Last week we announced at Graphicly that we had raised an extension of our Series A of $3 million. For those that are counting, we have now raised $4.2 million in our quest to allow everyone to enjoy the art and the story telling of comic books and associated entertainment.
It wasnt easy to raise that money, and over the past year, besides some serious internal turmoil and spending some real time building a team, refining the vision, we were able to show enough traction to land some top notch investors.
But enough about us.
This morning, I read a post in Techcrunch about the Start Fund, which in essence is a partnership between SV Angel (Ron Conway‘s Fund) and an insanely wealthy dude, Yuri Milner, who’s fund DST has investments in Groupon, Facebook and Twitter, where every single graduate of Y-Combinator gets $150,000 in a no-discount, no-cap convertible note.
Personally, I think this puts an enormous burden on Y-combinator and Paul Graham. In fact, I think it puts an enormous burden on all accelerators. Why?
They have to double down on output quality.
The general idea that an angel will invest in a team that is interesting to give them time to come up with something interesting has just gone out the window. Companies now accepted into accelerators be it Y-Combinator (who usually brings in ~40) or Techstars (which brings in 10 per 4 cities, also ~40) or any of the hundred other ones across the country, they can no longer bring in “test” companies or the output will be shit, and the ecosystem will be hurt.
For Techstars, it seems that ~3 companies in each city “dont make it.” Either they dont get funded or just kinda fade away. Y-Combinator seems to have a larger percentage of companies disappear, but that is mostly because of the growth stage of the teams at Techstars. Techstars tends to take companies further along than YC, YC tends to like young hackers coming up with interesting ideas.
Now with this Start Fund, every YC company just got 3-6 months of additional life. I dont think the investment will help any of the companies raise additional funds initially given its the booby prize for graduation, but it allows them to continue to live, and strain the already limited human resource in the San Francisco Bay Area (namely developers).
[Will Techstars follow suit? I have no idea, but my gut tells me it wont. Its not David Cohen's style. But, I could see TS looking for a larger ~$10-$15mm investment to be used to grow the organization and invest in companies. (I have no inside knowledge.)]
For Techstars, they should continue to pride themselves on the large percentage of successful companies as output both in terms of landing a significant funding round, or growing into a viable business. I dont think a Start Fund concept works into their philosophy.
What does the Startup Fund do for the startup ecosystem? In many ways, its helpful. It creates more startups that are connected to more mentors and investors that do interesting things.
But, it also allows startups that should have never seen the light of day a bit of juice.
It is now imperative that not all YC companies graduate. YC’s management team has to serve as a filter to determine if the hot young hackers they are bringing into the program are really entrepreneurs or just hot young hackers. Are the businesses really businesses, or are they interesting ideas.
YC’s output will have to be less than its input.
Which, frankly, would make the program that much more competitive and desirable.
I dont think the companies in YC will work less hard because they know they will be getting some cash at the end of the process, but I do think that the companies have to understand that acceptance into the program is an exploration of their potential, and if they show a lack of potential either as a team, a product or company, Paul Graham must cut them.
The companies that get accepted to YC must understand that the Start Fund has just added $150,000 of expectation, and react accordingly.
It will be amazing to watch over the course of the next few years.
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Before I dive into this post I want to make a few things clear:
- I am not referring to freelancers or folks in the service business. Frankly, if you are not bootstrapping (at least in the beginning) you are a moron. Grade A Idiot, as my dad used to say. (Not really, I just wish my dad would use cool lines like that, so I could tweet them and get a god damn show. Seriously, what is this world coming to?)
- I am not being “shocking” or “Dave McClure-ian” by using words like: bullshit, fucking, moron or venture capital.
- I am also not speaking specifically about the choice of taking (or not taking) investment in building a business.
What I am talking about is the fucking bullshit beliefs that seem to permeate the Bootstrapping world.
There is no special badge on Foursquare if you have bootstrapped your startup to success. There is no slight you are afforded because you bootstrapped. Venture capital is not evil. You are not good. You havent “beaten the odds.” You arent better, or worse, than other entrepreneurs.
The concept of bootstrapping is solid. To be clear, a bootstrapped business is one that is completely self-funded either by its founders or by the revenue it generates (usually a mix of both) and the expectation is that the growth of the company is usually slower than if the same business had received investment.
Im assuming that because entrepreneurs that have bootstrapped their businesses believe that have undertaken a Herculean effort, their success is somehow more valuable than the entrepreneur that took investment.
“Its all about the exit.” bootstrappers say. ” I would rather than 100% of a small exit, than 10% of a large exit.”
To that, I say, “cool. But, please shut the fuck up about it.”
I know that bootstrapping is hard. I know that there is even an art to it. Ive bootstrapped a business. I built a company on credit cards and had a successful exit. I get the awesome-ness of bootstrapping.
What I dont get is the attitude that mooching is awesome (Im sorry, I mean “free-sourcing”). I dont understand why exploiting young talent (oops, I meant “outsourcing to less experienced freelancers”) rocks. I am mystified how the concept of micromanaged control (damn, I mean “freedom from a board”) somehow ensures success.
Go be that entrepreneur that finances their own success, drives towards profitability quickly, and focuses on lean startup principles to accelerate your business.
Be proud of your ability to build a business with no outside help. Just dont be That Guy. Because those guys are not bootstrappers, they are dicks.
- Bootstrapped, profitable & proud (marsdd.com)
- The Art of Bootstrapping: Funding Startups the hard Way – Part 1 (wolpers.posterous.com)
- Here’s How I Bootstrapped My Company To 25 Employees In 3 Countries In 4 Years (businessinsider.com)
- Five reasons to consider venture capital (jondale.com)
- Optimize for Happiness (Followup to my Startup School talk) (tom.preston-werner.com)
It is 2am the night before a board meeting. I have put in a big week of travel (2 days in NYC; 2 days in LA and now back in Boulder getting ready for said board meeting) and I am exhausted. As I work on our board deck, which is kinda a mess, I keep thinking about “AngelGate.”
Not exactly the best time to write a post about something that seems to be just heating up.
For those that dont know what “AngelGate” is, basically, a bunch of investors (mostly ”Super Angels”) got together and talked over dinner. There is a lot of conjecture over the content of that conversation, and depending on what you believe, either there are a bunch of Super Evil Angels in Silicon Valley, or this is just a big explosion over nothing.
If you were to ask me, I would say its a bit of both.
The Valley has long been an echo chamber that relies on its own ability to drink its own kool-aide and believe in its own self-worth. I know, I grew up there.
The genius of that environment is that risk is part of the culture, and if you are not a risk-taker, then you are ejected from its bosom, and left to fend for yourself outside of the community. But, if you are willing to take risk — real risk, not the I will dip my toe in the risk waters risk — you are welcomed with open arms, even when you fail.
That basic belief is what makes the Silicon Valley unique and different.
Recently, there has been this “rise” of the “super angel.” Angels have long been thought of as emotional investors, who get enamored of an entrepreneur, and then put cash into the venture. These amounts tend to come in around $25,000, but they could be much larger (or smaller).
The super angel phenomenon is interesting in that it requires the professionalization of the angel. No longer playing only with their own money, the angel must approach investment differently. Its no longer about personal gain (completely) but rather about ROI and IRR. The basic emotion (I love this entrepreneur, so I will invest in him) shifts to having to balance between emotion and responsibility to investors.
In addition, lately there has been this growing celebrity surrounding the super angels. Chris Sacca and Dave McClure (two friends, mentors and investors in Graphic.ly) are both well known as investors and personalities. Chris road his bike across the US, was involved with Obama, tirelessly raises money for Livestrong and Charity:Water. Dave spends the lion share of his time in the air flying around the world to meet, work with, and sometimes, invest in entrepreneurs. He hosts events like Startup2Startup, and every once in awhile is caught on film dancing.
Both of them are brilliant in their investment decisions (if I say so myself), and its a mix of gut and analysis. Very stereotypical of super angels. Some big wins (Chris with Twitter; Dave with Mint) and some bad breaks.
When raising money for Graphic.ly, many investors, some of which I consider to be friends, passed. Rob Hayes of First Round Capital, in passing, spent time with me to help me better understand what parts of Graphic.ly were not only interesting, but potentially very valuable. Tony Conrad of True Ventures, in passing, gave me great advice, much of which I implemented. Bijan Sabet of Spark Capital continues to spend time with me listening to my hair brain schemes and helping to refine my thinking. Would I have liked to have Bijan, Rob or Tony involved with Graphic.ly? Sure. But, I also know that they will be available now and again to bounce an idea or two off of, and I will truly listen to what they say.
Here is the part that was lost in all this AngelGate talk:
Most entrepreneurs will seek investment only from investors that TRULY WANT TO BE SUPPORTIVE AND HELP.
Money isnt always green. And, if you are smart as an entrepreneur, you are looking for investors that can provide more than a check. Whether its connections, or ideas or admonishment, a true investor provides so much more.
When I raised the first money, I sat down with Brad Feld, another person I consider to be a friend and mentor. I told Brad that I really wanted him on my board. It would be great, I said. He could watch our growth and progress up close.
“Micah,” Brad said leaning back in his chair “there is no value to having me on your board. You get everything from me for free.”
Investors that truly put entrepreneurs first are the ones that realize that success comes from giving, not taking. Much like so many companies today talk about putting their communities first, investors are learning that their money isnt the important part of the equation.
Now, I know that most people are concerned about the idea of angels getting together and deciding to work to increase their returns and decrease the entrepreneurs potential upside. Price fixing, collusion, and lots of other evil sounding words have been thrown around. Did it happen? I have no idea.
What I do know is that the best investors know that the moment you put the potential of your return ahead of the potential of your entrepreneurs, you lose.