If you're talking about morality, when a VC is funding a company they don't know if it's going to act like Uber or like Lyft.

The post you're responding to is about economics, though, and VC math doesn't work for funding modest successes.

A VC can fund 10 businesses and have 9 of them fail (high risk) as long as the remaining one provides 100x+ return (high reward).

If you don't fund that one blockbuster then you can't fund the failures.

If you want to be in low-risk and low-reward business, then you're a bank and you're providing loans, not giving out no-strings-attached cash.

> "This is a great observation: we need better accelerators to incubate startups that are more realistic and not willing to salt the earth to win at all costs [1]."

We already have that. They're called banks.

There's a huge gap between investments banks consider too risky and the kinds of things SV investors in particular want to fund.

Depends on your growth strategy. If you're prepared to start lean and can demonstrate early signs of revenue then I'd imagine you'd find banks willing to cut a business loan.

You can't build a product company like this. Products require lots of development before any revenue arrives. Underdeveloped capital markets (VCs, stock exchanges etc.) is why Europe's software industry is mostly services. The difference between SV and anywhere else is access to risk-tolerant money. SV is not primarily an IT cluster, it's a VC cluster.

> "You can't build a product company like this."

Sure you can, you just bootstrap through monetising the ground work. For example, if you want a product company you can start out as a freelance design agency. The bulk of the initial design work will be for clients, but you can be involved with low volume manufacturing on the side. As the company grows, not only do you have the funds to take on progressively more ambitious product manufacturing projects, you've also built up a team of designers that can help push these projects forward. You're going to need designers right? Why not get them making you money from day one.

To give an alternative example, let's say you want to manufacture mobile phones. A good way to start small would be to manufacture accessories for existing phones. This is within the grasp of anyone within the Western world, given enough drive to do it. The revenue and knowledge you can gain doing so allows for increasingly sophisticated accessories to be built until the point where you have your own manufacturing premises (or have access to one at low rates, due to the volume of products you're pushing). The step from this point to manufacturing mobile phones is not that great.

Does this require more patience than burning through VC money? Sure, but it's also lower risk. Building a company gradually from the ground up means you get a better sense of what it takes to run a successful business (or in other words, experience is the best teacher).

No, because you're making a service company. Culture eats strategy for breakfast. The org chart you need for product and the one you need for services are different. The necessary mindset of the employees are different.

Not only that, but the buyers of product and services are often different as well.

Sure, building up a huge services company lets you squirrel off some funds for product development, but how often do you see this in practice? The only example I can think of is IBM, and they're moving in the other direction.

To counter your hypothetical "can't be done", here's a real example of a product company that's grown a single person selling electronics kits from their college dorm room to a product company making $33 million in revenue less than 10 years later:

https://www.adafruit.com/

https://en.wikipedia.org/wiki/Adafruit_Industries#History

A similar example being this product company, which started out in 2012 with two people and a laser cutter, growing to a product company that employs 30+ people within the space of 5 years:

https://shop.pimoroni.com/

https://shop.pimoroni.com/pages/about-us

thanks @ZenoArrow ... additionally, it's over $42m and we have a free and paid for service, http://www.adafruit.io and a subscription service, ADABOX, with thousands of customers, http://www.adabox.com ... no loans, no VC, 114+ people, USA manufacturer of open-source hardware in NYC, USA.

You're welcome ptorrone, it's a great success story.

As a side note, thank you for founding Hackaday also, it's one of my favourite websites.

oh wow, thank you! 13 years ago! time is zooming by :)

So they started out as hardware product companies.. and remained hardware product companies. I don't see any examples of software services companies transitioning to product.

Who said anything about software service companies? I said design agency, which is not the same thing as a software service company. Sure, they use software to do their job, but that's not the most important part of what they do.

As for examples of design consultancies morphing into manufacturing companies, Cambridge Audio is one such example:

https://en.m.wikipedia.org/wiki/Cambridge_Audio

> You can't build a product company like this

Except for every company that came before the current dot-com cycle.

Very, very few banks lend in that scenario, which are typically zero or near-zero collateral.

Yes, if you have plenty of receivables, and they're diversified, you can find banks to fund some working capital. But not operating expenses.

> "But not operating expenses."

I'm not referring to operating expenses. I'm referring to investment in growth. The idea is to prove you have a business that can turn a profit by bootstrapping it yourself, then get a small business loan from a bank to take it to the next level.

There are also other sources of business loans. Here's one example:

https://www.fundingcircle.com/uk/businesses/

Here's another:

https://www.nerdwallet.com/blog/small-business/3-potential-b...

The idea that VC money is needed to grow a certain type of business simply isn't true. If you're prepared to be patient, you can avoid any VC involvement.

I think this is how many franchises grow. But most highly educated people aren't interested in starting a restaurant or mini-mart.

> "But most highly educated people aren't interested in starting a restaurant or mini-mart."

What a bizarre statement. So highly educated people can't be passionate about food?

Also, what I suggested is not limited to expansion through a franchise model. Let's go back to product manufacturing to explore why. Imagine you have just received an initial order of 100,000 units of Product X. You can meet this order with your current supply chain, but in order to cut costs in future orders you'd like to manufacture a greater proportion of the finished product in-house. Let's say for the sake of argument that you've identified potential savings if you can create injection molded cases for Product X. If you go to the bank with a low-risk plan to grow the business, including an analysis of the current health of the company and forecasts of future profits, you can reasonably expect that you can find a bank (or other business loan lender) willing to lend you the money to invest in your company to help it grow.

> "So highly educated people can't be passionate about food?"

What a bizarre deduction. I'm passionate about food, I have no interest in starting my own restaurant.

It was a generalization based on my own observations, most banks lend to safe well-established models, university graduates tend to gravitate towards newer things.

> "I have no interest in starting my own restaurant."

That's your choice of course, but why do you think that is?

> "university graduates tend to gravitate towards newer things."

I don't think that's an accurate generalisation. For people who have STEM degrees, I'd agree, but there are a large proportion of people who followed other degrees (English majors, History majors, Philosophy majors, etc...) where I'd suggest that bias towards the new is not as prominent.

Not all global mega corps need to salt the earth. To some extent disruption will have side effects. Some like Uber are deliberately evil and others like Apple, Salesforce etc might not.

My original point was that people were attempting ideas which were in the realm of potential global mega corps. If you don't grow to be one, you get eaten up!