0-1x is bad when you could put it in the public markets and double your money every 6 or 7 years with much less risk.

Welcome to the world of VCs. And, honestly, business in general the last decade or so. It feels very much like building a sustainable business is frowned upon. Build big and build fast so that you can cash out at max value, or just crash and burn.

It’s why your password manager can’t just be a password manager, it’s a subscription security product. Your cloud storage can’t just be storage, it has to be a more expensive document management system. So on and so forth.

It's not that building a sustainable business is frowned upon. But if you raise money from investors using a traditional note or equity purchase, then you have created the need for an exit. There are royalty-based options for raising money: you take money in return for an annual royalty payment for a fixed number of years plus repayment. It's similar to debt.

I know, but it’s all an ecosystem. I can refuse VC investment but if one of my competitors doesn’t then they have an order of magnitude more resources than me and they’ll edge me out of the market. So everyone ends up going down that road whether they want to or not.

Right. And even if you outcompete your competitor on product—say they're un-innovative and even slow such that they continually copy all your stuff, doing it with a year lag and less polish—they can still beat you because you're charging $X and they're "free" using the VC money at a huge CAC to outgrow you. That CAC may have no real path to coming down, but it's easy enough to describe highly unlikely ways it might—particularly when the investors and the execs are aligned on finding greater fools.

As unsustainable as their path might be—and it is on a few dimensions𐠒—they have options you don't. The obvious ones are buying customers long enough to last until exit and "re-financing" by showing the same VCs the same (high CAC-powered) numbers and extending the runway.

𐠒 It's unsustainable first financially (if you don't count the exit). It also (in theory) doesn't sustain/grow your team in an expertise or culture sense, the way that coming up with the features yourself trains some creativity and grit and might provide a greater culture win when things launch. And lastly if your customers base is there because it's free, then they'll leave when it's not free (or not cheaper than alternatives). You can definitely find all three of these as sweet summer child ways to care about business today, which I think is the point.

If your product’s value proposition is that fragile, that it can be eroded down to near nothing just via some schemer(s) with more money in the bank account saying ‘free’… then maybe it’s just not that big of an improvement over the status quo?

Silly take. If my product is worth $5 and I sell it for $6, that’s a sustainable business. If a competitor uses VC cash to subsidise their operation and charge $1 they can run me out of business, then they’ll charge $6. Or, hey, $7, why not.

But it has nothing to do with my products value proposition.

No it isn’t a sustainable business, because the competitive landscape, which it has to be sustained in, would now also include this group out to get you for whatever reasons, for some unknown period of time.

That’s exactly my point? VCs distort the market.

“If my product is worth $5 and I sell it for $6…” Is not a sustainable business in that specific competitive landscape.

VCs don’t even need to exist for this to occur.

So I didn’t mention anything regarding VCs and market distortions or lack thereof?

I think there's two ways to read this. One is that maybe a lot of startups are not improving the status quo today. Perhaps this is right. If so, I don't think it would negate the environment described.

If the intent is that solid value props can't be eroded in such an environment, I'm not sure I agree. The issue I think is less about value prop, it's closer to not having a moat. Or one that can't be bought anyway. People are paying for and using the product—so there's some value prop—but then it's being copied and sold for free (at a loss). The competitor may even pay to take customers. I'm not sure that stronger value props are inherently harder to copy or harder to buy users.

For the bootstrapping startup to win, it needs to find a product people want, create it from scratch, then find a non-money-based moat. The startup with the money can copy the idea, create it (benefiting from your blueprint), and then find the moat (with some capacity for it to be money-based).

In any case, I think the need for value prop lessens in this environment. If we're talking purely about getting paid and you have the option to do so via exit rather than only via profit, value prop becomes a means and maybe not even required one.

It generates some customer loyalty, on average, which does impede, somewhat, outright buying of customers or enticing them with lower to free prices.

Of course loyalty is not perfectly sticky, nor can it ever be, but then again enticements can not be perfectly attractive either.

"Everyone" is getting paid? The investors aren't getting paid, and they are your business partners. So the return of greater than 1x is pretty important.

a 0x return would be them getting back what they invested, right? (otherwise pretend i said 1-2x)

everything above that is a pointless perversion when capitalism is killing our planet and the majority population has to suffer, just because someone somewhere wanted bigger numbers...

The point is that the successful businesses produce lots of value for people, and for risky bets to work out on average you need some to do very well to balance out the ones that do only OK.

If you have an ideological opposition to economic growth, then yeah, venture capital isn't going to make much sense to you. As was mentioned up thread, there are other funding sources better suited for people who aim to sustainably make 1-2x returns.

Actually, no. It's at least a > 1x return to make the investor whole.

Here's why: a dollar invested today has an opportunity cost for the amount of time it's not available for another investment. And the longer that dollar remains locked up, the bigger the cost.

If an investor chooses to invest in another investment--let's say a money market returning 5% annually, compounded--then anything less than that after N years is a bad investment. This is the calculus that investors make with every investment.

I know we aren't likely to agree about the ideology of capitalism, but consider that in a free and open market, investors are free to pick and choose the opportunities they want--including young, talented individuals with good ideas.

In a controlled market, investors would only be able to invest in what the "controllers" choose. By "controllers" I mean those who would be in charge, e.g. the government.

How many "controllers" do you trust to do the right thing and identify the young, little guy who has a great thing to share with the world?

Anything above a 2x return is necessary, because investors will have an entire portfolio of companies. About 66% of them do nothing at all. But a few will do well. And that results in a modest return, on average. Make your own simulated portfolio and do the math. You will see.

> you get to roughly the same 1/3, 1/3, 1/3 that I like to use

But your numbers are 1/2, 1/4, 1/4. I think you're being a bit optimistic.

People worry about food being stuck in their teeth, saying the “wrong” thing by mistake, and a million other faux pas.

If I confused 50% and 1/3rd in public I’d be mortified.

Getting a 260% (and this is a lower estimate) return might be great depending on the duration. If 10 years would be around 26% ROI. I wonder if there is any ETF that invests in all startups.

———-

Calculation below:

To calculate your net return based on the provided percentages and their associated returns, we need to determine the weighted average return for each category. The net return is the sum of all these weighted returns.

Here are the steps:

1. *25% of investments make zero return (100% write-offs)*: - Return = 0 - Contribution to total = \( 0 \times 25\% = 0 \)

2. *25% of investments produce a return greater than zero but less than 1x (are losses)*: - Let's assume the average return is 0.5x (midpoint between 0 and 1x). - Contribution to total = \( 0.5 \times 25\% = 0.125 \)

3. *25% produce a return between 1x-3x*: - Let's assume the average return is 2x (midpoint between 1x and 3x). - Contribution to total = \( 2 \times 25\% = 0.5 \)

4. *15% produce a return between 3x-10x*: - Let's assume the average return is 6.5x (midpoint between 3x and 10x). - Contribution to total = \( 6.5 \times 15\% = 0.975 \)

5. *10% produce a return of 10x or greater*: - Let's assume the average return is 10x (the minimum in this category). - Contribution to total = \( 10 \times 10\% = 1 \)

### Total Net Return: Summing all the contributions:

\[ 0 + 0.125 + 0.5 + 0.975 + 1 = 2.6 \]

So, your *net return* is 2.6x or *260%* of your total investment.

This means, on average, you would get 2.6 times your initial investment overall.

I am reviewing your comment but a 260% return of your initial investment is a multiplier of 3.6x. Do you agree?

>so breaking even is bad all of a sudden... and who needs a return greater than 0-1x when everyone's getting paid and you have a little on the side for emergencies?

I can give you $1M and in 6 years you give me $1M. Or I can put $1M in S&P500 and get back 2 million.

VCs aren’t just good guys who just like entrepreneurs. It’s an investment vehicle that competes with other investment vehicles. Anything less than a 3x return is “I went through a lot when I could have just put my money in SPY and slept soundly”

I think the most important thing a founder can learn before taking VC is understanding their business model.