Taking Funding for your Startup is not Evil

November 19, 2012
Gregg O'Malley
Gregg O'Malley

CTO of Triscribe

Do you know that way you shouldn’t get annoyed by other peoples’ opinions too much? Well I just can’t help myself sometimes. There is literally nothing like the internet to incite a massive ill informed debate.

Duty Calls

So with this in mind I’m going to impart my slant on the 100lb gorilla that is funding your startup.

I find it absolutely amazing how this divides opinion. On one extreme you have a subset of the population that received investment and see it as the only way to start a company and on the other extreme are people who have never even tried to start a company informing you it’s the root of all evil. Now like any good story the actual truth lies somewhere in-between.

As much as I’m ashamed to admit, I used to think that there was only one way, and that was that you do not need outside investment. I’d read Rework by DHH and Jason Fried and thought I knew it all. The fact is, I didn’t know it all then, and I certainly don’t now. However what I have done, is to talk to other people and listen to their views. Doing this has given me a whole new perspective from which I now understood how important investment is for certain people and products.

Consider, for example, two young grads leaving school/university/college. They have a great idea for a product and have started work on it. Given that any product large or small requires some form of capital, the question is, how do they build their product?

First up, let’s face up to it, working a full-time job and building a product in your spare time is hard. If this is not the case for you then I bow down. Building anything meaningful takes time and in general this approach is not going to be the one that gets you to market quickly. It’s worth remembering that a software business is not just about writing code, a business is normally successful due to many other influencing factors.

None-the-less, this is how many products are built but it’s important to remember it ain’t the only way for certain people and certain types of product. It’s certainly not how most of the large software companies formed.

Now, let’s clear up something, the investment naysayers will say “These two guys can just move back home with their parents, and have them provide their food/shelter/water”. Well, that just isn’t possible for many people. Also, what makes anyone think that everyone’s parents could afford to do that anyway, and why should we stop people who can’t from creating a business? If you do think like this then you really need to get out more and understand that circumstances exist that are different from your own. Furthermore, there are other costs associated with running a business in addition to your time, these are getting cheaper but they are not free, and if you have got no money then you can’t pay for anything.

So what exactly is wrong with these guys getting VC money? We need to separate how useful VC money is from all the other bullshit that goes with it – think here inflated valuations, “dipshit” companies and unconstrained spending. Without investment these two guys don’t start a company, is that what we want? I think we should be encouraging those who are young, have a great idea and want to start a business, rather than let them drift off to an investment bank, never to be seen again.

The fact is that in the world without investment, we are left with 30-somethings who have build up enough savings to properly seed a startup. The problem is though, these people tend to be scared shitless about losing all that hard earned cash! They may talk about it, but very few will ever get past the talking phase. They are too entrenched in the system to leave it. Age only increases the number of dependencies you have on a regular income.

Now on the flip side. Everyone has heard enough stories about VCs to know that you don’t take their money unless you really really really need it. They only care about one thing and that is a return on their money (and so they should because it’s not really their money!). You may be happy with your turnover but they are not going to give a shit, they want a liquidity event, not a 10¢ dividend on their 1 million shares. This makes it hard for startups in Europe (and in particular Scotland) as these types of liquidity events are few and far between.

I think my point is: try to work on your product for as long as you can, doing everything and anything possible, before you take that outside investment. However, let’s not perpetuate this myth that taking investment is beyond evil, it’s getting old. If you happen to come across people delivering such a message, then just ignore anything they say, as do you really want to be taking advice from someone that can only ever see something as either black or white and is missing out everything else in-between?

Comments on Hacker News - http://news.ycombinator.com/item?id=4803426

Offline and online we’re working to connect the Scottish tech ecosystem. Join our Slack Team.

Join Slack Team
Subscribe to the RookieOven Digest

A fortnightly email update on what’s new and noteworthy in the Scottish tech community.