Should your startup bootstrap or raise venture capital?

Well, one of those sort of one-sided things where a lot of people don't care about the topic versus people that care a lot. Yeah. Does that make sense? Yeah. And so I think there's a lot of people strongly identify and are really excited about bootstrapping. Yeah. That are very like fired up about this. Yeah.

And there's a lot of people that this just isn't a topic that comes up much. Yeah. The place we should start,.

I think, is that the vast majority of businesses should not raise venture capital. And I'll extend that point. Venture capital is not interested in investing. Yeah. In the vast majority of businesses. So like, one of the things I think founders get really screwed up on is that VCs have become a little bit more marketing Right? Talking to people. And then I'd be confused.

Well, I wanna start a restaurant. VCs don't wanna fund your restaurant. Yes. Well, I think another thing that's confusing is a is a side note, is a lot of the stuff on Shark Tank. Oh, yeah. I would argue is not venture capital backable. You know, a lot of the stuff that I see on the television show Yeah. You would never in a million years be able to raise VC from it.

And so I think you watch Shark Tank and you think that that is reality.

It's not this industry. So I think that that's the first thing is that if you're starting a business that can appear on Shark Tank for the most part, probably shouldn't raise venture capital. But I think there's actually like a deeper thing here, which is that let's say you want to start a startup business. You don't have to raise venture capital either. Correct. And I'll say the same thing.

I don't believe venture capitalists want to invest in all software businesses,.

and I don't believe all software founders should raise venture capital. Yep. So Yeah. Let's talk about the math. Yeah. I think what's really going on is I think if you looked at how many businesses are started every year Yes. What percentage of those are venture funded? Cool.

We could ask chat GBT. But I would guess definitely single digits, if not less than 1%. Yes. And so if you just look at businesses that are starting in the world Yes. It is like a weird outlier freak occurrence Yes. That is a VC funded business. Very hot. So but I think if you're just consuming content, you're you're watching media, you're watching YouTube Twitter.

You you don't realize that. Yeah. Okay? And venture capital is a product is specifically for investing in something where their investment could be worth at least a hundred times more, if not a thousand times more. Yes. And so trying to put that jet fuel into something that isn't going to grow to be big,.

everyone is gonna be sad and lose. Yeah. And so you shouldn't do it. Like, I'm the investor. No one's gonna win. And the user. No one. No one wins.

No one wins. No one wins. And so, again, like, I don't think that there's this.

push that I can see from from investors to try to convince people to raise VC money No. For something that is not has, like, no chance of of growing like that. It just doesn't make sense for anybody. Okay? I'll go a step further. I think the whole argument is fake news.

Right? I don't think this is a a real argument. Right? I don't think that anyone thinks it's more moral or good or right to start a VC backed company or a non VC backed company. I don't think this is an actual debate. Yeah. I think that like starting a VC backed company, really hard. Not the best way to get rich.

Not the best way Relatively small number. Like the numbers are not Yeah. Huge. Not a good path. Like I always like to equate it to like athletics. It's like getting into the NBA is really hard. Like not like, the best path to have a good career is to be like, oh, I'll just I'll just make the NBA. Yeah.

That's simple. Right? Yeah. It's like It's great 50 guys, I'll just be one of those guys and then game on. Right? Right? They recruit from all around the world. I live in the world.

Very straightforward. I like that one. Yeah. No. So this is not the only way to get rich. Let's take a further step. Most people who are rich did not raise venture capital dollars. That's right.

Did not start companies. Real estate investing, stock market investing,.

being lawyers, being doctors. Again, go look at your Yeah.

There's so many people. Right? So this is not helping get rich. I think the other thing that's funny is like, there is no one trying to force you or cajole you into starting a VC backed company. Like if you don't want to do it, don't don't do it. Correct. It's also a decision that you can revisit.

If you don't wanna start a VC backed company now, but like your bootstrap product starts doing well and you want to do it in the future Great. You can. There's no one who is gonna say no. You said you were bootstrapped on Twitter. I will not give you money. Like, no. I'll get another truth. Empirically, none of the trillion dollar software companies are bootstrapped with no VC dollars ever.

Yeah. So if you if someone told you you can make a trillion dollar company, maybe you can. Just no one's ever done it. Yeah.

I'll say fact based. And again, like, to look at the numbers, even if you look at software companies. Yeah. Even if you look at iPhone apps, if you actually did an audit of the App Store and you said what percentage of the apps in the App Store are VC backed? It is tiny. Tiny. But if you said what percentage of dollars that are spent in mobile apps go into VC backed companies?

I think that That's very helpful. Right? Because dollars are going into Amazon.

and eBay and like all that kind of stuff. Right? Yes. And by the way, I don't I wanna be clear. Neither of us are saying you should want to make one of those companies. Yes. Like, or you should want That should want them from inside of you. Exactly.

Not from YouTube. No. No. Right. Like, I actually kind of try to convince people not to. Like Well, you it is because if you need to be talked into it, that's That's right. That's right. So I like to talk about why it sucks.

Yeah. So, I think the other thing is that no one is trying to say in our industry that if you make a great software product that allows you to make enough money to live a good life and it's not PC backed, that you haven't won. You won. Yep. Like I had a friend who made one of these companies. You might have used his product.

His product generated about 30 to $50,000 a month and took about seven to ten hours a month of maintenance. Mhmm. The entire time I was working on my startup, he was living life. Like, I would watch his life on Facebook and be like, this is amazing. He traveled the world, he got married, he had kids. I'm like, he won. Like, that's like like good for him.

Like, there's no Again, is the one-sided thing. Is that we're like, great. Yes. Like, we're like high fiving that dream versus.

Yeah. That there's this Oh. Two sided battle. 97%.

of the time I was watching that Facebook, was like, am I the idiot? And like The evidence was like, how did you think? Quite possibly, Michael. Quite possibly. Yes. And he's still doing great. Right? And so, like, this is really clear.

It's like, building a great small business, software, small software Even the term small, bothers people. It's just non venture backed. Yeah. Non venture backed. It could be big. Yeah. Non venture backed. You're making millions and millions of dollars.

Yes. Totally fine. I think the other thing that's kind of maybe a dirt all dirty kind of underbelly here is who is.

spurting this argument? Like who who is who who's incentivized for this to be a big issue? Yeah. I think that this has been just like a topic that gets a lot of engagement online. Yeah. And so, know, if you wanna get people agitated about something, this is a pretty good topic. And then you can use it to promote stuff. And so, I can think of folks over the years Yeah.

That are like, kind of built a following Yes. Around encouraging people to do this. To the extent it is helpful and more people are improving their lives doing it, that's great. Yes. But there's a little bit of like creating a fake controversy and then and then monetizing it. A little bit. And so maybe maybe people may have this question watching this video. Michael, why should I apply to YC?

Like, why should I do a venture? You guys just did a great job of explaining why not to do it. Well, why why should I do venture? So I think that,.

there are some businesses where you actually need money up front. Yes. And if you need money up front and you're building a software business the venture capital industry can help you get money up front. If you don't need it, don't take it. Yes. I think that what's so interesting about this is that there aren't many other good mechanisms.

Like if you need millions of dollars or $10,000,000 to get your company to break even. Yeah. There aren't other mechanisms No. In our economy to give that to you. People example.

of Google, I don't know, just because famous, one of most viable companies the world. Yeah. You know, I don't know how you could have bootstrapped that. And so again, maybe the audience is saying, well, I don't want to build Google. Great. You no one is saying you have to build Google. But if Google wants to build Google But if the founders of Google wanted to build Google Yeah.

It doesn't seem mathematically possible. There's no route they could have done it No With a raising money. Yeah. There's no loans they could have gotten to buy the servers and do the things they did. No. No. And so, we should just be thinking about VC as enabling incremental.

entrepreneurship that wouldn't be around otherwise. Yep. Not as cannibalizing anything. Like it's just enabling that incremental founder. I think the other thing is you have to remember if you want to raise a lot of money, but you can't explain to the investor why you might IPO and give them a lot of money back, then you can't raise VC. We wanna be explicit. Like, it is a business transaction.

It's not a faith transaction. Correct. It is it is I give you money now, you give me a lot more money later or at least you try really hard to. And if you can try really hard, but the result can't be a lot of money, I shouldn't logically give you money now. Not because I don't like you or because Yeah. You're not a great person or these users you're trying to serve aren't great.

It's just because it's not a good business transaction. It's literally nothing personal. And I think sometimes founders kind of are very confused when VCs say no. Well, it's because, again, if we're trying to stoke outrage,.

point Let's stoke some outrage. You point at something silly that raised a lot of money. Yes. The most extreme silly thing in the No, no, no. You always point to Juicero.

I'd be one.

Right? Or WeWork, whatever. Like, you point to something that is like on face silly. Yes. And then you say, well, if they funded that, why won't they fund my social network for dogs? Yes. And so, it causes a lot of emotions. Yeah.

And, I understand. I relate. But, it's don't fall for the rage pill. Yeah. Don't let yourself get enraged by obvious engagement bait. Yes. Which is to cherry pick the craziest, silliest thing. Yes.

And, use that to get all worked up. Yeah. And take that personally. Like that somehow.

hurt you. Like like you were hurt by that thing over there happening. Well, what's so funny is like you are actually included on the real truth, which is that they screwed up.

Someone messed up. Like, you're right. They shouldn't.

have gotten that money. Like, you nailed it. I'm like, that person who funded that company is an idiot and you're exactly right. But like, hey, that doesn't mean we should All bets are off. Yeah. It's like, okay, this dumb thing happened. Therefore Up is down, black is like like forget everything we know. Yes.

Those are those Yes. That doesn't follow. That logic doesn't make That person should probably be spoken to about their investment strategy. So, yeah. So just understand that game and I have to be honest, like, I like games like this. Like, I don't like games where you have to like convince people to like you or to align with your views. Those are games that are way harder to play.

I like games where it's like, hey, if I wanna serve this customer and you can be a good legal partner to me, and I give you money and you give me legal services. You can be a good funding partner for me. I give you a check at my company, you give me cash. Right?

If you can be a good partner to me, a simple to understand partner to me so that I can spend my time working with my customer, That's what I want. Yeah. The customer's complicated enough. Jesus. Customer is complicated enough. I like the idea that the money people are like, so if I give you this money, maybe you need a lot of money back. Yes? Yes?

Okay. Okay, we're good. We're good. Alright. End of conversation. I give you money, you don't give me any money back? No. No good.

Come back when I come back when this is out my way. Hopefully, this helps clear up the debate. But, I secretly hope this like, I don't know, like, doesn't at all. Because this this is like so silly. I hope we get somehow flaming word for this. Anyways. Great. Good shot.

Love it. Okay. Sounds good. Thanks.