Much is written about both whether or not the VC model is broken and how to evolve startup business plans in the face of market changes. Today, it hit me just how inextricably linked the two issues are and how my own tactical process needs to catch up to market realities.
I spent from 1992 to 2006 presuming VC-backed startups were the business I was in, and I worked towards understanding that system. After all that time, two things happened to radically change my outlook.
- I finally figured out that one should only raise VC if one is already rich,
- I also figured out that being boring and late has better risk|reward characteristics than being sexy and early, and
- Cloud computing arrived, making VC deal terms economic only as growth capital for Internet startups, leaving the early-stage field clear to angels (and bootstrapping).
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Strongly agree on #1 and #3. You definitely want to be in a position where you have a viable product and a proven business model before even thinking about VC money. That way, you are using VC capital to explode your business, not validate your business. Otherwise, the pressures you will get from your VCs will be too high, forcing increased expectations and shorter deadlines.
Until that point, go with bootstrapping and angel money. That way, you have the freedom to realize your business model is not viable and you can easily pivot the company and try something else, and you don’t have any VC on your board to persuade.
RE: #2… I think it depends a lot on the specifics. Being sexy and early given a well understood business model can make a lot of sense. It’s being sexy and early with your product and your business model that is much riskier.
