Should Your Startup Bootstrap or Raise Venture Capital?

I would watch his life on Facebook and be like this is amazing he traveled the world he got married he had kids I'm like am I the idiot and like evidence was quite possibly Michael quite possibly this is Alon plus Michael and today we're going to talk about should you bootstrap or should you start a VC backed company this is like a confusingly controversial topic yeah I'm not really sure why it's controvers well it's one of those sort of one-sided things where a lot of people don't care about the topic versus people that care a lot yeah does that make sense and so I think there's a lot of people that strongly identify and are really excited about bootstrapping yeah that are very like fired up about this and there's a lot of people that this just isn't a topic that comes up much yeah the place we should start I think is that the vast majority of businesses um should not raise venture capital and I'll extend that Point Venture Capital is not interested in investing yeah in the vast majority of businesses so like one of the things I think Founders get really screwed up on is that VCS have become a little bit more marketingyoutube lot of the stuff that I see on the television show yeah you would never in a million years be able to raise VC from it and so I think you watch Shark Tank and you think that that is no reality not this industry so I think that um that's the first thing is that if you're starting a business that can appear on Shark Tank for the most part you probably shouldn't raise Venture Capital um but I think there's actually like a deeper thing here which is that let's say you want to start a startup business you don't have to raise Venture Capital either correct and I'll say the same thing I don't believe Venture capitalists want to invest in all software businesses and I don't believe all software Founders should raise Venture Capital yep so yeah let's talk about the map I think what's really going on um is I think if you looked at how many businesses are started every year yes what percentage of those are Venture funded Co we could ask chat gbt but I would guess definitely single digits if not less than 1% and so if you just look at businesses that are started in the world yes it is like a weird outlier freak occurrence that is a VC funded business and so but I think if you're just consuming content you know you're watching media watching YouTube Twitter you don't realize that yeah okay and Venture Capital as a product is specifically for investing in something where their investment could be worth at least a 100 times more if not a thousand times more yes and so trying to put that jet fuel into something that um isn't going to grow to be big everyone is going to be sad and lose yeah and so you shouldn't do it and the investor win and the user no one no one wins no one wins and so again like I don't think that there's this push that I can see from from investors to try to convince people to raise VC money um for something that is not has like no chance of of growing like that it just doesn't make sense for anybody okay I'll go a step further I think the whole argument is fake news right I don't think this is a a real argument right I don't think that anyone thinks it's more moral or good or right to start a VC pack company or a non-vc pack company I don't think this is an actual debate yeah I think that like starting a VCB company really hard not the best way to get rich not the best way relatively small number like the numbers are not huge not a good path like I always like to equate it to like Athletics it's like getting into the NBA is really hard like not like the best path to have a good career is to be like oh I'll just I'll just make the NBA yeah that's simple right it's like 4 or 50 guys I'll just be one of those guys and then game on right right they recruit from all around the world I live in the world yeah very straightforward I like that play yeah no so it's this is not the only way to get rich Let's Take a further step most people who are rich did not raise Venture Capital dollars did not start real estate investing stock market investing being lawyers being doctors again go num investors yeah there's so many people right so this is not we get rich I think the other thing that's funny is like there is no one trying to force you or cadol you into starting a VC backed company like if you don't want to do it don't don't do it correct it's also a decision that you can revisit if you don't want to start a VCB company now but like your bootstrap product starts doing well and you want to do it in the future great you can there's no one who is going to say no you said you were bootstrapped on Twitter I will not give you money like no I'll get another truth empirically none of the trillion dollar software companies um are bootstrapped with no VC dollars ever yeah so if you if someone's telling you you can make a trillion dollar company maybe you can just no one's ever done it yeah I'll say fact based and again like to look at the numbers even if you look at software companies yeah even if you look at iPhone apps if you actually did an audit of the App Store and you said what percentage of the apps in the App Store are VC backed it is Tiny tin but if you said what percentage of dollars that are spent in mobile apps go into VC backed companies I think that that's right because dollars are going into Amazon and eBay and like all that kind of stuff right yes and by the way I don't I want to be clear neither of us are saying you should want to make one of those companies yes like or you that should come from inside of you not from YouTube no no right like I actually kind of try to convince people not do it well if it is because if you need to be talked into it that's a bad bad so I like to talk about why it sucks yeah so um I think the other thing is that no one is trying to say in our industry that if you make a great software product that allows you to make enough money to live a good life and it's not PC back that you haven't won you won yep like I had a friend who made one of these companies um you might have used his product his product generated about $30 to $50,000 a month and took about 7 to 10 hours a month of Maintenance the entire time I was working on my startup he was living life like I would watch his life on Facebook and be like this is amazing he traveled the world he got married he had kids I'm like he won like that's like like good for him like there's no again this is the one-sided thing is that we're like great like we're like high-fiving that versus that there's this um two-sided battle 97% of the time I was watching that Facebook I was like am I the idiot and like evidence was quite possibly possibly yes um and he's still doing great right and so like this is really clear it's like building a great small business software small soft even the term small bothers people it's just non-venture back non it could be big non Venture back you making millions and millions of dollars yes totally fine I think the other thing that's kind of maybe a dirt dirty kind of underbelly here is who is spurning this argument like who who is who who's incentivized for this to be a big issue yeah think that this has been just like a topic that gets a lot of Engagement online yeah and so yeah you know if you want to get people agitated about something this is a pretty good topic and then you can use it to promote stuff and so yeah I'm not going of name any names but I can think of folks over the years yeah that are like kind of um built a following around encouraging people to do this and to the extent it is helpful and more people are improving their lives it that's great yes but there's a little bit of like creating a fake controversy and then and then monetizing it little bit and so maybe maybe people may have this question watching this video Michael why should I apply to YC like why should I do a v you guys just did a great job of explaining why not to do it well why why should I do Venture so I think that um there are some businesses where you actually need money upfront yes and if you you need money up front and you're building a software business The Venture Capital industry can help you get money up front if you don't need it they'll take it yes I think that what's so interesting about this is that um there aren't many other good mechanisms if you need millions of dollars or 10 million dollars to get your company to break even yeah there aren't other mechanisms in our economy to give that to you if bu an example of Google I don't know just cuz famous B companies the world you know I don't know how you could have bootstrapped that and so again maybe the audience is saying well I don't want to build Google great you no one is saying you have to build Google but if Google wants to build Google but if the founders of Google wanted to build Google yeah it doesn't seem mathematically possible there's no route they could have done it without raising money there's no loans they could have gotten to buy the servers and do the things they did no no and so we should just be thinking about VC as enabling incremental entrepreneurship that wouldn't to be around otherwise yep not as cannibalizing anything like it's just enabling that incremental founder and the other thing is you have to remember if you want to raise a lot of money but you can't explain to the investor why you might IPO and give them a lot of money back then you you can't raise VC we want to be explicit like it is a business transaction it's not a faith transaction correct it it is I give you money now you give me a lot more money later or at least you try really hard to and if you can try really hard but the result can't be a lot of money I shouldn't logically give you money now not because I don't like you or because yeah you're not a great person or these users you're trying to serve aren't great it's just because it's not a good business transaction it's literally nothing personal and I think sometimes Founders kind of are very confused when VC say no well it's because again if we're we're trying to stoke outrage you let's Stoke some outrage you point at something silly that raised a lot of money yes the most extreme silly thing in the world you always pointed youo that' be one right or we were whatever like you point to something that is like on face silly and then you say well if they funded that why won't they fund my social network for dogs yes and so it causes a lot of emotions yeah um and I understand I relate but it's don't fall for the rage pillar don't let yourself get enraged by obvious engagement bait yes which is to cherry-pick the craziest silliest thing yes and use that to get all worked up and take that personally like that somehow hurt you like like you were hurt by that thing over there happening well and what's so funny is like you are actually cluded on the real Troop real truth which is that they screwed up someone someone messed up like you're right they shouldn't got there that money like you you you nailed it that person who funded that company is an idiot you're exactly right but like hey that doesn't mean we should all bets are all yeah it's like okay this dumb thing happened therefore Up Is Down black like like forget everything we know those are those that doesn't follow that logic doesn't make sense that person should probably be uh spoken to about their investment strategy so yeah so just understand that game and I have to be honest like I like games like this like I don't like games where you have to like convince people to like you or to align with your views those are games that are way harder to play I like games where it's like hey if I want to serve this customer and you can be a good legal partner to me and I I give you money and you give me Legal Services you can be a good funding partner for me I give you a check of my company you give me cash right if you can be a good partner to me a simple to understand partner to me so that I can spend my time working my customer that's what I want yeah the customer complicated enough Jesus customers complicated enough I like the idea that the money people are like so if I give you this money maybe give me a lot of money back yes yes okay okay we're good okay all right end of conversation I give you money you don't give me any money back no no good come back when I come back when this is all that way hopefully this helps clear up the debate but I secretly hope this like I don't know like doesn't at all cuz this this is like so silly uh I hope we get somehow flame word for this anyways great good chat love it okay sounds good thanks [Music]

Channel: Y Combinator

Views: 117,203

Keywords: YC, Y Combinator, yt:cc=on

Id: D81y-kh11oI

Length: 14min 5sec (845 seconds)

Published: Mon Feb 05 2024