<story><title>Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition</title><url>http://www.bloomberg.com/news/articles/2016-03-09/more-venture-investors-are-sitting-on-the-sidelines</url></story><parent_chain><item><author>delecti</author><text>It&amp;#x27;s really weird how this article tries to frame the situation. It&amp;#x27;s almost like the startups feel entitled to the funding.&lt;p&gt;The point of funding should really be to enable faster growth than they might otherwise have been able to achieve, but if a business can&amp;#x27;t at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place?</text></item></parent_chain><comment><author>mindcrime</author><text>Here&amp;#x27;s the somewhat ironic &amp;quot;catch 22&amp;quot; to the whole thing:&lt;p&gt;If you&amp;#x27;re a startup and you &lt;i&gt;don&amp;#x27;t&lt;/i&gt; take VC funding, then you have the luxury of simply enjoying organic growth and funding expansion by re-investing profits into the company.  Well, as long as you can do that in the face of competitive pressure.   Strictly speaking, unless it&amp;#x27;s a &amp;quot;network effect&amp;quot; situation like a social network, you probably don&amp;#x27;t &lt;i&gt;need&lt;/i&gt; to grow fast.&lt;p&gt;Unless you take VC money.  Then, the simple act of taking their money now means there &lt;i&gt;is&lt;/i&gt; pressure to grow fast, but it comes from the investors and not from the market per-se.   And this is because VC funds are time-boxed and, by definition, have to generate whatever return they&amp;#x27;re going to generate by a fixed point in time.   And the older a fund is (eg, the nearer it is to the end of it&amp;#x27;s life) the greater the pressure.&lt;p&gt;This is something I think more entrepreneurs should think long and hard about.  Don&amp;#x27;t raise VC money just for the sake of doing it.  Even if you can.  Do it IF and only if it&amp;#x27;s the only (or at least surest) way to reach your goals.  And always remember that the VC&amp;#x27;s interests do &lt;i&gt;not&lt;/i&gt; necessarily align with the founders (at least not 100% so).</text></comment>
<story><title>Valley VCs Sit on Cash, Forcing Startups to Dial Back Ambition</title><url>http://www.bloomberg.com/news/articles/2016-03-09/more-venture-investors-are-sitting-on-the-sidelines</url></story><parent_chain><item><author>delecti</author><text>It&amp;#x27;s really weird how this article tries to frame the situation. It&amp;#x27;s almost like the startups feel entitled to the funding.&lt;p&gt;The point of funding should really be to enable faster growth than they might otherwise have been able to achieve, but if a business can&amp;#x27;t at least survive without huge influxes of investments then is it really a business that they should be investing in in the first place?</text></item></parent_chain><comment><author>wpietri</author><text>It&amp;#x27;s a reasonable question, but consider three things:&lt;p&gt;One, part of the VC model is relatively frequent fundraising. You take some seed money, prove the model a bit, take an A round, prove it some more, etc. It&amp;#x27;s in nobody&amp;#x27;s interest to give all the money necessary to get to break-even at once; investors would rather make smaller bets, and founders want to sell as little equity as possible when uncertainty is high.&lt;p&gt;Two, if your goal is to never actually need another round of funding, then you&amp;#x27;ll be very conservative in how you spend your money. Bolder competitors will spend money with the expectation of getting more soon, allowing them to outpace you. So there&amp;#x27;s a strong incentive to spend as fast as possible, trusting that you&amp;#x27;ll get good enough results to earn the next round of investment.&lt;p&gt;Three, there are many interesting businesses that are only possible with huge investments. In the Internet world, Twitter and Facebook are good examples. Most ad-supported businesses really only work at scale; ditto network-effect businesses. For physical goods, Tesla&amp;#x27;s a good example: you have to sell a lot of cars to justify building a factory. Pharma, too; your second pill might cost $1 to produce, but that first pill can cost $2 billion.&lt;p&gt;I agree there&amp;#x27;s a lot of entitlement in the industry, but I think some of it&amp;#x27;s reasonable here, in that when you talk to a VC firm, they&amp;#x27;ll sing you a great song about how they are there to support you, that they&amp;#x27;ll back you all the way, etc, etc. People who haven&amp;#x27;t experience a downturn can be genuinely shocked at how fast supposedly bold, independent investors suddenly all stampede in the same direction.</text></comment>