11 ms·

$0 in 5 years story

253 points by bsmth 3y ago

ooterness 3y ago
TL;DR: Founder had healthy startup, accepts VC money, acts surprised when VC wants rapid growth and returns. Who could have predicted this?
- thih9 3y ago
  Hindsight is always 20/20. I’m sure there are founders standing before a similar route at this very moment. Hopefully they’re reading this post too.
apodolny 3y ago
A little frustrated by the ambiguity of the $100M in the post. Is that capital raised, ARR, GMV? Makes a big difference in terms of understanding what kind of business they built.
- mdorazio 3y ago
  Almost certainly that was $100M valuation.
  - necubi 3y ago
    It must be valuation (if there's a SaaS company that's ever gone from $0 -> $100MM ARR -> $0 within five years I would be very surprised). But that makes this whole thing pretty circular—they only would have $100MM valuation because they sold a story of growth to investors. Assuming that the round at $100M valuation was during the boom times of 2019-2021, that could have been with as little as $3-5M annual revenue (20-25x multiplier). Assuming slow or no growth, a company with $3M in revenue would be worth <$15M.
    - raincom 3y ago
      In that reddit post, he says "I had over $10m in the bank for a startup of 5 people making low 7 figures from well established and extremely happy customers." You are right: low 7 figures = $3-$5M annual revenue
- renewiltord 3y ago
  I'd guess it's valuation. He raised once at $1M (F&F probably). Then raised. Then some time post-raise low 7-figs in revenue => $3-4M, and $10M in the bank. Raised $20M at $100M perhaps? Seems reasonable, 25x-30x revenue. It makes sense. If he got there quick, his product was working, and it had a chance at gold. Ultimately, lots of ways for startup to fail and failing-to-scale is one of them. Well, he knows there's PMF at a small market now. He can try again without the large raise if he wants to run a lifestyle business.
charcircuit 3y ago
>All in all we went from $0 to $100m to $0 because I followed the advice of the VCs. It's not the VCs' fault that OP failed at scaling his business. If you are getting VC funding you will need to be able to scale up.
monero-xmr 3y ago
There’s a lot of information missing. All of his problems were caused by VC? Why did he raise VC if he had 7 figure revenue? 5 years explained in 6 paragraphs. I agree that hiring bigco people for a startup is a mistake, but otherwise you can’t learn anything here.
- benjaminwootton 3y ago
  It’s a very common mistake in funded startups. You think you need to bring the tenured exec in with all of the industry contacts, but they are often a terrible cultural fit or experienced in the last iteration of your industry. They also want to hire under them rather than work the tools themselves and do this bait and switch after you’ve hired them. You are then stuck with high salaries for ineffective people or an expensive and disruptive exit. VCs also seem to push these people onto you as they think that is what constitutes a real company and/or they want a nice gig for their friends.
- gopher_space 3y ago
  > otherwise you can’t learn anything here Some times your money printer won't scale, but other people will try to convince you that it's full of golden eggs? If you're cash-positive you should see VC as supplicants begging for scraps?
powera 3y ago
A riddle: how do you know that an anonymous Reddit post is exaggerated?
- malablaster 3y ago
  Yeah, it’s about as reliable as the claim that it’s unreliable.
- colemannugent 3y ago
  Seriously, ~120 comments and this is the first one to question the posts legitimacy? The reddit poster goes on to comment: >15 minutes phone call to decide to file for bankruptcy and for them to take their money back (and then some) and shut down my company What? In no world would that happen. Even a mostly failed company has quite a bit more value than $0. No mention of the name of the company or even the vertical. 100% BS.
  - coldtea 3y ago
    Not everything is meant literally. When he says they ended up with $0 doesn't have to be $0, just hugely down and nearly worthless compared to before that was doing well. In the same way $100M could just have been $99M or even $80M, and then $0 they started with could just as well have been $20K in savings he invested.
- coldtea 3y ago
  Another riddle: Does it matter if the company in the post didn't even exist, as long as the story is similar to what actually happened to many others?
lijok 3y ago
Many such cases
djoldman 3y ago
Honest question: if you sell <50% of your company to VCs or anyone else and your articles of incorporation state that you can do whatever you want if you own >50%, then why do what the VCs tell you to do? Beyond gaining some sort of reputation for not doing what your investors want, is there anything else?
- benjaminwootton 3y ago
  It’s not worth taking VC if you aren’t going to put it to work. And if you put it to work to any degree, you start growing and accruing costs. You are then in a race against time for the next raise and you are off to the races.
  - deleted 3y ago
    [deleted]
- lijok 3y ago
  Term sheets, tranched funds
- ohgodplsno 3y ago
  > your articles of incorporation state that you can do whatever you want if you own >50% Then VCs won't invest in you, put a bunch of cash into a competitor, bleed you dry and either let you die or force you to reincorporate in a way they can have ownership. VCs are a cancer. They want to spread and grow, at any cost.
- streblo 3y ago
  You have a fiduciary duty to the shareholders. But that doesn't equate to 'do everything you possibly can to achieve exponential growth'.
- Guvante 3y ago
  If you assume you can outsmart a VC who has worked with hundreds of startups with an idea you just had you are exactly the schmuck they want to work with. The actual deals are very complex and the details are hard to understand but it isn't as simple as "here is $10m go make me rich".
raincom 3y ago
Lessons learned from that post: (1) "I was told to hire a lot of people. Put fuel on the fire they said. Bring industry experts who can move the needle. All this BS you hear all day. All failed. I hired VPs and bloated my payroll. Ultimately I ended up with a bunch of highly paid employees who don’t know how to do anything but to “build and lead amazing teams.” Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution." (2) "I ended up focusing my efforts on hiring and ramping up those VPs and dealing with their dumb ideas instead of focusing on my 3 core tenants: build, sell, and deliver."
- dig1 3y ago
  The OP should hire someone to handle VC requests (better say to send most of those requests to /dev/null with a nice chocolate & flowers wrap) and keep customers happy with his productive five employees. Growth would come naturally over time.
- game_the0ry 3y ago
  This is too real in big corp as well as the VC funded start up world. A bunch of bourgeoisie over-educated idiots, usually with MBAs, who don't know how to do anything except take credit for work that other people do.
  - Xeoncross 3y ago
    The solutions presented great. The made sense. They smelled good. They made great leadership stories. ...but none of it actually mattered to the customer.
    - fuzztester 3y ago
      Yeah! Reminds me of a project life cycle cartoon I first saw in a software book early in my career. Just now searched for "systems analysis tyre cartoon" and selected this page, which seems the best, on a brief look, since it has both some history and multiple versions of the cartoon: https://www.businessballs.com/amusement-stress-relief/tree-swing-cartoon-pictures-early-versions/ https://www.businessballs.com/amusement-stress-relief/tree-s...
mdorazio 3y ago
1) How can you be in an "executive job at a FAANG" and not know this is how the VC model works? 2) > I hope this part is clear because it’s the crux of the misalignment between founders and VCs. This is the crux of the misalignment between small business owners and VCs. The large majority of the startup founders I've met all have dreams of building a rocket ship, not of building a happy small business. If you're in the latter camp, as I have been several times, you usually know better than to take VC money.
- Waterluvian 3y ago
  Why would someone doing executive work at a massive and well-established corporation be expected to know how VC works?
  - ghaff 3y ago
    That seems obvious? At least in the tech industry, I'd expect someone in an executive role to have some understanding of VC given how it influences so much that happens in the space. If you hired someone from a traditional manufacturing company, maybe not.
    - Waterluvian 3y ago
      I think more than anything this demonstrates the “my context must be everyone’s context” fallacy. The VC world is a little slice of the tech world. Hacker News is a wee little slice of the tech community.
      - ghaff 3y ago
        If you're in a senior management position in a company which has any M&A activity, I'd expect you to have at least some understanding of VC basics.
        Waterluvian 3y ago
        “I’d expect” That’s my point. People think their context is everyone’s context. You expect the world to be a certain way. Is it?
version_five 3y ago
I would have preferred to see this written as a blog post, there's nothing that requires anonymity imo if presented the right way, and it would make it more credible. As is it's believable and certainly reinforces stereotypes I have but it's not super helpful, as in it's just an outline of stuff people already think.
morkalork 3y ago
At the point right before taking VC money, what's the safer alternative sources for cash? This is a serious question. The alternative I've seen work is another company in the same field make the investment with an option to further invest or acquire the company later on. Their expectations for growth were a lot more "down to earth".
- sosodev 3y ago
  You could take traditional small business loans or other types of simple credit, try crowd sourced funding (kickstarter), or just build shit without much or any funding (bootstrap). That’s not an exhaustive list of course.
- Guvante 3y ago
  Some VC firms are willing to work with less growth potential. The problem is those VC firms are much harder to get started with. After all the whole schtick of the VCs complained about in OP is to fund tons companies and make so much money off the unicorns that it doesn't matter how many fail. Honestly though there is one upside to VC money: it also caps your losses. Most forms of debt for a small company rely on you being a creditor meaning you can be in the hole if your company fails. Overall getting money is hard and nuanced which makes sense given there is nearly infinite demand for it.
mustafa_pasi 3y ago
All I'm thinking is, you Americans are really fucking lucky. Yeah OK, VCs are greedy and difficult to work with, but at least they give you a chance and literally give you startup capital in the millions to build your own thing. That is mind blowing to me and definitely what sets America apart from everywhere else.
- atleastoptimal 3y ago
  [flagged]
  - hattmall 3y ago
    The people getting the millions aren't generally from the same pool as those who have no healthcare and experience gun violence. Two entirely different worlds.
    - atleastoptimal 3y ago
      I was being facetious, a commentary on people who ardently defend the US on the merit of its economic strength over everything else, including many basic amenities much poorer countries take for granted.
- swyx 3y ago
  i mean, it exists in europe and asia too (i'm not familiar with latam/africa so less willing to make this kind of statement there). and if you pass some kind of socioeconomic bar you can be based anywhere but "effectively part of the US startup scene" if you hustle into the right circles. step 1 is incorporate thru stripe atlas imo.
- jamesaurichs 3y ago
  The built-in culture of risk taking in US can't be underestimated. Yes, we joke about Florida man and lament about the excess funding for startups. But with great risk comes great reward, and chances for inexperienced founders to prove themselves. Nowhere else on the planet are you able to do that with such magnitude, not in Japan, not in Europe, not in China (now that they're broke and in a Great Depression, and Xi is killing off entrepreneurs).
seizethecheese 3y ago
I’m a VC backed founder. The VCs will give you lots of advice, but generally are removed enough from the business that it’s obviously up to you to make final strategic decisions. This story is remarkable in one sense: the founder removes all of his own agency from the story. The vast majority of initial financing rounds leave the founders in control of companies these days… Finally, a VC backed company is always likely to die. If you want to run a nice, small SaaS, don’t take VC. Whether financing comes from a bank loan, an angel, private equity or VC, one job of entrepreneurs is to align incentives with capital sources.
- xwdv 3y ago
  A nice small SaaS will also almost always die quick. IMO, it is foolish to hinge the decision of taking VC money or not based on potential lifespan alone. VC money could kill your startup quickly, but you could potentially make a lot of stable money in that short period of time, and end up better off than collecting smaller profit from your small SaaS that lives for a longer period of time. And yea most of the time you are reinvesting profits but you should hopefully be paying yourself too along the way. Not to mention you are also paying a lot of other people as well and creating value for them. Ultimately VC money isn’t destroyed, it’s just reabsorbed into a wider economy.
  - Kinrany 3y ago
    Money is never destroyed unless you literally destroy it physically.
    - AmIDev 3y ago
      Even that should be equivalent to distributing throughout the economy. If you burn 100 units of money, you are decreasing it's supply, increasing it's value by a tiny bit.
- faangiq 3y ago
  He’s a standard FAANG manager. Failing on upppp …
Aurornis 3y ago
> Ultimately I ended up with a bunch of highly paid employees who don’t know how to do anything but to “build and lead amazing teams.” I've worked at a lot of startups. The worst of them were led by people who list things like "organization design" and "build and lead amazing teams" on their LinkedIn. At the most dysfunctional company, the ex-FAANG CTO would take key job descriptions and add the requirement that they must have FAANG experience. This created a glass ceiling where the early employees, non of whom had FAANG backgrounds, were unable to be promoted. Instead, we got a lot of ex-FAANG VPs and Directors who didn't know how to function at a startup. They were told to lead teams of people who knew the business inside and out (because they built it!) yet they could barely function outside of a big company themselves. Every meeting would be a competition of stories about "At Microsoft we did this..." or "At Facebook we did that..." because playing the FAANG card was the only thing the CTO liked to hear. The only non-FAANG person who thrived at that company was the single worst leader I've ever reported to. He is a LinkedIn influencer with his own newsletter where he talks about, among other things, his expertise in "Organizational Design". Yet the organization he designed was completely dysfunctional because he ignored how the business worked and instead hired arbitrary numbers of people according to some book he read. Half of the people at that company were 90% idle, while the other half were working 80 hour weeks because the "organizational design" person had strictly assigned responsibilities to arbitrary teams in a way that didn't account for how the business actually worked. The next line from this post is exactly how he responded to every problem: > Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution. He was never accountable for anything because he always had someone under him to blame.
- ethbr0 3y ago
  I interviewed a guy the other day. CS degree. "I have a proven track record of building and leading amazing engineering teams." "Okay. What's the difference between a character and a string?" *crickets* We all have our specialities, but jesus ¢@&#ing christ: if you're interviewing for an engineering role, of any sort, you should be able to answer basic questions.
  - 3y ago
blobbers 3y ago
This post looks like a LARPer.
laurent123456 3y ago
It was making 7 figures and now it's worth $0? If the investments from VC didn't lead to anything, wouldn't the company still make 7 figures anyway and shouldn't it be possible to continue as it is?
- swyx 3y ago
  yeah def not the whole story being told. this wouldve at least been a nice acquihire for somebody if it were a valuable business. if this founder ran a 7 figure business into the ground with no cash shortage pressure he cant blame VCs for that.
  - kasdi 3y ago
    Seems like it was an aqui-hire https://news.ycombinator.com/item?id=37103910 https://news.ycombinator.com/item?id=37103910
- ipaddr 3y ago
  Not when your employee costs grow larger than your profits. Making a million a year turns into -250k if you hire 5 extra VPs who offer no value.
spaceman_2020 3y ago
Are all VCs like this or did OP strike out with some bad apples?
- jacquesm 3y ago
  I don't think the VCs are to blame at all. This is a one sided story but that side already gives off so many signals of not being cut out for the job that it isn't surprising to see them heaping the blame on another party. If you're the CEO and you are looking for capital you don't do that whilst giving the capital providers a mandate to run your company by proxy. That's on him. If VCs tell you to do 'X' and you don't agree you're well within your rights as CTO to tell them to shove it. (But more politely, of course.)
  - Dylan16807 3y ago
    It seems fair to assign a lot of blame to the person that told you to do it and paid for you to do it as the owner of a good chunk of it. You don't think that should have any blame at all?
    - jacquesm 3y ago
      The 'C' in CEO used to stand for something.
      - Dylan16807 3y ago
        It certainly isn't "takes all the blame no matter what happens". Especially when they're up against the people that own the company!
        satvikpendem 3y ago
        They don't own the company though. If you're raising 10 million on a 100 million dollar valuation, there's no way that VCs own the majority. There really is no reason to listen to anything they say.
axpy906 3y ago
> Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution. FANNG hires?
counterpartyrsk 3y ago
At least your numbers are positive, doing much better than me.
paxys 3y ago
What I got out of the post is – "My business was on a path to success because of my own efforts, and failed only because of those pesky VCs and their money". With an attitude like that no wonder they lost what they had.
kcsavvy 3y ago
Elements of this story indicate a founder who simply lost control of their company, which is their job as a founder. I don’t think the VC is the villain here. They raised at an inflated valuation and seemingly received a favorable multiple (100-10x “7-figure” revenue). The fact that they rode out the company to 0 means they had board control and were never fired. So they are ultimately responsible for every decision they made. Including over-hiring and not firing their clueless VPs. I say this as a founder of a yc-backed company that was acquired. I know the pressures of short-sided VCs. I also know that the job of a founder is to pick which advice you follow.
- jacquesm 3y ago
  Exactly that's the big takeaway: he didn't learn what he should have learned: that it was his horse to lead. A CEO that slavishly follows the VCs has abdicated.
jacquesm 3y ago
I can condense this to 'I thought CEO was a nice title but I failed at taking it seriously and allowed others to lead my company whilst I held the title'. The results are predictable. Note how there is no acceptance of personal responsibility. I also note that there isn't a shred of evidence for this whole story, and $100M to $0 does not seem like a believable trajectory (nor does $0 to $100M, but the other is much less believable).
- t0mas88 3y ago
  $100M to 0 sounds plausible for a founder with common stock in a VC led company with little success. You can raise a lot of money without much revenue or track record, but it will come with all kinds of liquidation preferences leaving common stock at 0 if things don't go like a rocket ship.
- master_crab 3y ago
  I’m willing to accept the 0 to 100M to 0 plot line. But I agree, if this was a truly productive post the poster would have also admitted some level of personal culpability. They are the founder after all and the VC is just another stakeholder. The founder hired those VPs, not the VCs. A key requirement of any company is managing your equity holders.
yieldcrv 3y ago
“…and now I bootstrap!” because you paid yourself $300k for 5 years despite having such low performance
firefoxd 3y ago
This sounds like the start up I left a couple years ago. I was employee number 3. I took a deep pay cut to join them. I shared a cubicle with the ceo and cto, the two cofounders. Tight nit group. A year later, we had our first round of vc fund. I had a slight bump in salary, but owned stocks so all is good. My role was, make-things-work-at-all-cost. I'd be on calls with customers and their engineers to make things work. I'd generate specialized reports by merging data locally, I'd get a calls on my personal phone from customers. We did the things that don't scale. Year 2, we are 30 employees getting ready for another round of funding, the ceo and cto spent all their time in vc meetings. I worked in all my waking hours, it was unsustainable. I told them I needed a break, the way they responded showed me that I was just another replaceable employee. I packed my stuff and left, they tried to screw with my stocks, but i fought back and got it all. They got their second funding. They never replaced me. Instead of hiring 2 or 3 people to do my job in a scalable manner, they stopped offering the service all together. Instead they went with buzzwords in AI. Fast forward 3 years. The company was acquired, the stocks are worth 0 dollars, and most employees got fired. Though the linkedin post sounds like a success story.
- pyrophane 3y ago
  How did your stock wind up being worth $0? Down round or a "practically an acqui-hire" type of acquisition?
  - firefoxd 3y ago
    It was an acqui-hire, so former employees got nothing.
Gud 3y ago
Go with proven people. Whoever is already proven to meet your requirements, use them. Grow slowly, but steadily.
codersfocus 3y ago
Here's the real story: This is someone in their teenage to twenties, who makes 10 reddit accounts a month, farms karma on them, then sells them to spammers in a couple months for a couple hundred dollars each.
- catboybotnet 3y ago
  People care about karma? About updoots?
  - codersfocus 3y ago
    Reddit moderators set rules such that many subreddits have minimum karma and age requirements to post. If you're a marketer who wants to create networks of shill accounts (happens more than you think) then you need enough accounts that meet these requirements.
faangiq 3y ago
“FAANG exec” … today in middle managers learn real business is hard …
Williams565 3y ago
[dead]
Williams565 3y ago
[dead]
ouraf 3y ago
Tangential question: how hard it is to "buy back" the company shares from venture capital firms? I've heard these "grow until you burst" stories some times, but no one ever told a good way of getting free from the VC without retaliation

253 points by bsmth 3y ago

TL;DR: Founder had healthy startup, accepts VC money, acts surprised when VC wants rapid growth and returns. Who could have predicted this?

thih9 3y ago
Hindsight is always 20/20. I’m sure there are founders standing before a similar route at this very moment. Hopefully they’re reading this post too.

apodolny 3y ago

A little frustrated by the ambiguity of the $100M in the post. Is that capital raised, ARR, GMV? Makes a big difference in terms of understanding what kind of business they built.

mdorazio 3y ago
Almost certainly that was $100M valuation.
- necubi 3y ago
  It must be valuation (if there's a SaaS company that's ever gone from $0 -> $100MM ARR -> $0 within five years I would be very surprised). But that makes this whole thing pretty circular—they only would have $100MM valuation because they sold a story of growth to investors. Assuming that the round at $100M valuation was during the boom times of 2019-2021, that could have been with as little as $3-5M annual revenue (20-25x multiplier). Assuming slow or no growth, a company with $3M in revenue would be worth <$15M.
  - raincom 3y ago
    In that reddit post, he says "I had over $10m in the bank for a startup of 5 people making low 7 figures from well established and extremely happy customers." You are right: low 7 figures = $3-$5M annual revenue
renewiltord 3y ago
I'd guess it's valuation. He raised once at $1M (F&F probably). Then raised. Then some time post-raise low 7-figs in revenue => $3-4M, and $10M in the bank. Raised $20M at $100M perhaps? Seems reasonable, 25x-30x revenue. It makes sense. If he got there quick, his product was working, and it had a chance at gold. Ultimately, lots of ways for startup to fail and failing-to-scale is one of them. Well, he knows there's PMF at a small market now. He can try again without the large raise if he wants to run a lifestyle business.

charcircuit 3y ago

>All in all we went from $0 to $100m to $0 because I followed the advice of the VCs. It's not the VCs' fault that OP failed at scaling his business. If you are getting VC funding you will need to be able to scale up.

monero-xmr 3y ago

There’s a lot of information missing. All of his problems were caused by VC? Why did he raise VC if he had 7 figure revenue? 5 years explained in 6 paragraphs. I agree that hiring bigco people for a startup is a mistake, but otherwise you can’t learn anything here.

benjaminwootton 3y ago
It’s a very common mistake in funded startups. You think you need to bring the tenured exec in with all of the industry contacts, but they are often a terrible cultural fit or experienced in the last iteration of your industry. They also want to hire under them rather than work the tools themselves and do this bait and switch after you’ve hired them. You are then stuck with high salaries for ineffective people or an expensive and disruptive exit. VCs also seem to push these people onto you as they think that is what constitutes a real company and/or they want a nice gig for their friends.
gopher_space 3y ago
> otherwise you can’t learn anything here Some times your money printer won't scale, but other people will try to convince you that it's full of golden eggs? If you're cash-positive you should see VC as supplicants begging for scraps?

powera 3y ago

A riddle: how do you know that an anonymous Reddit post is exaggerated?

malablaster 3y ago
Yeah, it’s about as reliable as the claim that it’s unreliable.
colemannugent 3y ago
Seriously, ~120 comments and this is the first one to question the posts legitimacy? The reddit poster goes on to comment: >15 minutes phone call to decide to file for bankruptcy and for them to take their money back (and then some) and shut down my company What? In no world would that happen. Even a mostly failed company has quite a bit more value than $0. No mention of the name of the company or even the vertical. 100% BS.
- coldtea 3y ago
  Not everything is meant literally. When he says they ended up with $0 doesn't have to be $0, just hugely down and nearly worthless compared to before that was doing well. In the same way $100M could just have been $99M or even $80M, and then $0 they started with could just as well have been $20K in savings he invested.
coldtea 3y ago
Another riddle: Does it matter if the company in the post didn't even exist, as long as the story is similar to what actually happened to many others?

lijok 3y ago

Many such cases

djoldman 3y ago

Honest question: if you sell <50% of your company to VCs or anyone else and your articles of incorporation state that you can do whatever you want if you own >50%, then why do what the VCs tell you to do? Beyond gaining some sort of reputation for not doing what your investors want, is there anything else?

benjaminwootton 3y ago
It’s not worth taking VC if you aren’t going to put it to work. And if you put it to work to any degree, you start growing and accruing costs. You are then in a race against time for the next raise and you are off to the races.
- deleted 3y ago
  [deleted]
lijok 3y ago
Term sheets, tranched funds
ohgodplsno 3y ago
> your articles of incorporation state that you can do whatever you want if you own >50% Then VCs won't invest in you, put a bunch of cash into a competitor, bleed you dry and either let you die or force you to reincorporate in a way they can have ownership. VCs are a cancer. They want to spread and grow, at any cost.
streblo 3y ago
You have a fiduciary duty to the shareholders. But that doesn't equate to 'do everything you possibly can to achieve exponential growth'.
Guvante 3y ago
If you assume you can outsmart a VC who has worked with hundreds of startups with an idea you just had you are exactly the schmuck they want to work with. The actual deals are very complex and the details are hard to understand but it isn't as simple as "here is $10m go make me rich".

raincom 3y ago

Lessons learned from that post: (1) "I was told to hire a lot of people. Put fuel on the fire they said. Bring industry experts who can move the needle. All this BS you hear all day. All failed. I hired VPs and bloated my payroll. Ultimately I ended up with a bunch of highly paid employees who don’t know how to do anything but to “build and lead amazing teams.” Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution." (2) "I ended up focusing my efforts on hiring and ramping up those VPs and dealing with their dumb ideas instead of focusing on my 3 core tenants: build, sell, and deliver."

dig1 3y ago
The OP should hire someone to handle VC requests (better say to send most of those requests to /dev/null with a nice chocolate & flowers wrap) and keep customers happy with his productive five employees. Growth would come naturally over time.
game_the0ry 3y ago
This is too real in big corp as well as the VC funded start up world. A bunch of bourgeoisie over-educated idiots, usually with MBAs, who don't know how to do anything except take credit for work that other people do.
- Xeoncross 3y ago
  The solutions presented great. The made sense. They smelled good. They made great leadership stories. ...but none of it actually mattered to the customer.
  - fuzztester 3y ago
    Yeah! Reminds me of a project life cycle cartoon I first saw in a software book early in my career. Just now searched for "systems analysis tyre cartoon" and selected this page, which seems the best, on a brief look, since it has both some history and multiple versions of the cartoon: https://www.businessballs.com/amusement-stress-relief/tree-swing-cartoon-pictures-early-versions/ https://www.businessballs.com/amusement-stress-relief/tree-s...

mdorazio 3y ago

1) How can you be in an "executive job at a FAANG" and not know this is how the VC model works? 2) > I hope this part is clear because it’s the crux of the misalignment between founders and VCs. This is the crux of the misalignment between small business owners and VCs. The large majority of the startup founders I've met all have dreams of building a rocket ship, not of building a happy small business. If you're in the latter camp, as I have been several times, you usually know better than to take VC money.

Waterluvian 3y ago
Why would someone doing executive work at a massive and well-established corporation be expected to know how VC works?
- ghaff 3y ago
  That seems obvious? At least in the tech industry, I'd expect someone in an executive role to have some understanding of VC given how it influences so much that happens in the space. If you hired someone from a traditional manufacturing company, maybe not.
  - Waterluvian 3y ago
    I think more than anything this demonstrates the “my context must be everyone’s context” fallacy. The VC world is a little slice of the tech world. Hacker News is a wee little slice of the tech community.
    - ghaff 3y ago
      If you're in a senior management position in a company which has any M&A activity, I'd expect you to have at least some understanding of VC basics.
      - Waterluvian 3y ago
        “I’d expect” That’s my point. People think their context is everyone’s context. You expect the world to be a certain way. Is it?

version_five 3y ago

I would have preferred to see this written as a blog post, there's nothing that requires anonymity imo if presented the right way, and it would make it more credible. As is it's believable and certainly reinforces stereotypes I have but it's not super helpful, as in it's just an outline of stuff people already think.

morkalork 3y ago

At the point right before taking VC money, what's the safer alternative sources for cash? This is a serious question. The alternative I've seen work is another company in the same field make the investment with an option to further invest or acquire the company later on. Their expectations for growth were a lot more "down to earth".

sosodev 3y ago
You could take traditional small business loans or other types of simple credit, try crowd sourced funding (kickstarter), or just build shit without much or any funding (bootstrap). That’s not an exhaustive list of course.
Guvante 3y ago
Some VC firms are willing to work with less growth potential. The problem is those VC firms are much harder to get started with. After all the whole schtick of the VCs complained about in OP is to fund tons companies and make so much money off the unicorns that it doesn't matter how many fail. Honestly though there is one upside to VC money: it also caps your losses. Most forms of debt for a small company rely on you being a creditor meaning you can be in the hole if your company fails. Overall getting money is hard and nuanced which makes sense given there is nearly infinite demand for it.

mustafa_pasi 3y ago

All I'm thinking is, you Americans are really fucking lucky. Yeah OK, VCs are greedy and difficult to work with, but at least they give you a chance and literally give you startup capital in the millions to build your own thing. That is mind blowing to me and definitely what sets America apart from everywhere else.

atleastoptimal 3y ago
[flagged]
- hattmall 3y ago
  The people getting the millions aren't generally from the same pool as those who have no healthcare and experience gun violence. Two entirely different worlds.
  - atleastoptimal 3y ago
    I was being facetious, a commentary on people who ardently defend the US on the merit of its economic strength over everything else, including many basic amenities much poorer countries take for granted.
swyx 3y ago
i mean, it exists in europe and asia too (i'm not familiar with latam/africa so less willing to make this kind of statement there). and if you pass some kind of socioeconomic bar you can be based anywhere but "effectively part of the US startup scene" if you hustle into the right circles. step 1 is incorporate thru stripe atlas imo.
jamesaurichs 3y ago
The built-in culture of risk taking in US can't be underestimated. Yes, we joke about Florida man and lament about the excess funding for startups. But with great risk comes great reward, and chances for inexperienced founders to prove themselves. Nowhere else on the planet are you able to do that with such magnitude, not in Japan, not in Europe, not in China (now that they're broke and in a Great Depression, and Xi is killing off entrepreneurs).

seizethecheese 3y ago

I’m a VC backed founder. The VCs will give you lots of advice, but generally are removed enough from the business that it’s obviously up to you to make final strategic decisions. This story is remarkable in one sense: the founder removes all of his own agency from the story. The vast majority of initial financing rounds leave the founders in control of companies these days… Finally, a VC backed company is always likely to die. If you want to run a nice, small SaaS, don’t take VC. Whether financing comes from a bank loan, an angel, private equity or VC, one job of entrepreneurs is to align incentives with capital sources.

xwdv 3y ago
A nice small SaaS will also almost always die quick. IMO, it is foolish to hinge the decision of taking VC money or not based on potential lifespan alone. VC money could kill your startup quickly, but you could potentially make a lot of stable money in that short period of time, and end up better off than collecting smaller profit from your small SaaS that lives for a longer period of time. And yea most of the time you are reinvesting profits but you should hopefully be paying yourself too along the way. Not to mention you are also paying a lot of other people as well and creating value for them. Ultimately VC money isn’t destroyed, it’s just reabsorbed into a wider economy.
- Kinrany 3y ago
  Money is never destroyed unless you literally destroy it physically.
  - AmIDev 3y ago
    Even that should be equivalent to distributing throughout the economy. If you burn 100 units of money, you are decreasing it's supply, increasing it's value by a tiny bit.
faangiq 3y ago
He’s a standard FAANG manager. Failing on upppp …

Aurornis 3y ago

> Ultimately I ended up with a bunch of highly paid employees who don’t know how to do anything but to “build and lead amazing teams.” I've worked at a lot of startups. The worst of them were led by people who list things like "organization design" and "build and lead amazing teams" on their LinkedIn. At the most dysfunctional company, the ex-FAANG CTO would take key job descriptions and add the requirement that they must have FAANG experience. This created a glass ceiling where the early employees, non of whom had FAANG backgrounds, were unable to be promoted. Instead, we got a lot of ex-FAANG VPs and Directors who didn't know how to function at a startup. They were told to lead teams of people who knew the business inside and out (because they built it!) yet they could barely function outside of a big company themselves. Every meeting would be a competition of stories about "At Microsoft we did this..." or "At Facebook we did that..." because playing the FAANG card was the only thing the CTO liked to hear. The only non-FAANG person who thrived at that company was the single worst leader I've ever reported to. He is a LinkedIn influencer with his own newsletter where he talks about, among other things, his expertise in "Organizational Design". Yet the organization he designed was completely dysfunctional because he ignored how the business worked and instead hired arbitrary numbers of people according to some book he read. Half of the people at that company were 90% idle, while the other half were working 80 hour weeks because the "organizational design" person had strictly assigned responsibilities to arbitrary teams in a way that didn't account for how the business actually worked. The next line from this post is exactly how he responded to every problem: > Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution. He was never accountable for anything because he always had someone under him to blame.

ethbr0 3y ago
I interviewed a guy the other day. CS degree. "I have a proven track record of building and leading amazing engineering teams." "Okay. What's the difference between a character and a string?" *crickets* We all have our specialities, but jesus ¢@&#ing christ: if you're interviewing for an engineering role, of any sort, you should be able to answer basic questions.
- 3y ago

blobbers 3y ago

This post looks like a LARPer.

laurent123456 3y ago

It was making 7 figures and now it's worth $0? If the investments from VC didn't lead to anything, wouldn't the company still make 7 figures anyway and shouldn't it be possible to continue as it is?

swyx 3y ago
yeah def not the whole story being told. this wouldve at least been a nice acquihire for somebody if it were a valuable business. if this founder ran a 7 figure business into the ground with no cash shortage pressure he cant blame VCs for that.
- kasdi 3y ago
  Seems like it was an aqui-hire https://news.ycombinator.com/item?id=37103910 https://news.ycombinator.com/item?id=37103910
ipaddr 3y ago
Not when your employee costs grow larger than your profits. Making a million a year turns into -250k if you hire 5 extra VPs who offer no value.

spaceman_2020 3y ago

Are all VCs like this or did OP strike out with some bad apples?

jacquesm 3y ago
I don't think the VCs are to blame at all. This is a one sided story but that side already gives off so many signals of not being cut out for the job that it isn't surprising to see them heaping the blame on another party. If you're the CEO and you are looking for capital you don't do that whilst giving the capital providers a mandate to run your company by proxy. That's on him. If VCs tell you to do 'X' and you don't agree you're well within your rights as CTO to tell them to shove it. (But more politely, of course.)
- Dylan16807 3y ago
  It seems fair to assign a lot of blame to the person that told you to do it and paid for you to do it as the owner of a good chunk of it. You don't think that should have any blame at all?
  - jacquesm 3y ago
    The 'C' in CEO used to stand for something.
    - Dylan16807 3y ago
      It certainly isn't "takes all the blame no matter what happens". Especially when they're up against the people that own the company!
      - satvikpendem 3y ago
        They don't own the company though. If you're raising 10 million on a 100 million dollar valuation, there's no way that VCs own the majority. There really is no reason to listen to anything they say.

axpy906 3y ago

> Imagine you hire someone to scale an area and their solution is to divide that area into 5 sub areas and hire someone for each of them to figure it out, etc. that’s their solution. FANNG hires?

counterpartyrsk 3y ago

At least your numbers are positive, doing much better than me.

paxys 3y ago

What I got out of the post is – "My business was on a path to success because of my own efforts, and failed only because of those pesky VCs and their money". With an attitude like that no wonder they lost what they had.

kcsavvy 3y ago

Elements of this story indicate a founder who simply lost control of their company, which is their job as a founder. I don’t think the VC is the villain here. They raised at an inflated valuation and seemingly received a favorable multiple (100-10x “7-figure” revenue). The fact that they rode out the company to 0 means they had board control and were never fired. So they are ultimately responsible for every decision they made. Including over-hiring and not firing their clueless VPs. I say this as a founder of a yc-backed company that was acquired. I know the pressures of short-sided VCs. I also know that the job of a founder is to pick which advice you follow.

jacquesm 3y ago
Exactly that's the big takeaway: he didn't learn what he should have learned: that it was his horse to lead. A CEO that slavishly follows the VCs has abdicated.

jacquesm 3y ago

I can condense this to 'I thought CEO was a nice title but I failed at taking it seriously and allowed others to lead my company whilst I held the title'. The results are predictable. Note how there is no acceptance of personal responsibility. I also note that there isn't a shred of evidence for this whole story, and $100M to $0 does not seem like a believable trajectory (nor does $0 to $100M, but the other is much less believable).

t0mas88 3y ago
$100M to 0 sounds plausible for a founder with common stock in a VC led company with little success. You can raise a lot of money without much revenue or track record, but it will come with all kinds of liquidation preferences leaving common stock at 0 if things don't go like a rocket ship.
master_crab 3y ago
I’m willing to accept the 0 to 100M to 0 plot line. But I agree, if this was a truly productive post the poster would have also admitted some level of personal culpability. They are the founder after all and the VC is just another stakeholder. The founder hired those VPs, not the VCs. A key requirement of any company is managing your equity holders.

yieldcrv 3y ago

“…and now I bootstrap!” because you paid yourself $300k for 5 years despite having such low performance

firefoxd 3y ago

This sounds like the start up I left a couple years ago. I was employee number 3. I took a deep pay cut to join them. I shared a cubicle with the ceo and cto, the two cofounders. Tight nit group. A year later, we had our first round of vc fund. I had a slight bump in salary, but owned stocks so all is good. My role was, make-things-work-at-all-cost. I'd be on calls with customers and their engineers to make things work. I'd generate specialized reports by merging data locally, I'd get a calls on my personal phone from customers. We did the things that don't scale. Year 2, we are 30 employees getting ready for another round of funding, the ceo and cto spent all their time in vc meetings. I worked in all my waking hours, it was unsustainable. I told them I needed a break, the way they responded showed me that I was just another replaceable employee. I packed my stuff and left, they tried to screw with my stocks, but i fought back and got it all. They got their second funding. They never replaced me. Instead of hiring 2 or 3 people to do my job in a scalable manner, they stopped offering the service all together. Instead they went with buzzwords in AI. Fast forward 3 years. The company was acquired, the stocks are worth 0 dollars, and most employees got fired. Though the linkedin post sounds like a success story.

pyrophane 3y ago
How did your stock wind up being worth $0? Down round or a "practically an acqui-hire" type of acquisition?
- firefoxd 3y ago
  It was an acqui-hire, so former employees got nothing.

Gud 3y ago

Go with proven people. Whoever is already proven to meet your requirements, use them. Grow slowly, but steadily.

codersfocus 3y ago

Here's the real story: This is someone in their teenage to twenties, who makes 10 reddit accounts a month, farms karma on them, then sells them to spammers in a couple months for a couple hundred dollars each.

catboybotnet 3y ago
People care about karma? About updoots?
- codersfocus 3y ago
  Reddit moderators set rules such that many subreddits have minimum karma and age requirements to post. If you're a marketer who wants to create networks of shill accounts (happens more than you think) then you need enough accounts that meet these requirements.

faangiq 3y ago

“FAANG exec” … today in middle managers learn real business is hard …

Williams565 3y ago

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Williams565 3y ago

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ouraf 3y ago

Tangential question: how hard it is to "buy back" the company shares from venture capital firms? I've heard these "grow until you burst" stories some times, but no one ever told a good way of getting free from the VC without retaliation