Breaking Free
Experiments in tech entrepreneurship
Quote: Joel Spolsky on taking outside investment
In: Business Ideas By: Brian Armstrong
13 Jun 2010This is from the excellent book, Founders At Work, that I’m reading right now.
I find new reasons every day why I’m thankful that we never took any kind of outside investment. Let me give you a small example… Jared had a friend that had an idea of some way that we could modify FogBugz to be really useful to the investment community as something – I don’t remember what, but something that the investment community could really use that’s 5 percent different than FogBugz. And I kept thinking, “This is a huge distraction, and there’s not a big enough market. I just want to stick to our core competency, and I’m not interested in doing software for the financial markets.” He kept saying, “No, no. You’ve got to talk to this guy. You could make a lot of money off this. It would be great.”
I kept thinking, “You know what, if it was a real board of directors and the VC’s were bringing you these great ideas, you wouldn’t really have any choice but to say yes. And you’d keep getting distracted to do their pet projects that they dreamed up in the shower one night and they think might be a good idea, and you just don’t think it’s a good idea.” You really don’t have the ability to say no when you take those outside investments. It’s hard to tell your investors, “Let me just go in my own direction.”
I can identify with this thought process. There is a big difference between thinking up a cool idea, and actually having to go implement it. But I found it interesting because he may have changed his mind (at least in part) since he wrote this a few years back. He went on to take VC money for his new project, StackOverflow.com.
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Ronny
June 14th, 2010 at 7:02 am
I agree with that toughtprocess too, and I think there are many projects that fall in that “no VC” category, but some project simply would be better of with VC, so I agree with Spolsky there.
But, we as sole entreprenours I think most often is better of without a VC though.
Chuck Cohn
June 14th, 2010 at 4:53 pm
Thought this post about StackOverflow.com was relevant to this discussion: http://www.avc.com/a_vc/2010/06/how-we-measure-success.html.
Brian Armstrong
June 15th, 2010 at 1:53 am
Yep that’s true – if you make something people want, you usually can’t help but be financially successful. But I think you do have to focus on it at least a little bit.
I don’t think Twitter, for example, is focusing enough on that.
Gk Parish-Philp
June 14th, 2010 at 5:44 pm
Wow, there are so, so many reasons not to take money (if you can help it) — the myriad inherent distractions that come with a BoD only begins to scratch the surface.
Here’s one directly from my experience that very, very few entrepreneurs seem to think about… How your venture is capitalized very often determines it’s possibility of success. Here’s what I mean…
In a past life I did due-diligence, etc. on potential acquisitions for a mid-size tech company. Often, a deal would cross my desk — a cool little startup, we like what they’re doing, we like who they are, we like the synergy. They are doing say half a million annually topline, but aren’t *quite* profitable yet. We want them, and they want us (they’ve basically burned through their operating capital and are facing get acquired or raise a C or D round…). Big problem — they’ve raised $10M at a $50M valuation, and they’re basically worth maybe $3M (now or ever). The deal is never going to happen, and they’re going to the scrap bin…
Looking closely, the whole thing could have been done just as well by 3 or 4 folks (the only reason they have 15-20 staff is because they have $10M in the bank and impatient investors asking how they are ‘accelerating’). Now, a $3M payday for 3 people is not a bad deal at all, but with the investment, they’re left with a miserable year or two of being hassled by a BoD for a meager paycheck and equity worth $0.
Lesson: take as little investment as you can get reasonably away with. Always. People seem to think that money in the bank is power. Actually, it’s the exact opposite. Money in the bank is a straight-jacket — it constrains and severely limits freedom (in many, many insidious ways). And Freedom is the ultimate power.