I'd add a caveat here: you guys were a Harvard founding team w prior experience and connections though...

Just like everything else, the real approach to this is nuanced. It's important to highlight that as many fundraisers are operating under misguided thinking on this topic.

According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deservedly so, but if you're at a point prior to raising 'what if we IPO?' probably isn't a very useful question.

Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.

Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years.

[0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.

I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.

There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.

90%+ for "tech startups," although it's very hard to find data that sorts through all the startups and separates them into tech and non-tech startups. Good source is https://www.failory.com/blog/y-combinator-failures#:~:text=O....

Those figures also do not account for selling all of the company's property with some profit and closing it down; the equivalent of an acquihire for small and medium companies is counted as failure. Running it successfully for a couple of years and changing your mind is counted as a failure too.

I don't have a link on hand, but I've seen studies from people that counted how many business actually closed due to money problems. The actual rate of non-problem business after 5 years is close to 80%.

I would expect it to be close to 100%. The difference between the 80% and the 100% is the ones that grow in spite of and sometimes because of their problems. Every business will run into trouble, sooner or later. In fact I don't recall a year in the past decade without some kind of crisis that needed fixing. Some self inflicted, some just circumstance and some outside malice. Never a dull moment if you run a small company.

>Every business will run into trouble, sooner or later.

Even large businesses that have comfortable cushions and safety nets?

Yes. But they are better positioned to deal with it and will likely survive. But even the IBMs, HPs and Boeings of this world are not immune.

> But no less unusual than building a successful company to begin with.

Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app.

Which one do you think was easier to build?

I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation.

It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed than indie app store pure plays, but that's because VC is obviously the wrong model for one-and-done app store transactions. If you have a good idea for an app, don't raise for it (you'll have a hard time raising for it anyways).

IIRC each time you raise a round, your chances of success go down by ~10x. Can't find a good cite offhand though.

Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc.

So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.

For down rounds the stats are probably much, much worse.

It gets even worse, because a proportion of those raising another round are doing it because they're failing to grow fast enough, and are grabbing more cash before it's too late.

So you get a mix on those rolling the dice one more time in the hope of that next 10x, and those unable to get an exit, and unable to earn enough, but able to convince investors one more time that this round will pay off, and who will rarely pay off well for founders or early investors, if at all.

I've both been in companies like that and worked for a VC analysing round data to avoid putting money in companies like that...

In a company like that, I once got 10k for my original 25% stake when the company was finally acquired... I left after the 4th round or so, and there were at least a few more after I left (I stopped.paying attention. The company was acquired for only 40% above the size of the A round.

Right, but that blows up the causality of the stat proposed above.

Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.

> Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

Any citation for this? I’m highly skeptical of this claim.

The definition of "success" is different between a bootstrapping business & a VC funded business. A consultant can define success as "making enough money to live off of". A VC funded business has a different definition.

So how would a study be conducted? A survey asking if the business was "successful"?

Actually, that's not a bad idea. Surveying founders at 5, 10, and 15 years after founding whether they were happy with the outcome could be enlightening. A little bit like the 7-up documentary series. It would be very interesting to see which path tends to provide the best outcomes according to the founders.

Maybe for some of them just getting the VC funding is success. Pay yourself enough, last long enough, make good contacts... And if it fails, start over with the extra experience and contacts, or join an existing startup at a high level. Failure doesn't seem to hurt the careers of executives that much.

For this to be a true comparison, you should look at how many flashlight apps were built.

You're right that in numbers of survivors there bootstrapped ones are going to outnumber the VC ones. But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.

But for any individual founder, if you want to aim for 'successful enough to be relatively wealthy and worry free' then 'bootstrapped' is the way to go. If you aim for an outsize success, wealth for the next N generations and massive impact on the world (for good or for bad) it's going to be very hard to avoid the VC track.

I wrote about this long ago, but it is still quite relevant:

https://jacquesmattheij.com/three-roads-to-the-top-of-the-mo...

> But in terms of total # of employees, total $ of turnover and profits I would expect it to be the reverse.

In general, the less money that startups raise, the better their returns:

https://techcrunch.com/2016/10/15/overdosing-on-vc-lessons-f...

There are a number of reasons for this, a big one being that marginal revenue is always the least profitable:

https://techcrunch.com/2017/10/26/toxic-vc-and-the-marginal-...

This is fully compatible with the OP's point. They mentioned total $. Returns are percentages.

The revenue can be 0. As long as the shares are worth a lot, you are still a very rich person.

Seeing that you wrote the article 12 years ago, I am curious how did it work for you. Did you make it to the top of the mountain?

Well over and beyond my wildest expectations.

I am glad to hear that! So hard work pays out if you have determination.

And lucky... don't discount the luck factor. If not for a few small twists it would have all come to nothing.

What is the Flashlight app developer success? At best the app sales supported them for a year or two. By this metric a failed VC funded company also has supported its founder (plus employees) for a year or two.

>Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped.

I'd wonder if taking VC money five times, failing 4 times and building a large and growing company 1 time, isn't better than bootstrapping a small and profitable company just 1 time.

The article is specifically about this value judgement. If you do not value making a profit as a company you have to find value in something else. Which is fine, different things motivate different people and should, but at least be clear that it is fundamentally a values conversation.

Businesses are about profit not values. An NGO is a better vehicle for pushing values than a business.

Disagree, it’s often best to leverage the profit motive as a tool for achieving your values-based mission, and companies are usually the best way to do that.

Companies scale up more effectively than NGOs, attract investment much more easily, and can undertake a wider array of activities to achieve their mission. Then there’s C-corps etc if you want to make it explicit.

The more companies talk about values and missions, the more likely they are to turn frauds.

No, I do not have stats for that. It is an observation.

Sure, most initiatives fail. But successful ones are not so rare that you don't expect to see one.

If you go all the way until you realistically start a company, you are more likely to succeed than to fail.

There are plenty of other ways to exit that don't involve an IPO. Acquisition, selling shares on secondary markets or privately etc...

Doing VC the wrong way can make your life hell, but taking all the risk yourself and bootstrapping is in its own right a special kind of hell if you're not careful.

IMHO, it's all about time horizon. Working on a startup for 3-4 years without a clear product market fit or some kind of exit is a waste of time unless you're a Jensen (which most of us aren't anyways).

And is worse to fail losing your own time and money than to fail losing VC money. In the second case, you can get up and try it again easier than in the first case.

Could not agree more!

There are smart ways to leverage VC $$ without losing your shirt.

I'd rather buy a car wash business from a boomer with a bank loan than risk my own time with a non VC funded startup.

90% of all startups fail so the expectation of an IPO when you join a startup is insane.

And yet many of those companies expect their employees to be excited by that prospect.

According to the same source, 2022 was the second-most VC deals since 2006, and ca the 4th worst for IPOs according to stockanalysis.com. There's clearly a massive upward trend in VC deals, while IPOs are much more stationary. Eyeballing those charts, the average number of VC deals, especially in the relevant period for today's IPOs (10+ years ago), is probably closer to 5-6k, and the average number of IPOs to 250, ie ~5%. Combining this with the folk wisdom that 90% of all startups fail, this seems to suggest that half of the successful startups go public, actually. Lots of things that we'd need to account for (not all IPOs are probably startups, # VC deals != # of startups,...), but speaking about tendencies, the data doesn't seem to support such a strong statement.

Many startups raise multiple rounds, so I think you're double counting? Don't you need to either divide 16,464 by the typical number of funding rounds or only count, say, series As?

Most startups don't raise multiple rounds in the same year.

I don't think that matters?

(An extreme example to prime your intuition: imagine that there are one IPO and 10 VC deals annually. If every startup raises money annually and there are 10 startups at any one time, then every funded startup eventually IPOs.)

I misread your comment.

Ignore mine.

They also don’t IPO more than once, usually.

Didn’t know this was even possible. Had to research.

It wouldn’t be called “IPO” anymore, but a company can offer subsequent market shares through a Follow-on Public Offering (FPO.) This occurs when a business raises capital in a second round of stock through either dilutive or non-dilutive options. Good to know.

Most businesses fail.

My intuition is that rate of failure in software, where its much more winner take all, would be higher than brick and motor businesses, which constantly fail.

So really, this doesn't seem surprising.

I think it's entering a winner take all market that's strongly correlated with VC money. There's plenty of software companies that outlive restaurants and startup cycles, doing pretty common B2B work, but they are unlikely to accidentally get a valuation based on a probability of winning a winner take all market.

Beyond the issues surrounding the failure rate, it's worth thinking about the extra work to keep satisfying investors, the likelihood that you'll lose at least some measure of control, and fundamentally the ethics of extraction that VC models necessitate, meaning you will need growth even if it's not good for the company or the customers in the long term, and that kind of growth often also means that there's an impetus to ignore the negative impacts on environments, communities, and economies.

This very much applies to Cloudflare, otherwise it wouldn’t tolerate hate groups hosted in the name of “freedom of speech” and all that PR bs. Ethics not only takes the back seat, it disappears without a trace.

And let’s not forget the ethics of continually selling a large chunk of their shares in the company they publicly believe will continue growing and is profitable.

You’d want to compare this with the base rate of failure for a business venture (ideally across the economy and specifically bootstrapped tech companies).

Spoiler: most businesses fail.

I’d also believe that VC funded companies are more likely to fail as they are making all-or-nothing swing for the fences plays. But you need to compare to the correct baseline to avoid confusion.

1. 2022 was historically low for IPOs.

2. Companies will have multiple rounds of funding before IPO.

3. Acquisitions are more common than IPOs.

4. Yes, a significant number of startups fail. If it were easy everyone would do it.

Sure, and there were 21,421 M&A deals made in 2022.

IPOs are just one of the positive outcomes, certainly the rarest.

I think the point is that if you go in with those options as the valid outcomes you won’t be surprised.

Not that you necessarily have a very high chance of the last two.

> While there are plenty of VC horror stories, there are fairytales as well.

What's the ratio, though??? 10/1? 20/1? 50/1?

Probably closer to 100/1, or worse - that's the gamble you (should) know you're taking if you accept venture capital.

It's not for everyone, but eastdakota is right that it's not for nobody.

It is tool and there is cases where you need to use that and some case where it is just stupid to use it.

If it was 100/1, no VC would stay afloat, right? The math here isn't that hard to work out; it tracks the portfolio logic of the funds themselves.

It is my understanding that VCs only stay afloat because the payoff in case of success is huge enough to offset many failures. And I guess many VCs also don't stay afloat forever.

It is my understanding that most VCs expect only one in ten businesses to succeed, but that one is enough to offset the loss and ensure a profit.

This is correct. For small and medium funds, a single successful portfolio company can return their entire fund with some multiple on top of this. The reason you invest in 30-40 companies instead of one is because you don't know which one it'll be.

I've seen this from the inside, I liked the company a lot but I'd never suspect it'd become the most obvious success for us.

The "fairytale" cases (IPO) are quite rare, but acquisition is a little less rare, and help support the portfolio.

According to a talk I heard from a VC, the bulk of investments return very little, several may 2x to 5x, a few may 5x, and one will 15-20x or greater.

They’re looking for a 10+% return on the entire portfolio.

In my experience, around 5% of VCs I've met in real life are truly decent human beings, even in cases where they don't have to be. The rest have been pure capitalistic sharks (which is understandable, given the entire sector filters for this).

The best VC I ever interacted with was retiring and treated us more like a fun project than a VC investment. Kelts is going longer than he should have and exited with a small return eventually.

Why are you meeting VCs? In what context? What else are they supposed to be in that context? It's a sales + finance job. If you're meeting them in a working context, and you're not transactional and don't have a really clear idea of what you're trying to accomplish, it'll be a alienating experience, except in the rare cases where they're going out of their way to be nice to you because you're out of your depth.

I had a lot of animosity towards VCs from several bad experiences (with a company of mine that got funded, and then with another that didn't). But I've come to realize the commonality of those bad experiences was that I was naive about what was going on. I don't go to my bank hoping for camaraderie and sage advice. VC is tricky because of the "sales" layer it adds to the bank. The best parallel (this is probably really offensive to investors but it's more about me than about them) is real estate agents --- who I also had very bad experiences with, until I learned what was actually going on.

Great points and perspective, thanks for sharing! Totally agree.

Having grown up in a family that runs a real estate firm, I can say the ratio is about the same - about 1 in 20 real estate agents are decent human beings who desire both to help others and make a living, and the rest are highly self-interested.

What I find interesting is the VC stories along the lines of "X VC really worked with and helped/saved us!". I haven't encountered such stories about any bank.

What tripped me up with real estate agents is how socially skillful they are. It's a survival skill, so as a cohort they're all anomalously good at building rapport and, from there, trust. If you don't know what you're doing, and what they're doing, and you rely on them as the domain experts, there's a pretty decent chance you're not going to be happy with the outcome. Their incentives aren't perfectly aligned with yours, and if you're not providing a structure to engagement, they are, and that structure will serve them.

But the flip side of this is that what feels like mercenary behavior is also useful for the actual job of making real estate transactions happen, so if you optimize for the most trustworthy, least self-interested real estate agents, you're also not going to get the best outcome (and you're going to bounce off of lots of non-altruistic real estate agents in the process). It's going to leave you with grim feelings about the entire business about real estate. Which: fair enough! There's lots not to like about it. But you, personally, as a consumer of real estate services, will feel better and have a better experience if you learn to understand and adapt to how real estate actually works.

And a lot of mercenary real estate agents are perfectly lovely people, just doing what it takes to do a job well.

As with real estate, so with investing, I suspect. Great example: every VC you meet is going to tell you they're interested in investing and that they want to move the process forward, and they'll keep giving you hoops to jump through as long as you let them without ever intending to invest. That's incredibly aggravating, until you know what's going on and learn to read the room.

I'm not good at any of this stuff and would get gutted like a fish trying to raise a round myself, but I've had the benefit of seeing it done well firsthand now, and talking to others who've done it well, and it makes a lot more sense to me now.

Can you please share a link about understanding "what's going on and learn to read the room"? For real-estate and venture capital.

I just mean, a real estate agent wants the transaction to happen and shifts in price that make a big difference to you make almost no difference to them, and a VC partner is going to fund one company in a whole year, is mostly concerned about missing out on the one company that 15x's, and will take as much optionality as is on offer.

For real-estate, assuming you are the seller: Let's say you bought a house with $500K and now looking to sell it. The real-estate agent finds a buyer for $550K. That's a $50K profit for you. The real-estate agent could work a little bit harder and find you are $600K buyer. That's a 100% gain for you. However, the agent is getting paid a fixed percentage of the total sale. For him, it's only a 9% increase; and that does not justify the extra-work.

The incentives are highly not aligned.

If you do not understand that, you'd be disappointed. If you do understand that, you'll see where your agent is coming from.

Your VC founded business can fail without being an horror story though.

Indeed! And an honorable failure — where you learned a ton, tried your best to succeed, but it just didn’t work — is a terrific outcome. We acquihire “failed” startups quite regularly. The founders of those companies have often turned into some of our best senior engineering and product leaders. And some of them go on to then leave after learning from us to give a startup a go again.

Success or failure aren’t the bad startup outcomes. The worst startup outcome is The Slog. The Slog sucks. I have several friends stuck in The Slog. Symptoms: you’re growing just barely enough to hold things together (call it 10–20% YoY on <$200k in revenue per employee). You keep thinking the next big thing is just over the horizon. You have a handful of customers who say they love you but won’t buy any more from you. Every once in a while you get some press or show up on HN saying you’re cool.

THAT is the recipe for disaster. You can wake up and realize 10 years have passed and you have nothing (economically, educationally, or emotionally) to show for it. It’s possible both with bootstrapped and VC-backed startups. The Slog is the worst startup outcome.

Bad VCs can definitely make The Slog worse. There’s so much money in the system there’s almost always someone who will put more in, even if on worse and worse terms. Good VCs, on the other hand, can help get you out of The Slog. They can counsel you when it’s time to give up. They can introduce you to potential acquirers. And while it may not be a huge financial win for you or them, it’s a much better outcome than slogging on indefinitely.

If you are inclined to share your VC experience, you might want to reach out to the founder of Dioxus Labs. As a recent YC 23 “winner” and recent (ex)employee of CloudFlare, I’m sure the founder would love to get your personal take on VC funding. I also understand they’re working on a product that CloudFlare could possibly use…

One perspective that's missing here is that of the users that are presumably benefitting from the company's product(s). The users would probably prefer that the company keep slogging than that it get acquihired and the "failed" product get killed. I recently read _The One Device_ by Brian Merchant, and I'm reminded of the story, told in that book, about how FingerWorks sold out to Apple. The FingerWorks users got screwed when Apple discontinued FingerWorks product development and put the team to work on developing multitouch for the iPhone instead. Now, the iPhone has several assistive technologies of its own (FingerWorks developed products for people with RSI), but the death of the FingerWorks products was still definitely a loss.

So in my own company, as long as I have the power to do so (I have a cofounder, so it's not entirely my decision), I'll keep slogging rather than shut down a product that is benefitting users.

Yup, that’s one big reason people keep up The Slog. It’s even an honorable one. But, knowing people who are 10+ years into that journey, it can be extremely painful.

The cog can be an outcome that is almost as bad the slog. You are overestimating the amount and range of learning that is possible under the vc path outside of the slog (eg the cog).

Indeed, you may feel like you are learning quite a bit. But that will generally be lessons that the vc investors want you to learn.

Your statements imply that there are lessons to be learned that can only be facilitated by the kind of money that vc investors offer. But your own company (Cloudflare) makes cloud technology more affordable and partially weakens the rationale for getting vc investments.

When you have a soft money bed to land on, you will be less incentivized to search for a broad range of knowledge. Arguably, you will be learning less as a result of this money safety net.

You will be operating under the vc cog thinking that you are learning significantly both quantitatively and qualitatively. As the vc cog wheel continues to churn, you have the illusion of epistemic progress.

What a depressingly nihilistic world view. Certainly if you believe you are beholden to some entity’s rules you must follow then all you can ever learn is what the entity you follow is willing to teach. We took a different path.

We talked to our investors generally four times a year at Board meetings. We had a rule that no sentence we said in those meetings could end with a question mark. We recognized that we were the experts in our business. We used those checkins as opportunities to confirm ourselves that we were making progress. We focused on building great products for our customers and chose the KPIs to report based on measuring that. And we leveraged our success to meet thousands of people we’d never have had access to and try and learn from them all.

One thing that I think is natural if you have professional investors but is important to find way to create even if you’re bootstrapped: the regularly scheduled check-in. The most valuable part of a Board meeting isn’t the meeting itself. It’s the preparation for that meeting which forces you to assess how things are going.

Our trick was to pick 5 KPIs that indicated the true health of the business and track them relentlessly. The first 12 pages of our Board meeting presentation was exactly the same every time other than the numbers being updated. We picked the the metrics. We didn’t ask for our VCs input. But then we relentlessly stuck with them, quarter after quarter. It made preparing for Board meetings easy: just update the stats and prepare to talk about whatever is anomalous (good or bad). And the consistency built confidence from our investors. I remember one saying: “Cloudflare Board meetings are great: I know exactly how things are going by slide 4 of the presentation.”

No VC taught us that. We learned it by being curious, talking to other entrepreneurs, and experimenting ourselves. You can do the same if you’re bootstrapped, you just have to be more self-directed to create some cadence to check in with your business and keep yourself honest.

PS - sadly, there’s no Illuminati running the world either. “Sadly” because it’d certainly be comforting to think someone was in control and it’s scary to meet the people who supposedly are and realize they’re just making it up as they go along too.

A sincere thanks for sharing your experience and insights. Curiosity and a flexible mindset with a fast learning rate and a willingness to challenge even closely held assumptions can result in innovative knowledge under any context, including a vc investment one.

But curiosity is not limitless. It is a function of time. And it would be disingenuous to completely refute the fact that a vc frame of reference will affect curiosity - perhaps even in an adverse manner that can reduce innovation.

Let's get practical and technical with a Cloudflare example. Arguably, there would be no Cloudflare without the ability to change nameservers from domain registrars. You spotted some network slack with the ability of people to easily move to Cloudflare with a relatively simple nameserver change.

That was innovative and surely a result of your curiosity. That allowed you to then build upon that traction and offer a wider range of cloud services.

However, Cloudflare itself eventually became a domain registrar. In the terms of service, Cloudflare blocks all nameserver changes for domains registered with Cloudflare - the very option that allowed Cloudflare to emerge in the first place.

There is no justifiable technical reason for this. It is essentially a political decision borne out of a vc frame of reference. Perhaps the political justification is : Let's lock in people that registered domains with us on Cloudflare. So, they will will be forced to use Cloudflare services.

Arguably, this is a violation of ICANN guidelines that allowed you to obtain your domain registrar license. The block is essentially pointless. Most people interested in nameserver changes for Cloudflare registered domains just want to coordinate across multiple Cloudflare accounts. Multiple questions have been posted in Cloudflare community forums for years. Yet, nothing gets done about it.[1]

The fundamental point is that curiosity led you to use nameserver changes to get some traction. As the vc frame of reference gained more importance over the years, it blocked your curiosity by nudging you to block nameserver changes.

You are undoubtedly still curious. But that curiosity time is spent on board meeting formats and and how to optimise slide presentations - instead of realizing that some curiosity doors that allowed the existence of Cloudflare in the first place are getting closed. Ramifications of that attitude and mindset going forward are overlooked.

So yes, curiosity is good. But, there is no inherent primacy of curiosity under vc versus outside vc. Highly curious people tend to be self directed in any context. If anything, the direction provided by vc can limit curiosity and be ultimately self defeating.

[1] https://community.cloudflare.com/t/unable-to-change-cloudfla... https://community.cloudflare.com/t/still-no-way-to-transfer-... https://community.cloudflare.com/t/how-can-i-change-nameserv...

We give domain registration away at cost. The only reason that makes sense for us is if some of the people who register use our services. Key to using our services is using our name servers. So someone who uses our registrar but not our name servers is a complete loss to us — we literally lose money on the payment processing and anticipated support fees. There are lots of other registrars and we make it easy to transfer away if you need to use other name servers for some reason. But if our registrar business weren’t lead generation for our other services then it wouldn’t make sense for us to have a registrar business at all.

The mission of Cloudflare is to build a better internet. In what ways does blocking nameserver changes help build a better internet?

It actually builds a worse internet. One that is closed to the exchange of information and services. One in which Cloudflare, an entity that allegedly helps build a better internet, would not even exist.

You know full well, that if all domain registrars had prevented nameserver changes to Cloudflare, that Cloudflare would not exist. In this context, you could forgive a skeptic for suggesting that "building a better internet" is just empty corporate speak.

Let's now consider the business case for domain registration. You mention that it is at cost as far as ICANN fees and registry fees are concerned. But you incur payment processing fees and customer support fees that would place an undue business burden that would generate a loss.

For payment processing fees, let's assume one to two percent. Cloudflare domain registration for the dot com registry including ICANN fee currently stands at $9.15.

One percent is $0.0915 or let's just say a dime. Two percent is $0.183 or let's just say a quarter. Registrants would surely not mind paying an extra dime or quarter to cover payment processing costs. Heck, you could just round it up to an even $10.

If your intention is indeed lead generation for your other services, it would actually make even more business sense to have this slightly higher price as a lead qualifier. Do you think a potential customer that is price sensitive for a few cents on domain registration is likely to purchase your other services?

As for customer support, if the user changes the nameservers to another provider, by definition, that user will have to get support for dns records and all other issues from that provider. In other words, there would not be much custom to support.

So, if payment processing and customer support are your key arguments against blocking nameserver changes, respectfully, they are tangential and inconsequential. If there are some more relevant and consequential arguments for blocking nameserver changes, out of curiosity, please share those with us. Thanks.

I'm in The Slog and coming up in 10 years Bootstrapped. Not sure what to do.

Quit, do something else.

Yep. I did seven years of Slog, and quitting was very freeing, after years of angst and disappointment.

What did you do after?

If I give up on this, I'm not sure I'd want to do it again. I don't know what I'd do differently. Building an app and all the non-programming junk that goes into running a business is just a lot. I could rise the corporate ladder. I'd be fine but never rich.

Engineering at a much more mature company. It won’t make me rich (especially considering the stock’s dreary trajectory since 2021) but it’s a lot less depressing nevertheless.

Working at a corporation and making a reasonable engineer's salary will make you basically rich. Not like rule-the-world rich, but rich enough to do anything you ever wanted, which I think is pretty much as rich as anybody needs to be.

I'm experiencing this now since I've been doing both for awhile now. It's enough to not worry whether or not I should buy that $10 beer with my dinner but not enough that I don't have to debate with myself if I should be ordering 2 or 3 of those $18 cocktails every day on my first ever euro trip. Not a bad life for sure but there's quite a few things that still feel out of reach. Like private jets or even just first class

Yeah but like.. who gives a fuck about private jets? It's a good way to burn money and be more wasteful at the same time, great.

First class, meh. I could afford it if it was something I wanted to spend money on, but it feels pointless.

We could sell, but like $50K for 9 years of work is so sad.

You only, well, live once. Will you be happier staying or leaving? There is a lot more to life than grinding away at a project.

Firstly, fan of your company.

Isn't what you described as The Slog essentially just SMEs? That's not so bad. Perpetual meteoric growth for everyone is not healthy on a macro level. Couple of friends of mine are in what you describe as the worst outcome, yet they can buy houses and put their kids through schools (outside the US).

There's a middle layer of B2B that props up the economy in a more fragmented manner, and I don't think they should be dunked on.

It’s fine if that’s your expectation. It’s fine if you’re bootstrapping and comfortable with your level of success. It’s hard if you thought you were building a rocket ship, raised money selling the vision of the rocket ship, and benchmark your success versus others who built rocket ships.

It could be a pretty good SME for the founders, but there are a few possible issues. 1. You have investors who expect returns and don't want (or can't have) dividends. 2. You have employees with stock options that want them to become something. 3. Your company could be set up as a C-Corp, if your intention is to have a stable business and earn dividends you'd rather have it as an LLC with founders as members.

Basically, issues happen when you take VC money but don't end up going the growth startup path. Buffer had the same problem, but they managed to earn enough money to buy their investors out.

> What's the ratio, though??? 10/1? 20/1? 50/1?

About the same as the ratio of successes to failures in a VC portfolio.

That some people win the lottery is not a good argument for playing the lottery

If you feel that way, don't start a product company.

This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?

You'll still most likely fail! This is a really important part of why the VC math works the way it does. You can de-risk a product company by not trying to shoot for the moon, but it's an incremental derisking.

The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside.

So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started.

As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.

You get almost no money in salary, and you spend something way more valuable than money: time, during your most energetic and precious years of life typically. I think it’s really dangerous to put rose tinted glasses on the whole thing.

For anyone not upper class, if you spend 6 or so years chasing a startup and fail, and you’re a good software developer.. once you factor in savings and interest, your total opportunity cost is something like 2-4 million dollars. That’s making a good software dev salary for 6 years and saving some of it. That’s life changing for someone not already rich. And you’d still be learning a lot, plus working a much more relaxing job with time for side projects.

Agree that’s the right analysis for many people. Wasn’t arguing whether you should start a startup or not. Just that if you do bootstrapping isn’t inherently better than raising venture capital.

Your broader point is important too: startups are unfortunately too often a luxury of the upper class. It is extremely scary to take a risk when you don’t have a safety net. I was personally broke when we started Cloudflare and had to borrow money from my mom to pay my rent. But I could borrow money from my mom. And I had a mom and a family that if I failed would make sure I didn’t go hungry. My family wasn’t anything close to what I now see really rich looks like, but we weren’t scraping by. Had I not had that safety net I don’t think I’d have had the confidence to start Cloudflare. And I think that’s a real issue with entrepreneurship we don’t talk enough about.

I think we also focus and celebrate too much the route of college drop out start up founders. For these cases yes some family wealth is definitely beneficial as a safety net.

But there are also plenty of people that have worked for a while, provided themselves a safety net and go on the startup journey in their 30s and 40s. Eg. Eric Yuan, who was a eng VP already before zoom.

But I guess those don’t grab the same headline attention.

I was 34 when I started Cloudflare and had had every random job from bartender to LSAT test prep instructor to adjunct law professor. Eric, incidentally, is one of the kindest, most curious people I’ve had a pleasure to get to know on this journey. Feel lucky to call him a friend. Truly great guy.

> And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included.

If you’re learning as much at terrible companies as at good ones, then you’ve had rotten luck. A lot of what I’ve learned at rotten companies is how not to do things, and how important mental health is to physical health. There’s much more negative space than positive space, so you have to learn hundreds of ways not to do something for every handful of ways that actually are sustainable.

Reversion to the mean is vastly overlooked in this Bayesian world.

If I do something dangerous and win, then a roomful of people copying me have lower odds than I did, not better.

Tangential: I'll never forget the story of Lee. One of the few times I've I've shed so many tears over someone I never met.

https://www.wired.com/story/lee-holloway-devastating-decline...

frontotemporal dementia - horrific.

Holy crap that's a heavy story.

Thank you for posting. We could never have built Cloudflare without Lee. His disease is incredibly tragic and in many ways literally unimaginable. Today he is still alive but has continued to cognitively decline. I am happy that Cloudflare’s success has ensured he has the support he needs. I miss having him as a cofounder and friend every day.

I bawled my eyes out the first time I read it, and it's not any easier this time. I'm happy the success of Cloudflare has allowed him the best available care, even if all his money can't cure him within his own lifetime.

It's a horrifying disease.

> You’re so right! It was an absolute disaster for us. Never do it!!!!!

has cloudflare ever had a profitable quarter?

I could give away my investor's $10 bills all day too

On a skim, they seem to be losing money the same way Amazon did. It's marginal, with a purpose, and could be turned around by trying to.

Last quarter they had negative operating margins of over 20%. That’s not really marginal. Considering they already do over $500mln in revenues and are growing mid 30s it’s very possible they never make a profit.

A big chunk of software VC success over the past 20 years has been public markets accepting loss making companies and giving them a lot of credit for potential future margins.

if you look at their accounts they spend a vast amount more on sales and marketing than r&d

not very amazon like at all

Would any business leader say anything like, "we have no idea if we'll ever be profitable, or what we would need to do to get there?". Everyone made fun of Softbank's presentation on Wework[0], but it just looked to me like a simplified outline of nearly every over-confident business presentation I've seen in my life.

[0]https://nymag.com/intelligencer/2019/11/softbanks-insane-pre...

It's still indicative of VC culture that the CEO calls the company a success after IPO. Rather than, say, after the company is profitable. (I have a couple shares of NET, so I'm optimistic they'll be profitable eventually. But sometimes their path to getting there seems lackadaisical.)

And now I have Simon Sinek in my head talking about finite versus infinite games.

I don’t think IPO was success. It was just another fundraising event. Another step in the journey. And, per this discussion, the end of our VC journey and beginning of our public company journey.

“Profitability” is a funny term on Hacker News. Think most people here aren’t accountants so they think of profitability as: do you have more cash in the bank at the end of the period than you did at the beginning. That’s “free cash flow profitable.” By that measure, we’ve been profitable the last ~12 months and have said we expect to be so every year going forward. We’ve had non-GAAP operating profits even longer. So next up is GAAP profitability, which I am confident we’re on a path to. We want to emulate Microsoft’s accounting financials, not Salesforce’s.

Even that won’t be “success.” Just another step in the journey. Success to me is living up to our mission of helping build a better Internet. Don’t get me wrong, financing and accounting milestones are all critical to us doing that. If we were burning through cash it would be hard for us to fulfill our mission. But I show up to work every day because I see the positive impact our team is making toward a more secure, more reliable, faster, more private, and more efficient Internet for everyone. Only steps toward that represent success to me.

> “Profitability” is a funny term on Hacker News. Think most people here aren’t accountants so they think of profitability as: do you have more cash in the bank at the end of the period than you did at the beginning. That’s “free cash flow profitable.”

no, I look at your financial statements and look for Net Income

(more or less the only number that can't be manipulated by clever tricks)

https://cloudflare.net/news/news-details/2023/Cloudflare-Ann...

> We’ve had non-GAAP operating profits even longer.

you may want to look up what the second A in GAAP stands for

The _people_ are profitable, even if the company is not. They're not profitable in part because of all the generous salaries they're paying.

The key takeaway for me was to know what you're getting in to. You sound like you do. OP seems to be aiming at people who do not.

Oh. Hi Matthew!

I wish we could stay away from generalities. There is no one size fits all answer to questions like "should I take funding?". The answer depends on your goals and where you are competing.

If what you are trying to do is capital intensive, has tons of competition and generally will need the scale in order to compete/turn a profit, you should probably take VC funding.

If you want full control over your product or are operating in a niche and think the explosive growth necessary will hinder you, you have different priorities. You might not be trying to make the next "big thing" and in this case probably don't take funding. In fact, you probably don't want VC funding because your goals don't align with theirs.

Like most difficult questions, the answer is: it depends.

Few people are pedantic enough to misinterpret “never” slash “always” premises detrimentally.

It is a pervasive rhetorical shortcut.

1. Flatten a proposition to an all or nothing form to simplify communication.

2. The reader steps back into the real multidimensional world with clearer insight into one of its dimensions.

Anyone confused by this has deeper problems than VC or not VC questions.

There is an option #4 that I’ve been around a few times: build a shark that is doing the acquiring within 5 years.

Superior tech, maybe hyper efficient, hyper profitable.

You still eventually need to return money to your private market investors at some point. So that just pushes the outcomes out later. Or, again, in the super rare case that you’re generating so much case that you can pay investors back at a rate of return they’re happy with with dividended cash flows.

I meant the ‘super rare’ case.

It’s not so rare in some industries like oil and gas, etc where cashflow is the purpose of the work.

Add software that does what nothing has before.. and the table turns.

Agree.

The first time I saw how customizable a PE deal was, and how you could limit how much of a company you give away with how little of the PE you end up drawing by becoming profitable, I was surprised why it isn't more common in tech.

Can you recommend any books on this subject?

> still eventually need to return money to your private market investors

If that’s what you pitched them. Most businesses are private. Most rely on outside funding. Most of them never exit, and are never expected to.

A lot of VC funds wouldn't accept your dividends because this type of income might create additional taxation and reporting obligations for them.

This model is interesting, and I've definitely been wondering about this a lot more in the new macroeconomy. Do tell more if you're up for it.

From my perspective, it's effectively the PE model except the funding source is the company's own revenue rather than investment capital.

I had drafted a reply but would be interested to know what you're looking after - is a story/experience of PE from a technologist on the business side what you're seeking?

Man who won lottery recommends it to everyone.

Are you profitable yet?

I don't know what people expect. VC's obviously aren't giving out money from the goodness of their hearts. It is obviously going to come with strings.

Maybe those strings line up with what you want anyways, which is great. If they don't, don't take the money.

Context: the above commenter founded Cloudflare, which is a huge company now.

This is a nice wrinkle to the story, but as a reply points out, your story (3) is a hell of an exception, a fairytale if you will. It would be nice if people realise that and have realistic expectations. You shouldn't set people on chasing fairytales without them being aware that's what they are doing.

> You’re so right! It was an absolute disaster for us. Never do it!!!!!

You're still unprofitable after 13 years though, aren't you? Growth is prompted by skyrocketing sales costs.

Does any VC funded company ever ends up not losing money?

Facebook / Meta

Customers of VC-funded companies take note: none of these outcomes are good for you.

When you have a choice between being a long-term customer of a VC-funded company vs a self-funded business, think about long-term incentives and don't follow the rich and shiny.

Disclaimer: I run a self-funded SaaS business and sometimes explain why I never wanted VC funding and why a LARGE BUSINESS is not necessarily better for customers.

I think it is mostly based on one's POV. From the founders perspective starting a company, raising capitol and eventually taking it public might be taken as a wildly successful path. To an employee all it means it more and more dehumanization, destroying the company as a work place.

With all due respect, your company is probably one of the biggest and most successful mass surveillance operations on earth. I wouldnt lose sleep over these things too if I knew my company would be scooped up by a 3 letter agency if anything were to happen that threatens this flow of data.

"It is true that playing the lottery doesn't work out for everyone, but it worked really well for us!"

It's sad that are multiple retorts about "lottery winners." Apparently, just on HN, we have about 25 lottery winners. Quite the coincidence!

(cloudflare, shopify, databricks, coinbase, stripe, openai, freshworks, gitlab, dropbox, hashicorp, amplitude, vercel, plaid, hubspot, quip, notion, twilio, etc)

Out of....

Certainly not 1 billion, which is what the lottery chances would be to win 25 times. (1 in 42m)

I don't understand this logic. The US has the Powerball lottery.

So far it has been won 403 times[1] what seems around 20 year time span. With a US population of around 360 million. So not sure why 25 winners would require a population of 1 billion.

[1] https://www.powerball.net/winners

I was using some state odds. Ok so 1 in 1m for Powerball, yet HN is ~3m, so we have 1 in 100k on HN. Already an order of magnitude difference. Then, of course, not even 1 in 100 here are actually giving a startup a serious go. So comparing successful startups to the lottery is easily 1000x off.

Do you understand what a metaphor is?

Of course. Stats say it’s a bad one though

Not really; the "lottery" includes all the stupid smaller games too.

It would be great to read in which exact ways did money from VCs help your company to reach the current state?

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