Capital efficiency is a great point of view. The take that every dollar from a customer is worth 5 is a really good conversation to have with a CEO.
It bucks the trend that showing revenue (and then, showing profit) are liquidation events, not just investment opportunities. So it's not saying much that if you show revenue, you get a chance to liquidate or raise an up round. People have known that forever.
The more valuable perspective here is that many startups deliver products that are copies of stuff that already exists. That's just what VCs fund. So capital efficiency is your special sauce.
It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content. This is totally opposite of the trend to fund AI companies, which seek to replace the human being. Seems so much more capital-efficient to get the human being into doing expensive labor for free.
This leads to the most interesting counterpoint to the POV advanced here: capital efficiency is super important, but it's also super boring. Maybe there are investors who want to line up outside your door to do your thing capital efficiently. But the people working for you, especially at the beginning, do not care.
People want to be thought leaders, not penny pinchers.
As far as winning out vs competitors, efficiency can be key. There is no question there.
One of the things about frontier tech (autonomous, AR, sensor networks, ML) is that many people are funded and do it too early. So they need to somehow last.
Most startups spend the money within two years or less. It’s programmed into the psychy. A Sequoia would never admit this but they want you to spend your money fast and move on to the next thing if you aren’t growing fast enough. Buying one more year can be crucial.
Actually every VC I’ve spoken to freely admits this. It’s “grow big, fast, or try again later”
That’s why it’s a horrendous idea to take VC funding if you’re not looking to spend it fast, and take huge risks. If you want to be capital efficient, do that, then raise when you know you can spend the money and the ROI is “guaranteed” (meaning you have a successful sales and execution engine), because then you can do it on your terms.
Otherwise, you raise, lose control, and are beholden to VCs for your next dollar. Good luck with that negotiation; they have the leverage.
Profit and revenue gives startups leverage, in nearly every way.
I need to build my v2 and am avoiding accepting angel funding from an investor who wants 30% for $250k. Sales are not stopping at this point. I am using stripe for all sales. Do you have a suggestion for me to get a loan? I need $150k to build v2 AND keep the lights on for say 12-14 months. Thanks.
I'd tell the investor they can do 5-10% at that, or better, a convertivle note w 20% discount and $3-5M cap and (A) pointing to YC and (B) pointing out no follow on investor would join if they did higher -- after seed/A/B, only 50-60% of co should be sold. If a real investor followed, you'd be stuck paying legal fees to wash out the angel investor.
This all assumes a scalable startup, not a consultancy etc
I agree. But I'm on WP and the sales are not slowing down.I need to build out offWP to a web app. Keep the WP version running while standing up the web app build. But the engineers want $12,500 for 100 hours/sprint for both. I get a designer + Engineer. I'm thinking just pay enough to get to a web app with maybe 2 sprints $12,500 X 2 = $25k. Start making sales and then use the sales to keep paying if needed to increase sales / expand add new features from customer feedback.
I applied to tiny seed i don't think they want me. I filled out the Lighter capital form today (no reply) i think i applied to earnest capital , kabbage no. MainVest never heard of them but i am gonna look and point9 same. looking for money is taking time away from making sales and improving the product. I think i "may" be able to swing it from sales!
Aren’t some of the frontier tech investments to also understand the space, where the tech is currently at, and what team members to back or grab when the space is ready? To me, it would make sense for Sequoia to allocate some capital to these situations in order to capitalize on when the tech is ready to move from frontier to viable?
> It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content.
If this is right then the recent EU directive with the link tax, upload filter and censorship machine provisions will kill consumer internet startups in the EU, permanently.
> Maybe there are investors who want to line up outside your door to do your thing capital efficiently.
Another way of putting this is that operational excellence is a good moat. Pg talks about this repeatedly with his insistence that most startups fail through poor execution than anything else, through avoidable mistakes. This boring focus on operational excellence, on putting best practices into practice reliably and repeatedly. That’s what software private equity portfolios like Constellation Software do. Make big boring profits.
It bucks the trend that showing revenue (and then, showing profit) are liquidation events, not just investment opportunities. So it's not saying much that if you show revenue, you get a chance to liquidate or raise an up round. People have known that forever.
The more valuable perspective here is that many startups deliver products that are copies of stuff that already exists. That's just what VCs fund. So capital efficiency is your special sauce.
It would be nice to have a conversation about where capital efficiencies lie generally in technology. My feeling is that it is still in some sort of user-generated content. This is totally opposite of the trend to fund AI companies, which seek to replace the human being. Seems so much more capital-efficient to get the human being into doing expensive labor for free.
This leads to the most interesting counterpoint to the POV advanced here: capital efficiency is super important, but it's also super boring. Maybe there are investors who want to line up outside your door to do your thing capital efficiently. But the people working for you, especially at the beginning, do not care.
People want to be thought leaders, not penny pinchers.