares. For an individual it is more like a lottery because an individual’s risk profile is absolutely different from a VCs.
It's very difficult to get debt financing if you're running out of cash, and this article is focused on companies that are (at risk of) running out of cash.
As a reminder, 99% of the marketcap (value) of a startup is its growth, not its present size/revenue/etc. By mathematical definition, a startup cannot fund fast-enough growth on current profits and therefore requires financing and a lot of it.
You finance a startup with a mix of VC and debt. As the business becomes less speculative ($MMs in revenue) debt becomes more available, and is generally preferable to equity deals for a number of reasons including dilution, board control, etc.
Unclear to me if VC financing availability is disconnected from debt financing, as the blog author seems to imply: when the world tightens, I think it tightens.
source: 30 years of this nonsense spanning multiple booms and recessions.