You don't have to do Uber or bust, but don't ask for venture money without going for venture returns.

I do agree that there is a market opportunity to fund $50m/year businesses, but that's not what VCs are for.

VCs: Invest in 100 companies, 90 fail, 5 return capital, 3 return 10x, 2 return 100x | 2.35x return on capital over a 10 year period (hopefully)

Index fund: 6% yearly return | 1.79x return on capital over 10 year period

Traditional small business loans average 6-9% APR and have a higher failure rate than an index fund but lower than an index fund. Unfortunately, for startups, they require collateral and/or historical financials.

I never understood this logic. Investors want unicorns but it's not like they're going to hate you for only giving them a 5x ROI.

Most startups either fail or become small businesses. Investors are giving you money to fund a business that you own. Depending on the terms you can, and should, use that money for whatever you want.

Its the investors problem if 5x returns aren't good enough, not yours. Does the bank call you to complain that your mortgage interest rate is too low? No. They gave you the loan with what they thought was reasonable terms at the time. It's not your fault they gave you the money too easily.

You should be focused 100% on building a successful sustainable business. Investors can fuck right off if they push for risks that could turn their 5x return into 0.

VCs can't reasonably invest in a company where their upside is capped at a 5x return, because they need the long tail, 20x-100x returns to pay for all the 0x returns in the portfolio.

No, a VC doesn't hate you at the end of the game if they get paid 5x. That's different than answering the question "Will they invest for a promise of a 5x return?"

That requires that you have board control. If investors control the board and you tell them to fuck right off, you will quickly find yourself out of a job.

Board control isn't the problem at seed. You'll usually have board control. But if you need another round of funding, the investors control the company.

If your seed investors are "name brand", and they pass and say, "Ah yes, they're very nice guys. Wonderful conscience, very punctual. Unfortunately I can't follow on, my capital's already allocated. I wish them luck.", you'd better have a plan for profitability.

1) There are some new funds popping up, like indie.vc, which don't subscribe to the "Uber or bust" model. Some accelerators, like 500 Startups, are also in that camp.

2) If you can bootstrap to enough revenue, you can try bank loans or things like http://www.saas-capital.com/

3) Unfortunately, the numbers don't work out for VCs if your goal isn't "$1b+ or bust." Almost all companies will exit for much, much less than $1b, but if there's no chance of $1b+ then there's basically no chance that a company will product very meaningful returns for its investors.

I don't understand 3)

From the VC's point of view how is a 5% chance of a $200m exit different from a 1% chance of a $1b exit? (etc.)

There's little difference between those, but usually what VCs are comparing are things that are more like 2% chance at $1b vs 2% chance at $200m -- and then there's a big difference.

Also, if one company is a 5% chance chance at $200m but 0% chance of being worth more than that, while another company is a 1% chance of $1b, the second company might still be a better investment because it's probably 1% chance of $1b AND a 5% chance of $200m if it doesn't go all the way to $1b.

Assuming that those numbers are known precisely, the 5%/$200M is clearly the better option. But in practice it's basically impossible to distinguish a 1% success rate business from a 5% success rate business. On the other hand, it's pretty doable to estimate best-case outcomes based on the size of the market being addressed and some assumptions about margins and market share derived from the business model.

Sad, yes, but that's the world we live in. There's really no such thing as a "safe, modest bet" - that lifestyle business that provides you a good living now will cease to provide you a good living soon after a big competitor decides to move into your space. Similarly, even working for the big competitor isn't all that safe: you could be laid off because your manager doesn't like you, or because your manager's manager doesn't like your manager, or because product priorities shifted around, or because you're suddenly the scapegoat for your company's sexual harassment culture, or because your company hit a revenue speedbump, or simply because shareholders & upper management get greedy.

Binary success ultimately comes from the customer: from their perspective, either the product satisfies their need or it doesn't. As soon as some other product satisfies their need better, they'll switch. And since customers talk to one another and largely like the same things, they tend to do so en-masse, and even $multi-billion giants can find their market evaporates in the span of a couple years.

Lighter Capital will give growth capital to tech companies without expecting 10x returns or taking any equity.