The problem is when you bootstrap your startup business, and your competitor is a VC backed startup. They don't need to think about revenue, they can build a product they give away for free - and you need to price it reasonably to pay salaries. Competition with a free product always leads to a race to the bottom. A few years later, these competitors will burn, but you cannot wait years to turn in a profit.

The best time to bootstrap is right after a crash. Many years ago I worked at a startup that flamed out. A couple of guys went off and developed a similar product to fill the niche abandoned by that company, and no VC would even touch that space (remember the buzzword "B2B"?). Right there those guys had a 2-3 year window to develop a product and build a brand almost undisturbed by competition.

How did they fare in the long run?

In that case there's plenty of competition to take Zenefit's business.

I started my career at a company that was entirely bootstrapped, and by the time I left, they were doing nine figure annual revenue. Since then I've worked at VC-backed startups (all of which have actually generated revenue). The longer I think about it, the more I think that bootstrapping at the beginning is the right move, and then to see how far you can go while bootstrapping. Raising money should be on the table, and will often be the right decision, but the longer you can go without raising it, the better position you'll have put the business in to succeed after raising.

I take your point. But as a practical matter, this is a foolhardy (and somewhat tautological) approach to building a business. It is to say, "We must raise too much money in order to compete with other companies who raised too much money, even though it will almost certainly lead to both of our companies ultimately going out of business." Moreover, it seems that the people who (perhaps intentionally) get their companies into these situations cannot publicly acknowledge the grim reality of what they're doing (if they even understand the consequences) while raising the kind of money they'd need and pretending to their employees about the company's rosy future. It's fuckery all around and the only people I feel bad for are those unfortunate enough to be suckered into working at these places.

It's somehow the prisoner dilemma applied to startups. I've raised ~30M$ as a founder in my past startup. For my next adventure, I'd love to bootstrap (with personal savings from my last exit). But here is the (prisoner) dilemma: if I start something that needs to be profitable and my competitor(s) are also bootstrapped businesses that needs to be profitable, game on. If my competitor is a VC-backed startup, I might be in serious trouble. So either I find an industry VC won't touch (porn?) or the prisoner-dilemma for startups is hanging over my head.

I don't think it's fair to assume that a war of attrition must be fought by parties with equal resources. I can't think of any reason why a patient enough small player could not wait long enough by the river.

There is also the option of aiming for a segment of the giant market a la 37 signals.

Me, I don't think I would ever go after one of these giant markets if I truly believed that the only way forward was to raise 8-9 figures and pray that my competitors die first. It's unreasonably risky.

I disagree. It just takes rigid discipline and perseverance. The value proposition, business model, and team emerging from that will be fierce. I sense that these stories are much less reported and talked about, since they have less click appeal...

Bingo.

This is why, when leads mention a VC backed competitor, I say something like: They'll be gone when the money VC dries up. You can trust us to stay for the long haul because you are our boss.

The downside of that is that if your product strategy is beholden to a few early adopter customers then it becomes much harder to make the changes you need to "cross the chasm" to the mainstream market.

Silicon Valley is the greediest place on Earth. That's why we're all so "successful". If making more money, either because we want all the nicest things, or because we just want to keep our heads above water, weren't on the top of our minds, no one would be working as hard as we do.

The funny thing is - this wasn't the case even 20 years ago. Silicon Valley was still a place you went primarily to work on cool stuff, secondarily to hopefully get lucky and build a company worth a shitload of money. You went there to change the world and work with the best, money was a decent side benefit but not required. Most took a pay cut (after cola) to move there and work on these awesome computer things everyone was talking about.

Now it's 100% about the money - just look at what is being funded. Almost no real "tech" companies - just a bunch of folks writing slightly different variations on how to sell ads. I have to try to keep a straight face when I have some obviously-way-more-talented-than-me engineer telling me about some silly worthless app they are working on. It obviously does not move humanity forward or progress the art of their profession in any way - it's just a lottery ticket people have deluded themselves into thinking they are "making the world a better place".

The change in tech startups has been extremely sad for me to watch. What used to be inspiring is essentially now one step removed from fraudulent.

This take is not completely fair - there are a lot of startups also doing interesting things - but it's closer to reality than not - and nothing like what you envisioned as a "startup" even just before the dot com era.

Renting a room in a shared apartment in a sketchy neighborhood (Mission/SOMA), depending on the company cafeteria for most meals, and riding the bus to work, i.e. the standard startup employee lifestyle, is a marginally lower standard of living than that of a typical grad student. Maybe the Macbook Pro you carry will be kept slightly more up to date.

University campuses typically have everywhere you'll need to go within a compact walkable envelope, and you can generally live within a short walk of one of the edges. The grad students are coming out ahead, in my view, since they don't have to contend with flaky and crowded transit.

If startup employees are being greedy, they're doing an exceptionally poor job of it. They would enjoy much cushier lives as, say, mechanical engineers and accountants in the Midwest.

It's not a valid explanation when you see the usual equities and salaries people get at startup nowadays.

So is everyone being greedy? The startups taking the money are greedy and to blame, but also the VCs are to blame for investing in so many startups? I don't think it's that cut and dry. You could replace your sentence with "stop supporting capitalism".

Bingo. Also would be nice to see VCs start to set existing–not projected-revenue requirements before investing. If it's not making money, it's not a business.

The problem with this philosophy is that it would have caused investors to miss very successful investments. Since the number of big wins is limited, there is a very real risk to professional investors to NOT being in wins.

This approach also basically rules out entire classes of investments (e.g. biotech).

It may be apocryphal, but Google (market cap: $567B) is rumored to have taken its first investment before it had incorporated, and well before it started making money. I'm sure there Google is not alone in this respect.

That's sort of antithetical to the purpose of venture capital, which I understand to be moonshot research projects that create something new, something that might take years of work before it sees revenue.

This misses the point.

The whole point of investing is that you are doing so based on potential. Regardless of what the current value is. In fact, the lower the current value is the better!

The fact that the pendulum has swung too far doesn't mean the approach is spurious.

Founders can invest their own money first, though. The only caveat is like some above who mention investments in research-level projects (not software startups). Depends on the company, but in the context of Zenefits they clearly blew the extra cash on nonsense.