If you are seeing your business as a 1-3 year affair- if you believe that in that time period you'll either crash or get bought or go big, and you don't have any resources... then taking VC funding to cover basics like food, housing, bandwidth, maybe makes sense. I would still say that angel funding is better. And if you're just out of college then its kind of a no-lose situation. You get funded, then you've won because you have a job until the funding runs out and even if you crash and burn, you'll still be well set up to do another startup.

But if you want to build something that lasts... you have to take into account all the costs of various types of funding. This I may not have illuminated as well.

After so many months, the VC funds turn into, effectively, a high interest rate loan with a lein against your business. If you go to sell, you may find that they get the entire proceeds. Sometimes they even put a 2-3x liquidation preference there... so even a success results in nothing to the founders.

The essense of these terms is that the clock is ticking, and you are put in a position where you have to hit a home run, or die trying. And the VC firm will guide you in this direction, and replace you if you do not make the choices that lead that way. They are only interested in home runs, not viable businesses.

This is also why acquisition is more popular now- the risk reward profile has changed, or at least people learned form the 1990s bubble.

"...so even a success results in nothing to the founders."

No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs.

"...hit a home run, or die trying..."

That's not necessarily a bad thing. VC money can force you to move at breakneck speed to prove your idea is worthwhile or not. It's up to you to decide if its possible to succeed quickly like that, or find investors willing to build more slowly.

"...replace you if you do not make the choices that lead that way."

Again it comes down to smart investors. Bad ones replace people frequently and good ones are primarily investing in "the team", replacing you doesn't make sense when that is the case.

I think you might be interested in building more of a "lifestyle" business than what most people would define as a startup. I could personally enjoy doing either type of business.

That's not necessarily true. VCs want management's interests to be aligned with theirs. However, there's no particular reason for them to care whether management consists of founders or VC cronies, and most would probably prefer the cronies.

I've worked for startups where VCs liked the technology, liked the market positioning, but weren't particularly fond of the founding team. So they invest their money, and at the first sign of trouble, force the founders out. They ended up losing the auction for the company's IP (one of the founders bid on it through an employee proxy and took it to China), but that's not to say they didn't try...

I suspect this happens more often than entrepreneurs would like to think. It's the same VC that was featured on an essay here by a certain prominent Lisp hacker...

"No intelligent investor would create a situation in which the founders had no incentive to succeed. They want founder's interests to be aligned with theirs."

I responded to this, but its been said, and better: "As things currently work, their attitudes toward risk tend to be diametrically opposed: the founders, who have nothing, would prefer a 100% chance of $1 million to a 20% chance of $10 million, while the VCs can afford to be "rational" and prefer the latter." http://www.paulgraham.com/vcsqueeze.html

"VC money can force you to move at breakneck speed"

You cannot predict the future- you cannot predict the level of success you will have in advance. Thus, signing agreements that put a ticking clock on your business is never a good thing. You can work at "breakneck speed" anyway, without increasing the risk of breaking your neck.

There is a fundamental limit to how fast you can go. Google was able to take their time and was fortunate in that regard. Netscape killed themselves with their speed. In fact, this forced breakneck speed is one of the killers of startups -- all the billions that were burned up in the space of 2 years between 2000-2001... much of that money, if spent more wisely, would have resulted in viable businesses in 2003.

"I think you might be interested in building more of a "lifestyle" business than what most people would define as a startup. "

I'm not sure what you mean by a "lifestyle" business. I consider the word "startup" to apply to any business. But since I am building a high tech startup that is a web based platform, I'm not taking the relaxed approach of someone opening a hair salon, or whatever.

I'm looking to increase leverage, growth rate, and viability.

In looking for a citation, I cam across the Paul Graham essay cited above- which I think makes the same essential point I'm trying to make. (So I'm sure I'm plagerizing him to some extent, mixed with my own experiences and stated less eloquently.)

In summary, many costs are now lower, thus leverage has increased, and so VC funds under traditional terms, are less desirable and less needed.

The big thing that separates them from the Netscape story is that they're apparently smarter and managed to create a financially successful company. Its quite conceivable that lesser men would have given us Netscape #2.

"You cannot predict the future- you cannot predict the level of success you will have in advance."

But being forced to try things more quickly than you might otherwise may help you discover problems and their solutions before others do, like a fast forward button. If you have a company that can genuinely absorb capital it seems to work just fine.

"...prefer a 100% chance of $1 million to a 20% chance of $10 million, while the VCs can afford to be "rational" and prefer the latter"

In that scenario there's still great motivation for the founders to work hard. In the scenario you presented (no money left for founders) that is not the case.

Why didn't you just post a link to VC Squeeze essay if that's all you wanted to say? You're saying some different things and saying other things differently.

"But being forced to try things more quickly than you might otherwise may help you discover problems and their solutions before others do, like a fast forward button."

I could write code sitting here with a loaded gun on a timer, pointed at my head. I'm sure I would find problems in that code faster and "get it done" faster so that I could reset the timer.... but the code would not be as high quality, and it certainly wouldn't be more innovative.

And if I reached the point where I knew there was no way to get it done in time, then I'd spend the time looking for an exit. I'd have no motivation to get the code done, and a lot of motivation to get out of there.

In most startups the proposition is metaphorically identical: succeed before money runs out or die. The kind of intense pressure that exists in all of the competitive startups I've seen. It's a marathon race, not a stroll through the park.

The founders motivation is ownership and the potential payout that ownership provides. If you take so much investment that you can't sell your company for enough to profit from it then you may as well close up shop (which happens frequently).

You presume that reducing the number of scenarios by which a founder will become wealthy somehow motivates the founders more.

You say business should be shut down if they don't fit in the model you describe.

This is a very narrow view. Its also a very polarized view-- it seems to be the perspective that either you're trying to be the next youtube or you're opening a farm.

There really is quite a spectrum between them... and far more high tech successes are not youtube type situations. That's an extreme rarity.

You're locked into a mentality that causes you to repeat this perspective, and you don't seem to be responding to what I'm saying, and I just don't see things that way.

So, I don't see much point in continuing this thread.

Good luck if you decide to start a company!