5 ms·

I don't think is worth it to give up 7% if your business has some revenue, and it's growing. If you haven't reached market-fit yet, then a mentorship could be

I don't think is worth it to give up 7% if your business has some revenue, and it's growing. If you haven't reached market-fit yet, then a mentorship could be useful if you don't have such skills in your networks.

melomal 5y ago
If it has revenue and is growing then I would look to get a loan to double down on what is working. Pay back the loan whilst increasing revenue and keep the entire company to yourself/team. The additional revenue can offset the expenses which were taken care of by the loan.
- 0xfaded 5y ago
  By which time an American company will have copied your business model and plow 10x anything you could ever dream of raising in Europe into dominating your market.
  - deleted 5y ago
    [deleted]
  - long_time_gone 5y ago
    Are there examples of this phenomenon? If so, please share.
    - andy_ppp 5y ago
      Yes, I’d like to see some examples of this, I’ve never heard of the fast follow working but happy to be corrected. The thing is they will not have access to your metrics to know the rate of growth and as we all know most amazing startups look like bad ideas on the surface. Take for example something like Substack - it should be easy to copy but they already have a moat in terms of mindshare with writers so I’d say there isn’t much point. Basically by the time you’re thinking about copying something that has product market fit it’s already too late for you to be the incumbent.
      - guiriduro 5y ago
        Yes, that's why Google doesn't exist and Altavista rules world search.
        andy_ppp 5y ago
        It's actually much more complex than a post on hacker news could summarise here, but I will say AltaVista tried to compete with Yahoo and add features rather than compete with Google. If you think Google was a fast follower you are incorrect. There are patterns to how these types of company crop up and they are about revolutions in how a field is done rather than "copy AltaVista" and see if you can catch them. Nobody succeeds at copying a company that has a genuine mission to accomplish. I'm not saying it's impossible to build a company that happens to do the same thing as say Substack but you have to build it for the correct reasons and fast followers are generally always compromised in some way. Your glib suggestion that Google, a once per decade company, is a follower of AltaVista really doesn't do any of what Google accomplished justice.
      - GlennS 5y ago
        The idea that Substack have a moat seems a bit implausible, given how new they are. Have they finished displacing Medium yet? Who in turn only appeared a few years ago? Have any normal people even heard of these companies?
        andy_ppp 5y ago
        Ask any writer you know about substack, they have mind share that the competition will struggle to catch. It's a moving target remember, first you have to launch, then you have to get a load of a-list writers on your platform, then you have to figure what new thing is going to get you users. This will take you at least 6 months maybe longer. By then Substack should be at least 6 months ahead of you maybe more.
        jacobr1 5y ago
        Substack is winning because of business model innovation, and also because of market timing. Their technology isn't really an advantage compared to legacy CMS platforms - how they are employing that technology is the difference. Medium went for a bottom-up approach, trying to monetize the content of the crowd. Substack is going for a top-down approach, grabbing writers with an existing large following and paying them top rates, which are justified by the conversion rates for their well-known creators. Normal people might not have heard of these companies, but niche audiences certainly follow some of the specific authors/columnists/influencers and are following them onto substack with paid subscriptions. Is that a moat, or will they jump to the next platform? A few have been poached by the NYT and other venues, so maybe the moat isn't that big.
  - devops000 5y ago
    Sometime this happened. I would prefer to own 100% of a smaller but profitable company instead of 5% of a high-growth/negative profits and starving for the next funding to survive.
    - VBprogrammer 5y ago
      Surely the aim of the game is not to be left holding the bag when the music stops. In that situation you would need to be making sure your own financial position no longer depended upon that of the continued success of the company. Not saying that is a good way to run a business or the one I would personally prefer.
    - adventured 5y ago
      There are many scenarios. There is also: 5% of a high growth, negative profit, thriving company that can rather trivially raise additional capital to keep pushing growth faster. Hundreds of start-up companies have fit that model over the last 10-20 years. See: Facebook, Airbnb, Zoom, Twilio, Square, Stripe, DigitalOcean, Cloudflare, Fastly, DocuSign, Teladoc, Datadog, Coinbase, Etsy, Lyft, Uber, DoorDash, Pinterest, Twitter, Snapchat, Okta, Zscaler, Hubspot, CrowdStrike, Palo Alto Networks, Splunk, Workday, ServiceNow, The Trade Desk, Snowflake, Roku, Unity Software, MongoDB, Robinhood, Palantir, Roblox, Veeva Systems, Wayfair, Peloton, UiPath (Romania originally), Anaplan, Qualtrics, Asana, RingCentral, Zendesk, Dropbox, Appian, Bumble, Smartsheet, Stitch Fix, C3 AI, Affirm, JFrog, Box, BigCommerce, Sumo Logic, FireEye, Qualys. Along with dozens of other prominent and smaller companies. And although not US companies, Shopify, Atlassian, Elastic, Wix, MercadoLibre and Spotify are also in that same bucket (and were funded by US venture capital). China also has a ton of thriving companies funded in a similar model (Alibaba, Pinduoduo, ByteDance, Didi, JD, Tencent, etc). These are significant companies that all followed that model - to one degree or another - and have IPO'd in the past decade (even Tesla's IPO was just 11 years ago, they exist courtesy of the same model). Salesforce lost money for a very long time. They were founded in 1999, and didn't reliably turn an operating profit until just a few years ago. In a few years they'll be larger than SAP.
      - moneywoes 5y ago
  - igammarays 5y ago
    More VC money is NOT always better. Instagram, WhatsApp, and other unicorns were built with extremely small teams. Latest case in point: Mailchimp, built with 0 VC funding.
    - goohle 5y ago
      Yep, lot of investor money can contribute to bankruptcy: WeWork, Katerra, etc.: https://www.bloomberg.com/opinion/articles/2021-06-08/katerra-bankruptcy-how-softbank-s-american-house-of-cards-collapsed https://www.bloomberg.com/opinion/articles/2021-06-08/katerr...
    - pedalpete 5y ago
      Instagram had raised over $57M in VC funding before being acquired. https://en.wikipedia.org/wiki/Timeline_of_Instagram#:~:text=Instagram%20has%20raised%20US%247,Instagram%20at%20around%20%2425%20million.&text=Instagram%20hits%205%20million%20monthly%20active%20users https://en.wikipedia.org/wiki/Timeline_of_Instagram#:~:text=....
  - streetcat1 5y ago
    What, where ? Can you give a concrete example where an American company copied European company? I.e. facebook cannot even copy snapchat and they have INFINTE resources, and 2B users. Also, Markets today are so huge, nobody dominating anything.
  - melomal 5y ago
    This can be true but ultimately if this is a fear, you need VC money.
- edf13 5y ago
  Investors and Y Comb bring a lot more than just cash though
  - melomal 5y ago
    They bring additional stress. These people are in the business of making money, which means growth at all costs and at a huge ROI, especially since insane valuations and going public is creating crazy returns for investors.
- tarr11 5y ago
  Getting a loan is very difficult unless you are profitable.
andy_ppp 5y ago
I always just think about the investors you get access to if you do YC, and the network of people. I think if you are on an exponential growth curve but want the YC experience I think it would be worth discussing that 7%, I believe it's not set in stone and exceptions can be made. Why wouldn't YC want a smaller percentage of something that was clearly already going to be huge... And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.
- rjzzleep 5y ago
  I think it's worth looking at the leaked emails from when Google acquired YT. They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it. https://twitter.com/TechEmails/status/1433837480449613839 https://twitter.com/TechEmails/status/1433837480449613839
  - dang 5y ago
    Discussed here: Larry Page: “I think we should look into acquiring YouTube” (2005) - https://news.ycombinator.com/item?id=28424339 https://news.ycombinator.com/item?id=28424339 - Sept 2021 (245 comments) FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples. This sequence of tweets kind of confirms that: https://twitter.com/JGamblin/status/1433847336459964420 https://twitter.com/JGamblin/status/1433847336459964420 https://twitter.com/jhuber/status/1433863045613174784 https://twitter.com/jhuber/status/1433863045613174784 https://twitter.com/JGamblin/status/1433865429932462083 https://twitter.com/JGamblin/status/1433865429932462083 https://twitter.com/jhuber/status/1433866494752935938 https://twitter.com/jhuber/status/1433866494752935938 (the last one is the important one but the sequence is amusing)
  - redis_mlc 5y ago
dominik-2020 5y ago
I think it's more complex than that. I would recommend everyone to join YC. It helps with customers and investors. Most likely your company valuation will go up more than you'd need to compensate for the 7%.
jsonne 5y ago
Giving up that 7% functionally doubles the valuation you can justify at a seed stage and saves you months in fundraising efforts. That time is valuable and if you plan to raise a lot having a low dilution matters quite a bit.
robocat 5y ago
If the effects of joining YCombinator increases your final valuation by more than 7%, then on a purely financial basis you should join YC because even though you have given them 7%, you end up more wealthy than you would have. Ignoring dilution. Obviously there are a variety of caveats, such as voting issues and time investment. Personally, I suspect most founders are at a negotiating disadvantage (knowledge, power and bargaining asymmetries), and think it would be easy to get an extra 7% by having YC on your side of the table. Also see https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/ for details.

melomal 5y ago

If it has revenue and is growing then I would look to get a loan to double down on what is working. Pay back the loan whilst increasing revenue and keep the entire company to yourself/team. The additional revenue can offset the expenses which were taken care of by the loan.

0xfaded 5y ago
By which time an American company will have copied your business model and plow 10x anything you could ever dream of raising in Europe into dominating your market.
- deleted 5y ago
  [deleted]
- long_time_gone 5y ago
  Are there examples of this phenomenon? If so, please share.
  - andy_ppp 5y ago
    Yes, I’d like to see some examples of this, I’ve never heard of the fast follow working but happy to be corrected. The thing is they will not have access to your metrics to know the rate of growth and as we all know most amazing startups look like bad ideas on the surface. Take for example something like Substack - it should be easy to copy but they already have a moat in terms of mindshare with writers so I’d say there isn’t much point. Basically by the time you’re thinking about copying something that has product market fit it’s already too late for you to be the incumbent.
    - guiriduro 5y ago
      Yes, that's why Google doesn't exist and Altavista rules world search.
      - andy_ppp 5y ago
        It's actually much more complex than a post on hacker news could summarise here, but I will say AltaVista tried to compete with Yahoo and add features rather than compete with Google. If you think Google was a fast follower you are incorrect. There are patterns to how these types of company crop up and they are about revolutions in how a field is done rather than "copy AltaVista" and see if you can catch them. Nobody succeeds at copying a company that has a genuine mission to accomplish. I'm not saying it's impossible to build a company that happens to do the same thing as say Substack but you have to build it for the correct reasons and fast followers are generally always compromised in some way. Your glib suggestion that Google, a once per decade company, is a follower of AltaVista really doesn't do any of what Google accomplished justice.
    - GlennS 5y ago
      The idea that Substack have a moat seems a bit implausible, given how new they are. Have they finished displacing Medium yet? Who in turn only appeared a few years ago? Have any normal people even heard of these companies?
      - andy_ppp 5y ago
        Ask any writer you know about substack, they have mind share that the competition will struggle to catch. It's a moving target remember, first you have to launch, then you have to get a load of a-list writers on your platform, then you have to figure what new thing is going to get you users. This will take you at least 6 months maybe longer. By then Substack should be at least 6 months ahead of you maybe more.
      - jacobr1 5y ago
        Substack is winning because of business model innovation, and also because of market timing. Their technology isn't really an advantage compared to legacy CMS platforms - how they are employing that technology is the difference. Medium went for a bottom-up approach, trying to monetize the content of the crowd. Substack is going for a top-down approach, grabbing writers with an existing large following and paying them top rates, which are justified by the conversion rates for their well-known creators. Normal people might not have heard of these companies, but niche audiences certainly follow some of the specific authors/columnists/influencers and are following them onto substack with paid subscriptions. Is that a moat, or will they jump to the next platform? A few have been poached by the NYT and other venues, so maybe the moat isn't that big.
- devops000 5y ago
  Sometime this happened. I would prefer to own 100% of a smaller but profitable company instead of 5% of a high-growth/negative profits and starving for the next funding to survive.
  - VBprogrammer 5y ago
    Surely the aim of the game is not to be left holding the bag when the music stops. In that situation you would need to be making sure your own financial position no longer depended upon that of the continued success of the company. Not saying that is a good way to run a business or the one I would personally prefer.
  - adventured 5y ago
    There are many scenarios. There is also: 5% of a high growth, negative profit, thriving company that can rather trivially raise additional capital to keep pushing growth faster. Hundreds of start-up companies have fit that model over the last 10-20 years. See: Facebook, Airbnb, Zoom, Twilio, Square, Stripe, DigitalOcean, Cloudflare, Fastly, DocuSign, Teladoc, Datadog, Coinbase, Etsy, Lyft, Uber, DoorDash, Pinterest, Twitter, Snapchat, Okta, Zscaler, Hubspot, CrowdStrike, Palo Alto Networks, Splunk, Workday, ServiceNow, The Trade Desk, Snowflake, Roku, Unity Software, MongoDB, Robinhood, Palantir, Roblox, Veeva Systems, Wayfair, Peloton, UiPath (Romania originally), Anaplan, Qualtrics, Asana, RingCentral, Zendesk, Dropbox, Appian, Bumble, Smartsheet, Stitch Fix, C3 AI, Affirm, JFrog, Box, BigCommerce, Sumo Logic, FireEye, Qualys. Along with dozens of other prominent and smaller companies. And although not US companies, Shopify, Atlassian, Elastic, Wix, MercadoLibre and Spotify are also in that same bucket (and were funded by US venture capital). China also has a ton of thriving companies funded in a similar model (Alibaba, Pinduoduo, ByteDance, Didi, JD, Tencent, etc). These are significant companies that all followed that model - to one degree or another - and have IPO'd in the past decade (even Tesla's IPO was just 11 years ago, they exist courtesy of the same model). Salesforce lost money for a very long time. They were founded in 1999, and didn't reliably turn an operating profit until just a few years ago. In a few years they'll be larger than SAP.
    - moneywoes 5y ago
- igammarays 5y ago
  More VC money is NOT always better. Instagram, WhatsApp, and other unicorns were built with extremely small teams. Latest case in point: Mailchimp, built with 0 VC funding.
  - goohle 5y ago
    Yep, lot of investor money can contribute to bankruptcy: WeWork, Katerra, etc.: https://www.bloomberg.com/opinion/articles/2021-06-08/katerra-bankruptcy-how-softbank-s-american-house-of-cards-collapsed https://www.bloomberg.com/opinion/articles/2021-06-08/katerr...
  - pedalpete 5y ago
    Instagram had raised over $57M in VC funding before being acquired. https://en.wikipedia.org/wiki/Timeline_of_Instagram#:~:text=Instagram%20has%20raised%20US%247,Instagram%20at%20around%20%2425%20million.&text=Instagram%20hits%205%20million%20monthly%20active%20users https://en.wikipedia.org/wiki/Timeline_of_Instagram#:~:text=....
- streetcat1 5y ago
  What, where ? Can you give a concrete example where an American company copied European company? I.e. facebook cannot even copy snapchat and they have INFINTE resources, and 2B users. Also, Markets today are so huge, nobody dominating anything.
- melomal 5y ago
  This can be true but ultimately if this is a fear, you need VC money.
edf13 5y ago
Investors and Y Comb bring a lot more than just cash though
- melomal 5y ago
  They bring additional stress. These people are in the business of making money, which means growth at all costs and at a huge ROI, especially since insane valuations and going public is creating crazy returns for investors.
tarr11 5y ago
Getting a loan is very difficult unless you are profitable.

andy_ppp 5y ago

I always just think about the investors you get access to if you do YC, and the network of people. I think if you are on an exponential growth curve but want the YC experience I think it would be worth discussing that 7%, I believe it's not set in stone and exceptions can be made. Why wouldn't YC want a smaller percentage of something that was clearly already going to be huge... And as for the 7% I'd say you might get that back with more funding for less equity if you're already one of the larger companies by demo day, lots of investors will throw money at you.

rjzzleep 5y ago
I think it's worth looking at the leaked emails from when Google acquired YT. They didn't acquire it because they thought their tech was great or that they had a great product. They acquired it because a) the team was local and b) because sequoia invested in it. https://twitter.com/TechEmails/status/1433837480449613839 https://twitter.com/TechEmails/status/1433837480449613839
- dang 5y ago
  Discussed here: Larry Page: “I think we should look into acquiring YouTube” (2005) - https://news.ycombinator.com/item?id=28424339 https://news.ycombinator.com/item?id=28424339 - Sept 2021 (245 comments) FWIW I think their reasoning must have changed drastically in the year between those initial emails and when they actually acquired Youtube. The emails suggest $10-15M as a price. They ended up paying $1.65B, which shocked everyone at the time (and now seems small). The difference is that in that year, YT grew exponentially. So this is actually an example of a high-growth win; indeed it's one of the classic examples. This sequence of tweets kind of confirms that: https://twitter.com/JGamblin/status/1433847336459964420 https://twitter.com/JGamblin/status/1433847336459964420 https://twitter.com/jhuber/status/1433863045613174784 https://twitter.com/jhuber/status/1433863045613174784 https://twitter.com/JGamblin/status/1433865429932462083 https://twitter.com/JGamblin/status/1433865429932462083 https://twitter.com/jhuber/status/1433866494752935938 https://twitter.com/jhuber/status/1433866494752935938 (the last one is the important one but the sequence is amusing)
- redis_mlc 5y ago

dominik-2020 5y ago

I think it's more complex than that. I would recommend everyone to join YC. It helps with customers and investors. Most likely your company valuation will go up more than you'd need to compensate for the 7%.

jsonne 5y ago

Giving up that 7% functionally doubles the valuation you can justify at a seed stage and saves you months in fundraising efforts. That time is valuable and if you plan to raise a lot having a low dilution matters quite a bit.

robocat 5y ago

If the effects of joining YCombinator increases your final valuation by more than 7%, then on a purely financial basis you should join YC because even though you have given them 7%, you end up more wealthy than you would have. Ignoring dilution. Obviously there are a variety of caveats, such as voting issues and time investment. Personally, I suspect most founders are at a negotiating disadvantage (knowledge, power and bargaining asymmetries), and think it would be easy to get an extra 7% by having YC on your side of the table. Also see https://www.ycombinator.com/deal/ https://www.ycombinator.com/deal/ for details.