gigamon

Take it as a redeemable loan with the condition that it will be converted into equity upon closing of your next (first) round of investment. You don't need a lawyer for this, just write it in plain English so everyone can understand.

I think YC is a great concept.

It is actually not a VC but more like an adoption agency that takes promising orphans off the street (not based on needs and not based more merits, but based on genetic match) ... feed them and cloth them, then send them off to foster parents (real VC's) who can afford to bring them up properly.

I don't mean to be harsh. And I have great respect for everyone who is involved with YC. And I am certainly not trying to be a sour grape.

I am just saying that it is unique.

I never said that we don't take VC money.

I just said that we take VC money when all we need is money.

Which by way is exactly what these gentlemen did? They didn't treat VC money as R&D money but instead they treat them as working capital. They took VC money when they have paying customers and a working business model and it was time to grow the company.

The point that I am trying to make in my own writing (http://www.startupforless.com) is that entrepreneurs should concentrate on building their company with their own money FIRST and when they have a ready product, they can CHOOSE.

On the other hand, there is nothing wrong with the YC model which is to take money early. But YC is an exception, not the rule. And YC money is clearly smart money.

But there are a whole bunch of us who doesn't fit the YC model.

This reminds me of the old joke about the wife asking the husband on whether or not her butt is fat. There is no good answer here and the absolute wrong one is when the husband asks for the definition of fat.

There is no definition of smart versus dumb money that would serve the discussion here.

My observation is that many of the Hacker News readers are first time entrepreneurs and my belief is that it is important that they understand that they don't build companies by relying on VC money (even if it comes from YC). The more they accept that VC money is dumb, the more they will focus on what it takes to build their companies.

For a bootstrapping entrepreneur, VC money is a drug and a distraction. And by calling it "Smart" money, the popular culture is attempting to turn it into a "legalized" drug. This is a really good article and having been in the trenches for many years, I highly recommend it to the YC community. VC money should be dumb, the dumber the better. Only by understanding this assertion, can one focus on what it really takes to build a company ... and it is not about taking VC money. Enjoy.

I agree. I think the article basically summarizes what we have all learned (the hard way) ... ahead of your competitors but never too far ahead of your customers.

Thanks. I am from the old World.

Perhaps we should focus on the message and not messager (sp??).

--Denny--

Note: English is my second language.

This is a fantastic article summarizing what I have learned and what I tried to write on my own (http://www.startupforless.com).

I am humble by it.

Basically it boils down to the following ...

1) Create "value", not "valuation" 2) Be a "surrogate" customer, live their lives and adopt their persona 3) Be frugal, use your VC money as working capital and treat it as the last money you ever going to have and need 4) ... and more

--Denny--

Yes, it is the first user conference for the open source network analysis software. Sharkfest is the new name for Ethereal. It will be a great conference, meeting the man himself, my hero, Gerald Combs. And it is in our neighborhood.

This opens up another topic that is equally interesting, which is the relationship between entrepreneurs and risk management.

My observation is that entrepreneurs are NOT risk takers. They are very much risk-averse. This is a strange comment but as an entrepreneur, I differentiate between taking risk and mitigating ambiguity.

I don't gamble and I don't play the lottery. I think doing so would be taking undue risk because I have absolutely no control of the outcome.

On the other hand, doing startup is not risk to me because I believe I can control the outcome. It is just that the outcome is somewhat ambiguous which I know how to mitigate.

I suppose if I take a step back, this is not unlike the difference between an amateur gambler and a professional gambler. If I know how to count cards, I won't think that I am taking risk neither.

--Denny--

It depends entirely on the criminal ... ;-)

It is a tough call. The primary site, LoveMyTool, is an on-line marketing site for network monitoring TOOLs so at least there is some excuses for it.

It is a difficult name to forget.

--Denny--

That's exactly right, thank you.

In some way, VC money is a contaminant and startups that have lots of VC money (my first startup was one of those) tend to forget this truth.

--Denny--

Sorry about that. I hope all is forgiven.

--Denny--

I agree with that. I think they are closely related.

However, my experience is that as entrepreneurs we can lure ourselves into thinking that bringing good to the world and building a great company is the end and not the means. And if we do that, then money will follow. This is the primary message from Guy Kawasaki whom I have tremendous respect for.

However, my own experience is that this is true is if the stars and moons are aligned. So I am offering an alternative which is to focus on making money first.

This is in contraction to what a VC would want to hear. But I am of the opinion that taking VC money is not the prerequisite of building startup.

At the same time, I am not trying to demonize VC's. They have a place in our world and when appropriate, it can be very important to us.

In summary, I just want to provide some food for thoughts.

Thanks for your comment.

--Denny--

This might help ...

http://news.ycombinator.com/item?id=79626

Hope this helps ...

http://news.ycombinator.com/item?id=79626

Actually #2 is relevant.

"2. When asked how you will launch if no investors are found, your mind goes completely blank."

Sadly I suspect a large number of Hacker News readers are more interested in getting VC funding than they are in bootstrapping.

--Denny--

http://www.StartupForLess.com

I agree with comments from other posters. The only two things that I would add are that ...

1) you don't need to like someone to work with them in a startup.

In fact, it is very important that you surround yourself with people who have complementary skills and have different lifetime experience and perspective. As a result, it is difficult to truly like someone who is that different.

But you must respect someone in order to work with them in a startup.

2) Trust is very important.

But trust has a different meaning in a startup. Imagine yourself having to jump off a baloney and one of your co-founders is the one who needs to catch you to save your life. In this case, trust means trusting their ability to catch you and their assessment of their ability to catch you. So if you ask "can you catch me?" and they say "yes" but in reality they can't, then you would rather that they say "no". That way, at least you would try to find alternative.

I do not disagree with Zak.

However, stereotype has its limits in startups. My own experience is that most formal training is counter-productive when it comes to running a startup and all of us need to "unlearn" whether we are a lawyer or a hacker.

I summarized my observation as the following ...

"Anyone can be an entrepreneur but they must not have the mindset of a lawyer, an engineer ("hacker") or a doctor.

First of all, there are always more than two sides to an issue and often the right place is to be is in the middle - an option that a lawyer does not have. Also, there is not always an answer to every question; or if there is an answer, it might not be unique. So waiting for perfect data to arrive at a perfect solution is a luxury that I don't have as an entrepreneur. If that bothers me, then I should go back to being an engineer. Finally, as an entrepreneur, I often have to shoot my patient (and I have)."

http://www.lovemytool.com/blog/2007/10/vc-worst-enemy.html

Hope this helps.

--Denny--

Denny K Miu

Samantha:

In one of my earliest post, I wrote about what makes startup fail (or succeed).

http://www.lovemytool.com/blog/2007/09/why-startups-fa.html

What I have learned in the last five years turns to be very different from what I have learned in the five years before that. When there was a viable market for startups (i.e., robust IPO and M&A opportunities), the limitation often had to do with money. But when there is no market (i.e., no liquidity) for startups (as it is now), success has to do with a viable market for the product.

So it seems to me that it doesn't really matter if you are a lawyer or a "hacker", as long as you are the "surrogate" customer and knows intimately what your targeted customers want and what their pain points. Then having a "hacker" as a partner is important only so far as he/she will be the one to implement the product idea and is in fact, quite "interchangeable".

Good luck.

--Denny--

Denny K Miu

Rafael:

Good luck. It helps to know that none of us is alone in our struggle.

--Denny--

I recently wrote up my own experience on how to recover from a startup failure.

http://www.lovemytool.com/blog/2007/10/riding-a-bike.html

Hope it helps. If there is any other way I can help, please comment. Good luck.

--Denny--

Denny K Miu