Here's a model that exists in Germany, which I like:
You can present a business plan to the state's investment bank and apply for several financial aides, including:
* 1.5 years of universal basic income for you plus up to 2 other people. It's a tiny amount of money, but the point is to free you up to invest your actual time an money into the business. You do not have to pay this back.
* up to 20k EUR in "consulting fees", for which the bank will contribute up to 50%. Again, you don't have to pay it back, but obviously you need money for them to match.
* discounted loans, amount depends on business plan outlook
I've worked with an accelerator that helps founders write the required pitches and plans for this program. And while the majority don't make it (because they mostly realize their idea won't actually hold up to business planning scrutiny), some do. And those don't become hyperscaling unicorns, they become normal companies, growing organically as stable, solvent employers in the region.
Every once in a while a VC would stick its head in and encourage the startup to take on VC funding, and for an even smaller percentage (one in my time doing this), this worked. But for me, the organic growers are the best success story.
It's also connected to so much bureaucracy that you almost need to hire someone for that alone, because you wont have as much time for your actual business. Founding a company in Germany is so much unnecessary paperwork its crazy. Single handedly the only reason I will never try it in my home country.
I agree that the process is unnecessarily complex, but I also think hiring someone for that would be the wise choice in most places anyway.
And even in Germany hiring someone for that would probably amount to paying 500-1000€ for the whole registration of the company instead of doing everything yourself and only paying the 100-200€ notary fees. It's not as bad as you might think.
> I will never try it in my home country.
May I ask, where would you try it? As I understand it, it's not really possible to found in a different European country while you're still living in Germany.
I may be misunderstanding, is this statement suggesting that the advice to use lawyers in Germany is simply standard op procedure, and not even remotely necessary? As it really isn't necessary in the US, especially with how easy it is to change or update later if it gets to that point.
I have incorporated (s-corp), created a couple LLC's and briefly used a sole proprietorship with a DBA filed in my county - this one was by far the most annoying, time consuming, and confusing one. The state filings took maybe 10-15 minutes of filling out straight forward online forms, $1 (at the time for a name search) and $300 to file. Soon after I was the paper owner of a legal corporation (or LLC's). The most complicated part was understanding taxes, but the application of taxes is separate from starting the company (assuming you understand the best tax structure for what you are doing). If anything, an Accountant is way more important imo.
In the US, getting a lawyer just to incorporate is flushing money down the drain. At best you can do it yourself (and in most states it's not particularly complex), at worst there are cheap online services to help you.
There's a lot of small, one-person shops that manage to make LLC's and stuff in the U.S.. There's books on how to do it yourself. In my state, there's little paperwork, too.
Why should there be a globally relevant software company? How about locally relevant software companies? If it is successful enough to pay for its own expenses and decent income for the employees/founders, it is a good business.
Because software has enormous fixed costs and low marginal costs, so spreading the fixed costs across more users improves the economics, often by a large factor.
It’s not that it’s strictly required, but it’s so beneficial that it’s often chosen.
> The company is the largest non-American software company by revenue and the world's third-largest publicly traded software company by revenue. As of December 2023, SAP is the largest German company by market capitalization.
SAP is kinda of a monopoly no ? The software is bloated and complex to use. The UI is dated but everyone still uses it because it is so embedded into the core arteries of businesses.
It's not a monopoly if it is hard to migrate from. SAP doesn't go out of its way to prevent you from migrating out of the HANA database. It's just that by the time you need a software like SAP, whatever you're buying becomes business critical and hard to migrate from regardless. And SAP is good enough to handle all kinds of edge case scenarios reasonably strongly. SAP doesn't even engage in monopolistic practices like what Microsoft or Apple do.
SAP and Salesforce are pretty much in the same bucket imo. The reason there is no Hubspot for SAP is that most smaller companies don't really need an ERP system.
true. SAP is more of an entrenched SaaS. Once you have it, the switching costs are too high later on. What an amazing kind of biz. The stickiness is crazy.
AUTOSAR alliance is an organization based in Germany defining automotive ECU software architectures. Most automotive SW development is happening in Germany.
I’m from Sweden and live in Switzerland. I know many people who have their own companies, and I was looking to start one myself before moving to Switzerland. It is SUPER EASY.
I’ve helped my wife become self employed in Switzerland. I do most of the admin work for her. Again, very straight forward.
I think Sweden is one of the very most entrepreneur-friendly EU countries. It's got a big safety net, but doesn't impose much bureaucratic or financial burden on new businesses or even solopreneurs just getting started out.
It's so easy (relative to this) to just go grab a SAFE. No strings, no bureaucracy. You can structure your endeavor however you want. And you can sometimes do it with just a conversation.
I never thought about founding my own company while living in Germany. I hate this countries bureaucracy to the core. If I ever wanted to found one, I'd first move out of Germany.
1) India. Lots of conflicting laws. Lots of conflicting paperwork. And as a foreign company you'll probably pay more in bribes ("voluntary non-disclosed payments to ensure success") than you would in taxes, because the alternative is that they send the police after your local employees and maybe try to have the local court seize your property.
2) EU. The VATOSS is straightforward, but the income tax systems are not. Within the EU, France is the worst, followed by Belgium, Denmark, and Germany. Portugal and Ireland are very chill about tax returns. For the bad countries, there is lots of paperwork. Literally every transaction must be documented. On both sides. And they will ask for the documents when they audit. And they will challenge any cross-border transaction that results in reduced local income.
3) Africa. I've only dealt with South Africa, Nigeria, and Egypt. South Africa was the easiest to deal with, and Nigeria was surprisingly business friendly other than the constant requests for bribes. Egypt should have been straightforward (and there is a bit of language barrier), but the bribes were not optional, even to file basic tax returns.
4) South America. There's a lot of it. So much of it. In Brazil, you need certified letters just to send and receive money...including tax payments. And there's a lot of requests for bribes in other countries. But once you get past the language barrier and the logistical hassle, it's actually quite straightforward and logical. If not for the military dictatorships and drug gangs, South America would be a good place to do business (from a compliance perspective).
5) USA. Lots of laws. Lots of jurisdictions. But all relatively straightforward. It only gets complicated if you choose to minimize your tax burden (or maximize your refund) by taking advantage of the many, many complications. If your only source of income is W2 income, you could finish your tax return in 15 minutes.
6) Canada. Even Quebec, which insists on doing everything in French.
7) Australia. It's the least complicated tax system I've dealt with, and the easiest to work with as a taxpayer. The ATO is also quite easy to reach...I'm almost always able to get a human on the phone within 5 minutes.
Huge +1 to Australia, speaking from a salary worker PoV. So many of the Australian digital services are absolutely fantastic. As an American who was working there, there were often situations where I thought I did something incorrectly because my mentality was, "if it was this easy, I did something wrong and there are more steps".
> Canada. Even Quebec, which insists on doing everything in French.
Quebec would be the one place in Canada where you’re expected to do business in French. Maybe New Brunswick? Even right across the river in Ottawa you’d have no reason to use French in any official capacity.
Sure, you might want a FR/EN selector at the top of your site since Quebec is a big market (within Canada).
Having formed multiple companies in India - my experience was that I did not pay any bribes and it was relatively easy (not as easy as USA - where too I have formed multiple companies)
"If your only source of income is W2 income, you could finish your tax return in 15 minutes."
Also free on H&R Block now. They can scan your W2's with your phone camera, too, if they can't pull it. Then, direct deposit it into your bank account. It was great.
It does if you're actually incorporating (C or S corp). You'll need to at least file both federal and state returns. And in many cases you'll need to pay money even if your business earned $0.
An LLC setup as a passthrough can get away with filing personal returns, but that only works for small freelance operations. Once you've got payroll or investors it's constant paperwork hassle.
Having payroll is always a tax hassle, but I've been at passthrough-structured LLCs with employees and mid-high 7 figure revenue (at some point, you start filing as an S for your LLC).
But can we get back to the original thing here? Creating an LLC in the US is trivial and does not require accounting.
Payroll is relatively simple for a basic LLC. You can use a service like Rippling or a local CPA to do it for you. Usually costs around $40 per month per employee.
S Corp filings are drop dead simple. The tax return may take a CPA’s help if your structure is complicated or you want to get the absolute best tax breaks possible.
Yes it could be simpler - jurisdictions like Estonia figured this out.
I've had a couple of LLCs in the US (now and in the past) and they've been pretty hands-off as far as paperwork/tax stuff go. More or less, just keep good books and file/pay quarterly taxes and that's about it. I'm curious about what you've run into?
Mine is almost certainly almost the minimal case, except for someone running in Delaware. Federally, I file quarterly 941s (employee tax withholding), annual 940 (unemployment) and 1020 (tax return). In Delaware I final annually (stamp tax). I then file locally for Washington (excise tax) and Seattle (licensing tax).
I believe a freelancers wouldn't file employee tax forms. They frequently roll their filings into their personal taxes.
There are already services that do that, e.g. firma.de[0]
But in general, not really. I also just founded a GmbH in Germany, and the paperwork really isn't that crazy, and for the more complicated parts you'll generally will want to have a tax advisor you are going to have a long-term relationship with (rather than a one-off founding service). I considered using a founding service, but ultimately, most of the "hard parts" about the process is in understanding what agency you have to talk to for what parts, which you'll have to learn anyways if you want to run a business in a way that doesn't land you in jail, so the benefits of such a service are marginal.
The only real way to streamline it would be to deregulate the process (e.g. getting rid of notary requirement).
Having gone through the process of incorporation myself, I agree with everything you said: Yes, there is some paperwork you'll have to take care of and a bit of a learning curve to everything but not outrageously so. It can all be done within ~2 weeks (including roundtrip times for mail). Yes, that's still a lot more than it'll take you in e.g. Estonia (where you can do everything online in a few minutes from what I've been told) but it really would be the least of my worries, compared to actually running the company.
That being said, I do think the process could be simplified drastically. Not necessarily by getting rid of the notary requirement but 1) through digitalization and 2) by streamlining (possibly centralizing) the whole back and forth between notary (official incorporation & signing of articles of incorporation), bank (getting a business account + obtaining proof you actually put the money in that account that you're claiming to have during incorporation), local court (registering the company, including articles of incorporation), tax authorities (getting a tax ID and sales tax ID), local authorities (getting a business permit), local chamber of commerce (paying dues for mandatory membership), Federal Gazette / federal company register (submitting your initial balance sheet).
This is my general opinion with regards to bureaucracy in Germany. All the data is most likely already there and all the technical challenges have been solved in the meantime. Why do I have to do the runaround from office to office, when they are physically connected by a piece if wire (aka the internet).
There is a reason why we have so much bureaucracy in Germany (1. because we like it) and second because it is supposed to provide trust, trust that every company I deal with is legit, trust that the system knows who is participating. Without trust nobody would make business or business would be very hard, because you would have to price in the risk of not having trust.
There is something to be said for trust here. I like that I can go straight to the imprint ("Impressum") to know with whom I'm dealing with online, where the company is located and who the CEO is. This is not always easy to decipher from the "Terms" pages companies in the US and elsewhere provide.
The downside for founders is that you have to divulge your address, unless you take additional steps to give yourself a mailbox address, but this can also be illegal if you're not careful. You can also rent an office of course, but for indie devs and freelancers, this is usually not financially viable.
Yes, there are ways to buy up existing “empty” companies with a bank account, commercial registration, etc.
If you want to found a new one, there are also services that will prepare all paperwork and set up appointments with notaries, etc. for you for affordable prices
Day to day operations do generally not require much else than bookkeeping and accounting which you can almost fully outsource (though accountant fees are not cheap, however, doing it yourself is also not to hard if you have the right software and do not sell thousands of different products) unless you are in specific industries
There are a few unnecessary fees and it takes longer than it should to get started but for most businesses it does not really matter and is limited in scope when it comes to time and money needed
I have founded multiple companies in Germany and in the US. Sure, in the US you have services like Stripe Atlas that make it a bit easier. But still, I would not say it's much crazier registering a company in Germany compared to the US.
Of course, it helps if you have a bit of an idea of legal concepts and accounting, but to be honest, that also makes sense, since you are starting a business.
This is not to say that we should not work to make it less bureaucratic in Germany (and other countries).
I agree that applying to loan and grant programs within Germany, and especially EU, are a super pain in the ass. I definitely see some potential there.
You can create a full blow corporation in Delaware from Europe in an easier way that you can open here.
Anyway, the benefits go beyond how easy it is to open, the most important things are moving forward with things like stock options, issuing shares, creating preferred ones, etc, etc, taxes access to funding, etc..
You’d just be moving the complexity around if you did that. If you’re residing and working in Europe then having your company in the US will cause all kinds of tax and logistical issues that you’re probably not qualified to deal with. Probably much less so than dealing with the local paperwork. Everything your company does will now be scrutinized and has to fit through two separate tax and legal systems. Nothing simple about it
I have multiple friends that incorporated their companies in US from Europe.
It isn't a particularly worse arrangement with founders, and, again corporate law in Europe is really behind, making things like attracting talent for equity much more difficult.
You still need to deal with business registration, taxes, accounting and so on.
You can also create a GmbH in Germany by downloading a few free templates from the internet and making an appointment with a notary. It's a bit more expensive than creating an LLC, but not significantly (maybe a few hundred dollars).
Especially since most of the cost come from running the business (tax filings, accountings, business registrations) and not the initial founding costs.
The context is creating companies in another country.
The states hasn't yet devolved into separate countries (I'm not sure what advantages California gets from the union. But a Brexit is clearly a costly move).
Some still do it. And while I would never start my own company in Germany. Working at a startup in Germnay is going pretty well for me so far. 1.5 years in.
Ye been working in a startup as well. I just witness all the appointments my boss has to go through and I could never do that. But I'm also the type of person not picking up their phone when it rings.
Go to your hometown administration, pay 35 Euro and leave 15 minutes later with a "Gewerbeanmeldung" which enables you to start doing business right away.
The Gewerbeanmeldung typically registers you as a sole proprietor (Einzelunternehmer) or GbR (partnership). Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG. Those require notarized founding documents, minimum capital requirements (€25,000 for GmbH), and a commercial register entry (Handelsregister)
The simple Gewerbeanmeldung structure is problematic for venture capital because most VCs require a corporate entity structure (GmbH/UG) and converting from a simple structure to a proper corporation later can trigger tax consequences.
At each investment round all shareholders must appear before a notary or provide notarized power of attorney, the entire investment agreement must be read aloud by the notary, changes to company documents require notarization, and each notarization costs thousands of euros and creates delays.
Major decisions which are likely to affect shareholders require formal shareholder meetings with proper notice periods. Unanimous consent is often required for key decisions. Capital increases must be executed through complex formal processes. Registration with the commercial register takes weeks. Minimum nominal values of shares restrict flexibility. Required reporting to tax authorities is extensive. I can go on and on. And don't even get me started about German employee stock option plans.
> Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG.
Meh, do they really? Only if they want to go the VC route. But in this topic we're talking about more healthy ways to build and grow a company and for that you don't need a GmbH or GbR to start.
Is this really true? I'm in the US, and have a corporation in the US. I am shielded from liability through the corporate veil, but I also have a $50/mo $2M/incidence liability umbrella. I honestly have no idea if either are necessary, in 20 years of "doing business" I've never had a single liability needing to be covered by insurance or the veil.
I think it's wise to have, just in case, but even in lawsuit happy America where I have had to fire multiple clients mid-project due to various reason. I've never had blowback or even the treat of a suit. We all just went our separate ways.
Lawsuits are more common in Germany than the US. Possibly because the procedure is different, with lower overhead, and penalties are not reduced for reasons like: you don't have the money to pay.
I believe Germany is generally heavy on liability and light on ways to avoid it. If you damage someone's property, there may be a procedure to confirm that you damaged their property, and then you must pay the value of the damage - as well as the court fee because you didn't just pay it upon asking. No ifs or buts. You cannot avoid paying it in any way, including the clever use of paperwork to avoid paying it. That's why there's a high bar to form a GmbH. As you correctly pointed out, good insurance can also limit your effective liability. I think such business liability insurance products are very common in Germany.
After reading that, for all the talk the USA has about "personal responsibility", it doesn't seem that serious about it, does it?
I haven't been sued either, and I live in Germany. I did pay someone $100 to replace something I accidentally broke, and walked away with the broken thing. No court was involved there and I didn't bother to claim insurance.
Limited liability is something you should always want, and if it merely costs a $30 filing fee and some forms, you should get it, but it's obviously jurisdiction-specific and in Germany, with the much higher requirements, it's obvious that they really only want medium to large businesses to have it (though this isn't a direct rule, I think).
From this thread I just learned about the Unternehmergesellschaft (haftungsbeschränkt) which is apparently a GmbH that can be formed for less than $25,000, but instead, you have to set aside 25% of your profit until you have $25,000, at which point you can convert to a normal GmbH.
> I've never had a single liability needing to be covered by insurance or the veil.
That’s how insurance works. You don’t need it often and maybe not even your entire life, but if it happens and you aren’t covered it will ruin your life.
If this description is not accurate for the situation then you probably don’t need insurance.
I'll warn you that insurance companies often try not to cover a loss or all of it. They often try to cheat their customers. So, having insurance isnt equal to a structure that makes you personally immune to liability because what the insurance company will do is unknown.
And I'll warn you a limited liability entity doesn't necessarily protect your personal assets either.
Undercapitalization is a big one that people don't often realize - going without insurance an not enough funds to cover a claim will usually pierce the veil.
Same goes with little things that typically don't matter to the owner of a one person company, like failing to keep board/member annual meeting minutes and sending them to the state body that requires them, and the biggest one for most small businesses - commingling funds and "alter ego" doctrine - the company is not you, the company's money is not yours.
There are a lot of ways that limited liabilities vanish - especially for smaller businesses like OP is describing.
> > Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG.
> Meh, do they really? Only if they want to go the VC route.
Funnily enough, a German friend of mine and his buddy got accepted into YC some years ago and apparently YC handed them the funds before they had even incorporated or anything, so at least from the point of view of German law they were essentially a partnership (GbR). Not sure how that even worked, especially in terms of delineating what the entity actually was that they and YC owned together. Did YC own 7% (standard deal) of… them? (Without incorporating you are personally liable after all.)
Anyway, from what my friend told me they had a whole bunch of cash lying around on a personal account for quite some time lol
Then again, this was before covid – money was incredibly cheap back then.
That feels like an exaggeration. I did that last year. They took several months to process the registration itself.
And this was just to freelance as a developer. In my case I was allowed to start while they were processing the registration. But had it been something that would require their permission, I'd have to wait several months before I could start my business, while they wave through a form that basically says "I'll be selling goods".
I'm not one to blindly hate on all bureaucracy. But in this case it feels unnecessarily complex.
This might depend on where you live and the kind of business… last time I made an Unmeldung online I needed to call after a week waiting and they literally told me that in person would be solved the same day. And it was.
That's a bit exaggerated. I did have a company, and while it did come with bureaucracy, the vast majority of my time was spent on what you expect a founder to do (sales, marketing, product, etc.).
These things do work and created a few unicorns here in Malaysia.
The catch is that they're usually very bureaucratic as it's public funds, and the more corruption, the more rules there are. Someone might say, come in from New Zealand to get a grant, then the condition becomes "must be 51% locally owned". A conglomerate creates a sister company to get the grant and then it becomes, "parent company must be less than 3 years old and have under $500k revenue". The rules just keep stacking on until agile is basically banned lol
Companies funded this way were actually one of my income sources when I was freelancing, but sadly most don't continue on unless there's a Series B later on.
I was thinking Grab, back when they were called MyTeksi. Honestly the reason I don't answer these questions is that it's just so hard to dig up this info. It feels like genealogy, which is fine for curiosity, but I can't tell which of these questions are just being contentious.
This is somewhat akin to the U.S. government's SBIR grant program. Phase I (generally $250-500K for a year)to develop and pilot novel tech. Phase II ($1M) to develop scalable tech. And Phase III to go-to-market. (I'm being intentionally brief here as there is a lot of variability between participating agencies).
Because each award solicitation is closely aligned to the industry needs associated with a given agency (DoD, DHS, HHS, NSF, DoEd, DoEnergy, DoCommerce, USDA, EPA, DoT, NASA), you are on a fast-track if you can get into Phase I.
It's a ton of paperwork and bureaucracy --probably even more so under current administration-- but still a great alternative/addition to VC that doesn't take equity and forces you into technical clarity.
That just sounds like traditional small businesses. Which is cool but re-branding them to "startup" seems silly. The US has 35 million small businesses and maybe 1 million would qualify as startups.
Every single definition highlights that difference versus traditional small businesses. Trying to re-brand small businesses into "startups" for the cool name factor just seems silly to me. If you're making a sustainable small business then call it that. Don't call it a startup. You'll get more customers that way as well and more relevant business contacts.
People care about startups because of the high growth rate. Renaming a small business to a startup achieves as much as slapping a porsche logo onto a honda civic. The civic is a solid car but you won't make people'd heads turn with that logo on it or not.
Gotcha, thanks. I always thought it was "first 3-5 years". Could be an example of word meaning diluting as it goes mainstream - hacker being the ur-example. ("Semantic bleaching" is the jargon term, apparently).
I was wondering when the first use of the term in its modern sense was, so I just glanced at Google Books and found this from 1805, which is just too good: "a startup was a coarse kind of half-boot with thick soles; [...] its use is now superseded by that of the modern spatterdash." [spats?]
By 1949 I've got this: "But startup businesses, and even mature businesses in some localities, may face financial constraints" -- Agriculture Information Bulletin, Issue 664, Page 113. I can't find anything pre-WWII.
>A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model.[1][2] While entrepreneurship includes all new businesses including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo-founder.[3] During the beginning, startups face high uncertainty[4] and have high rates of failure, but a minority of them do go on to become successful and influential, such as unicorns.
The characteristics in that paragraph don't apply to new mom & pop restaurants, dry cleaners, new law practices, etc so most people don't usually label them as "startups".
But there is no Global Language Police that everybody has to obey so if some folks wants to label their new neighborhood coffee house a "startup", nobody will stop them.
EDIT to REPLY: >If you keep reading we get to: "Unlike an entrepreneur, a start up founder doesn’t have a major financial motive." I'm not sure that is in line with the YC program.
I see that you're referring to a LinkedIn article that someone added to Wikipedia. I agree with you. That Linkedin blog by Japjot Sethi has bad heuristics and should be removed as a citation. The Wiki user that added it in May 2019 has been flagged and blocked for bad edits to Wikipedia: https://en.wikipedia.org/wiki/User:Sensate8
> The characteristics in that paragraph don't apply to new mom & pop restaurants, dry cleaners, new law practices, etc
I fully expect the founders of those businesses originally have dreams of their business becoming the next F500. But when validation fails...
> and very often associated with funding from VC.
If you keep reading we get to: "Unlike an entrepreneur, a start up founder doesn’t have a major financial motive." I'm not sure that is in line with the YC program. It is clearly focused on the huge exit.
> I fully expect the founders of those businesses originally have dreams of their business becoming the next F500. But when validation fails...
I take it you've not met many such people or business owners. No one except the utterly delusional would think a mom & pop restaurants, dry cleaners, new law practices, etc. would become a F500 company. Amazingly people start companies for reasons other than becoming a F500 company one day.
> No one except the utterly delusional would think a mom & pop restaurants, dry cleaners, new law practices, etc. would become a F500 company.
Do they fail at achieving F500 status at a higher or lower rate than "startups"? Who then is delusional - those who have realizable visions, or the strivers who dream of unicorn-status and still fail.
> No one except the utterly delusional would think a mom & pop restaurants ... would become a F500 company.
The F500 has quite a few restaurants on the list. Other than maybe Starbucks, it seems all of them have humble "mom & pop" beginnings.
Who opens a business thinking "I hope customer response is so poor that I will struggle and never be able to grow"? That is often the outcome – but when is that the dream?
> But there is no Global Language Police that everybody has to obey so if some folks wants to label their new neighborhood coffee house a "startup", nobody will stop them.
This is the trick that VCs/investors use to justify certain behaviors (which I don't care to enumerate here). When you have terms with colloquial meanings and mean different things to different people, the terms are ripe for manipulation. As an example, there are people who still call Uber a "startup". It's very much not a startup in sense of the word, but yet there are still people who refer to it as such.
> That Linkedin blog by Japjot Sethi has bad heuristics and should be removed as a citation.
Which is precisely why the wikipedia article is heavily biased by those who are responsible for maintaining content on the Wikipedia who happened to lean towards the tech circles (yes I'm aware I could submit a petition to Wikipedia to change it). If anything, Wikipedia should create a disambiguation between a Webster's definition and silicon valley's definition.
Regardless of if the startup intends to hit it big or remain smallish, a startup is really something that's appropriate until it's operating for profits rather than growth and/or growth in it's market niche naturally slows down due to saturation.
That's another reason I find the re-naming of small business to startup so silly. Putting a billion dollar company and a family small business on the same label is silly just because were started recently. Some startups are worth billions the second they are created. Personally I think startups generally stop being called startups when they get old enough or go public. Then they get other labels such as a private company or a public company.
The point of labels is to quickly give a lot of relevant information about some entity. This helps customers, investors, clients, future employees and so on understand the entity quickly.
Good to see startup strategies which help build stable, solid middle-sized companies.
Germany has a great success story by the name of the "Mittelstand" (SME businesses), which means a big part if the market are small to middle enterprises. This is far more consumer-friendly and innovative, as more competitive as it's not relying on a few big players like in the US that might also collude with each other.
Small business owner here. Only works if you can carve out a niche. Lots of software areas have clear scaling benefits and then you just can’t compete as a small company.
That’s why MS Office continues to dominate after decades.
Parts of this feel a lot like Canada's SRED program, which is intended to be a subsidy for technology research but the expected bureacracy has spawned an industry of consultancies that work solely to find marginal & questionable activities within companies that qualify. It can be worth it for a company to jump through the hoops - especially if they get something while another company does all the work - but it's an incredibly inefficient way to grow tech businesses.
SRED and other grants/tax rebates is lifeblood for small tech companies here. Also, you know you're a senior dev when you make the yearly pilgrimage to meet with SRED consultants with architecture diagrams in hand!
So KFW (state investment bank?) has a thing called StartGeld (startup loan). I've wondered about few practicalities
1) What sort of collateral does bank expect from you?
2) Can you really get 125ke or more like 10-20ke?
3) Interest rate is a single digit number?
4) Can you really get 10 year payback periods?
Reason why I'm asking is that in Finland(where I live) these startgeld terms seem like a dream come true for entrepreneur. To give you an example;
1) Tradiotional bank wants collateral for the loan. For a 5k€ loan, 5k€ in deposits are needed.
2) There a lots of Swedish/Norwegian "loan-houses" advertising their services for companies, with interest rates are somewhere between 23-30% per annum.
This might be different from state to state. There are also EU grants you can apply for, which might contribute to employee salaries. Those are somewhat difficult to navigate and apply for, but sometimes worth it to bridge the salary gap between a "normal" German company and FANG.
Not sure which one the original comment is talking about, but look into "Gründerstipendium" / "EXIST Stipendium".
Then there are also more scholarships based on other criteria, e.g. your state or if you are at an university, many universities also have some sort of entrepreneurial scholarship which will then also help you get the larger scholarships afterwards.
No that's for a full GmbH. You can start with an "UG", which realistically needs maybe 1500 EUR to get registered and up and running. Then, a certain percentage of the profit is contributed towards the 25k (of which in turn only 12.5k have to be deposited in cash) each financial year. If the threshold is met, you can convert from UG to GmbH.
You are confusing UG with something like GbR. UG is basically a baby GmbH with constraints of the name of the company and how much money the associates can extract from it (until the company got 25k€ captial and can become a normal GmbH).
This sounds crazy to me. What is the €25k for? Hell, what is the €1.5k for? Is there some advantage to this system when compared to the US one where I can start an LLC for $35 or a C-corp for a couple hundred?
First, it is sufficient to only pay 50 % of the stock capital at registration of the GMbH, ie. 12500 EUR. Obviously you also have less operating capital then.
Second, the money is not gone. It is right there in the company's account. You use it to pay company bills.
The only thing annoying about German GmbH is that it can take 6-8 weeks until you get your tax id and registration numbers. You can, of course, already do business with the name postfix "i.G.", ie. instead of "Foobar GmbH" you write "Foobar GmbH i.G." and done.
> Second, the money is not gone. It is right there in the company's account. You use it to pay company bills.
That's fine if you start a restaurant or small workshop and need money for salaries, materials etc, of course.
It's a barrier to entry when you can start something digital only with just a person or three putting in sweat equity and zero to very little actual cash.
The barrier to entry is the idea that you need a limited liability corporation to start something digital by the seats of your pants. You can always start as a GbR (virtually no costs, spend a day at your city's administration to get a tax id). I mean this in the most charitable way, what kinds of liabilities are you afraid of in that scenario?
Once your idea gets traction and money comes in you hopefully will be able to spare the 1 EUR you need for an UG. Anyway, I recommend investing into founding a GmbH as soon as possible, not for liability's sake but marketing's. You will not make inroads into corporate procurement without a "proper" incorporation.
I've got the impression that you knew a little about German corporations, but I have been wrong before, so my apologies.
I guess, one can assume that all countries with working institutions (and some without) have at least a simple personal liability corporation, which is easy and cheap to establish, and a basic limited liability corporation, which is a little bit more involved and expensive to establish. I guess, because I haven't done any research, but I've come across such corporate forms in Germany, Italy, France, UK, Luxembourg, Hungary, Serbia, Congo, UAE, Estonia, Netherlands, Denmark, Norway, USA, Canada, the Philippines and probably a few more.
> I've got the impression that you knew a little about German corporations
I did, about the GmBH, from other discussions on HN. As I said, now I know more, thanks.
> have at least a simple personal liability corporation, which is easy and cheap to establish, and a basic limited liability corporation, which is a little bit more involved and expensive to establish
Yes, but in RO where I am the minimum capital for a LLC is like 100 EUR not 25k :)
That's barely enough to pay a cheap accountant for a month ofc.
Why not try Estonia instead? You’ll need to get an e-signature card (“e-Residency”) which might take about a month, then you just submit an online form and get your company number the same day. Mimimum capital is 1 €, and the fees are about 400 € for setup and 100 €/yr for virtual address. https://www.e-resident.gov.ee/eresidency-germans/
The downside, of course, is that you probably won’t get any direct(-ish) subsidies from Germany — although any pan-EU options should be on the table.
If you are talking about an OÜ this is often repeated and technically wrong (the best kind of wrong). One, actually the minimum capital requirement is 0.01 Euro per shareholder, and two, Estonian courts are pretty clear that in an OÜ with less than 2500 EUR capital the shareholders are personally liable to cover the difference between share capital and 2500 EUR to trustees.
Yeah, you’re technically right (the best kind of right!) — on both counts.
However, if I understand everything correctly (IANAL), personal liability is basically the same. If you go for 2500 € capital and your company becomes undercapitalized, you’ll still be personally liable for any claims against your company, no?
(But personally, I just like how this opens opportunities even for people for whom 2500 € is a serious amount of money. Granted, you probably shouldn’t open up a company in this kind of situation, but at least you can!)
Sweet gorilla of Manila! Anyway, I only had to deal with an OÜ once, so take it with a grain of salt. And IANAL, too ;) What I took away is that you are sheltered from claims against the company by economic avtivity, ie. outstanding fullfilment, but you are liable for claims against the company from management misconduct, ie. neglecting tax duties or, worst case, bankruptcy.
Annual admin costs very much depend on how complex the business is, no?
The primary recurring obligation for a UG is the mandatory retention of 25% of annual net profits until the share capital reaches €25k, enabling tax-neutral conversion to a GmbH.
What I could think of for UG with idea on converting to GmbH, you could have:
- UG setup cost (fairly low compared to GmbH)
- UG/GmbH accounting & tax compliance
- Commercial register updates
- Notary fees for structural changes, and eventually the conversion process
Can non-German citizens apply (citizen of another EU-country, though)? I am planning to move to another EU country and Germany is one strong contender, and this would make it even better.
Not for these specifically, but most of them are funded by EU grants. The current ESF funding period runs until 2027, so you'd need to research which pathways to funding exist in your country and how to apply.
I posted a bunch of links further downthread. There are also likely non-profit/public institution in your state that will help you navigate this. Of course they can't write the business plan for you :)
* for each medium to large University, there will usually be at least one person, if not an entire org of people that will guide you through the process, manage comms with the bank and help you to frame the business plan. These institutions (what I referred to as an "accelerator" in my OP) are publicly funded. You do not pay them.
* prepare your business plan (milestones, market research, financial plan) - at this point you can also utilize other financial support (e.g. matched funds for market research)
* you nominate a "mentor" - this is meant to be an independent expert that will serve as an informal advisor and secondary contact for the bank. There's no liability involved, and usually this is an industry expert, or professor, etc.
* bank accepts the business plan and starts payments
* during the scholarship, the bank will keep in touch with you and the mentor to check in on your business plan milestones. This is mostly an anti-fraud check.
It's important to realize there's an alignment of incentives here:
* you want to start a company and get financial support
* the accelerator advanced its mission (get more startups going)
* the bank advances its mission (create more value in the local region)
* the business plan and milestones unlock ultra-low-interest follow-up financing if you need it, since the bank has already been involved for 18 months and knows the potential/liabilities of your business
This all sounds like a lot, but I've seen founders go through the entire process in just a few weeks of planning. And much of the work, like business planning, is what you need to do anyway.
Last time I checked and looked for different support scheme all that was offered in Berlin was some 90s style support for office equipment (we are fully remote) support or 1/2 salary on an intern.
I've also been part of HTGF and bmp funded startups in Berlin, and those two are the most active players in seed funding, if more traditional capital-for-equity is what you're looking for. Both are also experienced with augmenting their investment with EU and state (IBB) funds.
I would love to see the actual long term statistics for this program and others like it, because from the outside looking in, it seems to produce a lot of zombie companies and companies that are wholly structured around financing themselves through more grants and other public programs.
The incentives are just bad all around. The “LP”s are lawmakers and politicians, but in the best case only insofar as the program is popular or contributed to economic good vibes that keep them in office and lawn. The "GP"s are bureaucrats with no skin in the game except for avoiding fraud and impropriety and keeping their management chain happy (ultimately reporting to politicians who can also have worst case incentives of directory the money towards, ahem, personally expedient things).
Then on the other side, clearly it is such a bureaucratic program that regular entrepreneurs struggle to navigate it. The accelerator you mention is spending potential teaching/helping time towards the goal of building a sustainable business on figuring out how to get money from the program (normally accelerators GIVE you money) - presumably they are coinvesting or taking a cut somehow, which ultimately means they are basically getting paid to shuttle people through the program [0]. And founders are spending time they should spend building and validating their product, or fundraising from people with skin in the game (who care about the important things and not so much whether form 47b was stamped by a notary), on figuring out how to get a grant.
In my opinion this kind of funding should be split between a much lower-bureaucracy and overhead public program (eg UBI) and the private sector. That makes the overhead for security “operational” startup expenses like housing/feeding the founders very very low, and directs “capital” startup expenses like buildings, equipment, and employees’ initial salaries more efficiently [1]. Or you can tax middle class workers less (you guys have really high payroll/VAT) and give them more control over their retirement money so it’s easier to build a solid amount of personal wealth to start a business.
IMO there is a misconception with new founders in general, including me when first starting a company, that you should spend a lot of time fundraising and need to get a big check to get started [2]. Programs like this make it worse because you spend crucial time building the company and your skills as a founder on passing some well-defined hurdle like “get the big grant” or “get accepted into program X” - it is your first major task as a startup founder - only to then be faced with the fact that almost *no future company task will be that well-defined*, and the realization that *you spent a lot of time “buying more time” to get to profitability when you could have just worked on that to begin with*.
[0] Unless you are a lawyer, in the US it's seen as corruption when private parties serve as paid facilitators and gatekeepers to public programs.
[1] One of the reasons it's hard to start a mid-sized company is that "traditional" lenders only want you to borrow things like equipment and buildings that you can get almost all the value back from if you fail, VC only want you to spend money on things with the possibility of yielding huge returns, and PE just have better opportunities than taking a chance on Joe Schmo. So if you can reach ramen-profitability without VC and only need traditional loans to get started it should be much easier to start a medium sized company.
[2] Obviously raising money can be essential or really beneficial, and it's a "founder task" but I think many people forget that it's not an end-unto-itself, but a way to get you from point A to point B. The only people who should truly see it as an end-unto-itself are people who just want to pay themselves and their friends with no intention of starting a sustainable business (that is also called fraud or scamming). Everybody else should just see it as a step on the path towards a sustainable business, and not a legitimizing mark/right of passage. Actually, if you take VC money on a convertible note to spend on stuff that you could have financed traditionally or didn't really need you are essentially giving away tons of upside with little change in downside.
What are you looking for in particular? The model is geared towards slow, sustainable growth. And that growth might also not need to exceed a certain level. So you're unlikely to hear about many of them. Not all are in tech or software, many are focused on German-only (or DACH region) research, industrial development, etc. I think that's fine.
Presumably you'd want to see that such initiatives are increasing the number of sustainable businesses created, per capita. Is that the case?
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EDIT: Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
Just wondering what actually moves the needle and how to better create a society that is entrepreneurial, and not just in a "billion dollar social media unicorn" kinda way, but businesses that provide actual tangible value. Definitely recognize that the "quality" of businesses being started in Germany could be higher, but I think you actually need to measure these things and understand what interventions actually make a difference. It is a similar issue with UBI in general: while it sounds nice and might be necessary if our "AI is the future" overlords get their way, you do actually need to back up the promise of "UBI will unlock human creativity" with some amount of hard data, imo.
> Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
It sounds like these are small businesses and not startups. The US has 10% small businesses per capita.
> Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
I believe there's differences between east and west Germany, so if you look at the west specifically, the gamp might get a little bit smaller.
Beyond that, Germany doesn't have as much of a startup culture as the USA, which is precisely why we need to incentivise people in a way that others don't.
> Just wondering what actually moves the needle and how to better create a society that is entrepreneurial
Willingness and awareness, where the latter is probably easy to fix but the former is a bit trickier: You need those people who have the ability to pull it off to want it in the first place.
And there I guess it splits into a) the benefits of entreprenaurship b) the benefits of employment and c) the cultural influence on how these are weighed against each other.
So tl;dr: a) make starting a company attractive, b) make employment suck more and c) convince people that independence beats security.
Employment in Germany is definitely a lot cozier than in the US, so unless we want to get rid of that, a) and c) are the options we have. If you want to achieve it without propaganda, then all you can really do is a), and that's what these programmes are already doing.
I think reducing buerocracy and offering good social safety nets so a failing business doesn't translate to a ruined life are the way to go, at least in the short term.
Or maybe having a social safety net has the opposite effect you think it does, in that anyone starting a business without one is going to try that much harder to make sure their business doesn't fail, as otherwise their life is ruined. Someone with a safety net might be happy to give up after some minimum of effort because they know they'll be fine. Necessity is an incredibly strong motivator for people.
Not necessarily saying that relying on the specter of ruination would be the right choice (if the above was true), but I don't think you can reduce it to such simplistic levers.
Entrepreneurial success they definitely have, it's just not in-your-face tech/digital stuff, it's lots of Mittelstand companies focusing on niches, like in high-precision machines that are then used for precision manufacturing (optical lenses, chemistry reactors, etc.).
What gives is that it isn't a primarily marketing-driven consumer-facing entrepreneurship so you don't hear about Peter Huber Kältemaschinenbau, or Rational AG-like companies[0].
German bureaucracy is a constant hindrance. Your first year in business is pure compliance work, and waiting for various paper-based processes to complete.
Have you heard of Rocket Internet? It's one of the most successful models in the world. They may avoid the US market and such, but most of the unicorns in Malaysia are backed by Rocket. And most of the people who stay and start their own, backed by YC or whoever, are usually ex-Rocket. They hit 10% growth per week, even at unicorn sizes.
I would anecdotally put Germany at #3 globally just for Rocket alone, with US and China ahead of them.
There's lots of successful non-Rocket startups from Germany too, but most are boring stuff like agriculture, grocery delivery, pet stuff, etc. We normally don't take note of startups until they're Stripe-sized or something.
Isn't Rocket's reputation that they just steal ideas from other startups and create cheap clones of them? Not a terrible business to be in, but not massively inspiring or globally reproducible.
I'm not a big fan of Rocket, but I think that's an unfair way to put it. I'd say they're similar to what Bezos would be like if he had to start from Europe lol.
They take an existing model with a lot of potential and focus on implementation. They had a golden period with e-commerce because e-commerce is heavily logistics. And they do it in the hardest places, because the harder it is, the more they can sell the company for.
Back when Lazada started, Indonesia had terrible credit card penetration. Roads were not suited to delivery; heck they built their own logistics because the local logistics were not suited for e-commerce. There's a lot of complex laws on hiring, or incorporating companies there (which are nicer now).
China won't do it. They don't want to build companies in 6 different low income country with a total of 500m population or so. Normal people would just target the US or EU, which has more people and more money.
But Rocket goes into these countries. They have a lot of emphasis on leadership. They drop a scalable playbook for the locals. They grow it fast until it hits a cap before they sell it off to something like Alibaba. They do have some dark patterns as well. Whatever caricatures people have of China, Rocket does it better - they work longer hours, work people harder, build things for extreme scale, do what the Chinese won't.
It is not the funding model that GP speaks of. But it is a fairly successful model of creating and exiting startups. It's quite autocratic to my understanding. I don't have that kind of work ethic and I feel like there's a hint of envy when people call them copycats. They don't have a good presence on the English Wikipedia though.
> And yet Germany still doesn't seem to have much more startup / entrepreneurial success than any other European country. What gives?
Too much bureaucracy.
Many people in Germany do hate it; there even exist quite some people in Germany who would really deeply from their heart love to see the politicians dead who are responsible for the whole bureaucratic mess (which are lots of politicians).
Bureaucracy is crazy in Germany. Forget about doing anything online, paper and in person only.
Founding any form of limited company is expensive and complicated. Want to put a website online? Have fun putting your full name and address in the imprint. Want to offer some courses that teach X? Yeah, no, you need a license for that, mate!
Also being self-employed you lose most social benefits. You need to get private healthcare, you need to save up for retirement and so on. Getting back into public health care later on can be a bit complicated.
So my advice is to keep working part time on a job that gives you health insurance and everything and work on your company in your free time.
Germany is also one of the least friendly countries for expats. And I say that as a native Germain. Officials will refuse to speak English to you. Yes, refuse. Most people know how to speak English but often can't be arsed to do so. Plus general xenophobia and people being very tight-knit and not open to making new friends.
You can still contribute voluntarily to the public pension if you want to but the majority of self-employed people here don't as this is seen as a feature not a bug.
Part of the concept of being self-employed in Germany is that you're opting out of the welfare state and are responsible for taking care of yourself. With the potential upside of better raw earning potential.
While I completely agree with many of the points that you made, I disagree with some:
> Bureaucracy is crazy in Germany. Forget about doing anything online, paper and in person only.
The latter point has nothing to do with bureaucracy.
>
Germany is also one of the least friendly countries for expats. And I say that as a native Germain. Officials will refuse to speak English to you. Yes, refuse.
For example in the USA, they will refuse to speak German with you. So what?
In my opinion there actually exist good reasons for this:
1. A lot of legal, bureaucratic German terms have no direct analogue in English (and their word forming sometimes depends on subtle grammatical features of the German leanguage).
2. For official purposes, it does not suffice if the clerk can somewhat speak English; he/she rather has to be fluent in a way that is "negotiation-safe" ("verhandlungssicher"; I know that this German term is usually translated with "confident in business discussions", "business fluent", "language proficient", but all of these translations don't catch the subtlety of the German term).
> people [are] not open to making new friends.
The German word "Freund" (commonly translated with "friend") has a different meaning than the English "friend" - the relationship goes much deeper. I don't think that Germans are not open to making new "Freunde", but if you want to have shallow, superficial relationships, Germany is not the ideal country. Vice versa, if you want to have deep relationships, you will likely be annoyed by the USA.
> For example in the USA, they will refuse to speak German with you. So what?
Actually they would most likely be delighted to show off their German if they knew any. But that is besides the point. English for better or worse is the current international language.
I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
If you want to attract international talent you have to adapt.
> The German word "Freund" (commonly translated with "friend") has a different meaning than the English "friend" - the relationship goes much deeper. I don't think that Germans are not open to making new "Freunde", but if you want to have shallow, superficial relationships, Germany is not the ideal country. Vice versa, if you want to have deep relationships, you will likely be annoyed by the USA.
Yeah, Americans have only superficial friendships, only us Germans know the value of real friendships. (Sarcasm)
You are not wrong about there being subtle cultural differences but it isn't an either or. You can value deep friendships but still be friendly towards acquaintances.
In the end it doesn't matter the reason. If expats feel like Germans are acting coldly towards them and have a bad time in Germany, that is what they are feeling. It doesn't matter if there are good reason for that or if Germans didn't even intend to act coldly. It just fact that Germany is often seen as one of the least friendly countries for outsiders. Not everyone, some do find it easy to integrate but most don't.
I sick of the chauvinism is see from other Germans. Our culture isn't better or worse than others. We certainly have many areas we could improve.
> I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
> If you want to attract international talent you have to adapt.
Calling English "international" is like calling Spanish, Chinese, Russian, Arabic, French, Portuguese, Turkish or German "international". Internationality is not "English".
> You can value deep friendships but still be friendly towards acquaintances.
I insist that Germans are typically not less friendly, but they are indeed less warm (compared to, say, people from South American countries, and also some South European countries). This is coherent with your claim "If expats feel like Germans are acting coldly towards them", which I would not consider to be unfriendly. Indeed: what is considered to be "friendly" differs a lot between countries.
> Not everyone, some do find it easy to integrate but most don't.
If you don't want to learn German, it will likely be hard (or at least much harder) to integrate. The problem rather is that many people invested years, sometimes decades, into learning English and US-American customs instead of learning German and customs of German-speaking countries. Thus the situation that your mentioned people don't find it easy to integrate is in my opinion partially self-inflicted.
> I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
Bad example. When you incorporate in Estonia, if you come through eResidency, they are very clear and very open in stating that ANY interaction with tax office and/or judicial system WILL be and MUST be performed in Estonian.
Is that an practical issue? I imagine you wouldn't interact with the tax office anyway as you fill the taxes them electronically and as for the judicial system, you are going to need an Estonian lawyer anyway.
Genuinely asking. Wondering if someone has experience doing business in Estonia. It looks pretty nice in the prospectus so would love to hear what the reality is.
> For example in the USA, they will refuse to speak German with you. So what?
In the USA many official government forms are made in several different languages.
This may not always be the federal government (probably less likely these days), but in California you can cast your vote in like 5 different languages (maybe more)?
This would never happen in Europe. It's simply less friendly to diversity.
Only applies to people with a degree. Institutionalised nepotism. Just like how your chamber of commerce keeps out the competition. Typical western decay/corruption. Closing the ranks and drawing in other peoples money.
I live in a country (Germany) that is famous for having a lot of "mittelstand". These are basically family owned businesses. Some large German companies fall under this. Aldi and LIDL for example, which are super market chains that at this point have a global presence. And some large companies (Bosch, Siemens, VW, etc.) are actually a multitude of smaller companies. Much of the German economy is smaller and bigger specialized companies doing their thing. Only some of them are public companies.
What these companies have in common is that they start small and then grow organically. The main issue from a VC point of view is not that these aren't good companies but that it can take decades for them to turn into big companies. But from the point of view of the people founding these businesses, it's a good, honest way to succeed in life.
There's nothing wrong with the principle of starting a company to make money from whatever it is you do at whatever scale you are doing it. But it should drive your decision making as to whether or not you give chunks of your company away to an investor. It might stop being your company if you do.
Also, if you go down this path. Stop calling yourself a startup. It scares away customers. They don't want to hear that you are a flaky wannabe that is still figuring it out. They want to hear about your other customers and how awesome whatever it is you are selling is. They want to be re-assured that it is safe for them to enter into a multi year customer relationship with you. Projecting that you are new to all this company stuff and might not be around in six months is exactly the wrong message for them. They don't want to hear about what you are going to do, they want to hear about what you have done already. The stuff that gets VCs horny will scare away customers. If you are pitching customers and VCs at the same time, make sure you have two very different pitches. And if you are going to pitch VCs, it actually helps if you have customers. The more business you have the stronger your negotiation position.
I think it is very hard to compete in the market where lot of things are subsidized by VC money. The new VC backed companies have more money for marketing, subsidized sales wherein older orgs are hard to move.
Esp. for german orgs, they are very hierarchical, getting an innovation out is hard. Add union to the mix. Their margins are razor thing. It is a struggle. I can imagine back in the day, they moved the innovation needle.
Lot of these companies are often bailed out by the government as they employ alot of people.
I see your point, but at the end of the day you look at the 30 biggest companies in Germany by market cap and they are essentially the same after decades which is not really a symptom of a dynamic economy (for good and bad).
If you were the sole proprietor of the 1000th largest company in Germany, you'd be fabulously rich. If your objective is personal enrichment then it doesn't really matter whether you have 10% of a huge pie vs 100% of a smaller pie, and the latter may be easier.
Only psychopaths with other people's money to burn want to produce OpenAI or Space X.
I think if you want to produce a sustainable business that lasts a long, long time, and provides a good product to a lot of customers, and employ a lot of good people and provide them with a good living, you want to do this, not that.
I do like the idea in general and feel there's a lot of room for improvement between the (VC / bootstrapping) extremes.
However, the middle path from the article presumes the existence of VCs willing to join you on that path. The article waves this away with:
> angel investors are generally more open to a 2-3x ROI
For a $1M round you'd need to find 10-20 such angels (assuming $50k-$100k average check size) willing to accept small upside, for which you'll have convince them there's commensurately smaller risk. This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
Do not underestimate the value of YC brand and being able to present on Demo Day gives you. A random Jane from Ohio building her tech company would have a lot harder time finding those 10-20 angels, to put it mildly. I'd be more careful when extrapolating path-dependent success into a general strategy.
That said, my gut feeling is there's room for the next Paul Graham to fill that space - somehow.
That is what I was wondering as well. Where can I find investors willing to invest up to $1M with an expected 2-3x ROI on typical VC terms? In particular, for pre-revenue ventures. And how can you keep that 90%+ equity with 10 angel investors?
Yeah, unless they're your friends or rich uncle, these investors don't exist.
When the OP raised money, it sounds like he was still planning on going the VC-funded route, and that's the assumption investors would have been operating under.
In the end, they were probably okay with a 2-3x ROI because they expect most of their investments not to work out, and 2-3x is better than 0x. But I doubt they would have invested if the plan all along was to aim for a 2-3x return.
> This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
> Do not underestimate the value of YC brand and being able to present on Demo Day gives you
Except to get into YC you also need to have very good traction and a plan to 10x that quickly
The two exceptions to that I’ve seen are: 1) you’ve had a good exit before, 2) you graduated from Stanford, Yale, Harvard, or similar
So for people with neither of the above, finding 10-20 angels might actually be more doable than getting into YC. Although, once you’ve done that, YC is a lot more likely to take you in
I can't speak for YC, but as an operator: the primary reason to go to YC is to smooth a path for later fundraising, and if you plan to fundraise, you need something like a 10x trajectory, because VC portfolio math doesn't work for companies without it.
For smaller amounts of monies such as £250k or £1mm, it is much easier to get funding, since a decent amount of countries offer tax relief to the investors for example in the UK through EIS, SEIS, or even VCT. These offer advantages to angels over the VC's.
In addition the whole point of this piece is that you are generally looking to grow slower, thus having smaller capital requirements and burn rate.
Also almost always angels profit either from secondary in next rounds from VC or acquisition or IPO. In general it is very hard to return back 2-3x in say 2-3 years without going to VC for next round.
I'm guessing you know this, but for those new to the terms: what this post describes as the "VC route" and the "bootstrap route" are usually referred to as "growth businesses" and "lifestyle businesses" (i.e. pays for the lifestyle of the founders).
As a big believer in the need for syndicated worker's coops, I think this basic distinction is a pretty great radicalization tool against the current system ;)
But the percentage we're really interested in is "what percentage of tech based startups are VC vs. bootstrapped." Especially in, say, the Bay Area. I don't know what that figure is, but I'd like to know.
Not common in Silicon Valley, but much more common in the rest of the country.
There’s an archetype for bootstrapped tech businesses:
- highly vertical specific
- couple hundred million TAM
- founder started the business in their 30s and is now in their 40s
> even a relatively small deal would produce a life-changing outcome for the founding team.
I run a SaaS with a business partner and this is basically our thesis for getting rich. My saying around this is "This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt, but it will make a company of 5-10 filthy rich"
This is exactly what I am doing. I started another startup in February 2024. After a year, I crossed $1M in annual profit with three employees. I am not planning to scale humans. Profits are growing, and we don't need to hire more people. LLMs and scripting automation are doing the work of approx. 20-30 people — this wasn't possible before.
Most SaaS companies are not doing anything particularly innovative or novel. Most of them provide value via putting in the work to glue together several other APIs, automating something that previously was harder to script/automate, or simply applying an idea that another company pioneered to another market segment: "It's like Theranos but for barbers!"
These use cases are generally so typical of the technology being used, that LLMs can do a lot of work to script things and it's usually pretty easy to QC.
I'm using LLMs to analyze 13F corporate filings, options flow, market news, etc. This was very labor intensive before. Essentially impossible for small companies. A 13F report can have 150 pages or so.
Just eliminating redious things. It's nothing difficult for a human, but we would have to hire a ton of humans and couldn't compete against the big guys then.
I'm not offering an LLM wrapper SaaS for my clients. We are just using this internally.
> This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt
Or more likely it would make them fire 995 out of 1000 and the remaining 5 could be almost as rich as you 10, and they have advantage of spending for few years on marketing and better development.
At least some years ago, browsing HN's comment section felt like it was a different world, separated from reality. I think some people need this kind of grounding reminders every once in a while.
Russ: No. If you show revenue, people will ask how much, and it will never be enough. The company that was the hundred x-er, the thousand x-er, becomes the two x dog. But if you have no revenue, you can say you're pre-revenue... you're a potential pure play. It's not about how much you earn, it's about what you're worth, and who's worth the most? Companies that lose money. Pinterest, SnapChat, no revenue. Amazon has lost money every fucking quarter for the last twenty fucking years and that Bezos motherfucker is the king. There's no revenue. No one wants to see revenue. Go!
Richard: Oh, um, I just thought that mainly the goal of companies is to make money.
Russ: Yeah, no no no, that's not how it works. I don't want to make a little bit of money every day, I want to make a fuckton of money all at once. ROI. ROI!
Part of it was Mike Judge (Office Space, among others). Part was that they did really good research. They nailed lots of little details about VC, technology, tech businesses, the locale, and industry.
I've been on here long enough to see it with every tech hype cycle in the past ~20 years. Self driving cars, VR, bitcoin, then generically 'crypto', web3, now AI/LLMs, probably a lot I'm missing right now... It's funny how the optimist control the narrative in the beginning then the pessimist start chiming in around the time the hype starts to vaporize. The AI/LLM cynicism is rising right now it seems.
I guess I have a different view on this... I feel like you left out that the past 20 years has also seen enormous success in this industry, even to a historically unprecedented degree.
You listed a number of things that have been super hyped flashes in the pan that never really panned out (or in the case of self driving cars, have taken way longer to pan out than people expected), but you didn't list the things that were super hyped and then became big successful sectors.
I remember when I thought "web 2.0" was overhyped, but now it's just the water we all swim in. I remember when that went from blogs to being social media, and I thought that was way overhyped too, but it turns out it was a big deal. The cloud was overhyped, "big data" was overhyped, SaaS was overhyped.
And it's true that all of these were overhyped! But they also turned into real business sectors.
It's certainly difficult to predict which hype-y things are going to mature into sustainably large markets, and which are going to fade into obscurity, but a model of "things that are hyped are doomed" is not predictive.
My own prediction is that AI tools are both overhyped and also very promising. I have no illusions that this prediction could be totally wrong. And even if it's right, I'm even more uncertain what the successful business models are going to be after the dust settles. We'll see!
> It's certainly difficult to predict which hype-y things are going to mature into sustainably large markets, and which are going to fade into obscurity, but a model of "things that are hyped are doomed" is not predictive
Perhaps this is where we differ. I offered a list of things that, granted IMO, were all hype with little substance. Or perhaps just on a timeline so long that many people got the hype timing wrong.
Your list was mostly things that were obvious winners. They were mostly building steam with real world use cases and trending hard before the buzzwords got associated with the movements (eg. Web 2.0 and saas). These were obvious enhancements to the status quo. I’m not sure they were overhyped as they did very much become the defacto standard for their time. It doesn’t mean they will hold that title for ever, but tremendous economic value falls under those umbrellas. I’d argue intrinsic value too (unlike crypto).
AI/LLM might do that in some regards. But doing it in a way that makes lasting business sense is still tbd. AI eating the world, still very much tbd. So I do think we agree on this point.
There is a happy medium between "AI eating the world" and "AI is a scam," that is generally best described as "AI performing valuable but often boring services within enterprises."
We don't often see that because it gets totally drowned out between cynics and moralist scolds battling vapid hype-bros and pumpers, and also because it's boring.
It turns out there's actually a lot of tedious classification, OCR, entity extraction, and enterprise search to be done.
Amusingly much of the money made in SaaS was also in boring products!
My contention is that if you went back and did a sentiment analysis of the early to mid hype cycle conversations around the things in your list and compared them with the things in my list, there would be very little difference between the two sets of things. There was lots of hype and also lots of skepticism, for both sets of things.
My point is that hype vs. skepticism just isn't the useful metric.
I agree with you that this does not mean that it's impossible to identify which technologies have a "there" there, and which don't. I just don't think the level of hype is a very helpful input into the calculation.
There is a lot of cynicism (I am a cynic) but LLMs are in my opinion already past everything else you mentioned, they're being used by "ordinary" people in their daily lives. Non-tech people are using LLMs (in many cases where they shouldn't, and some where maybe they should) and the rate at which they've become more useful has far surpassed what my very cynical circles of industry friends expected. I still think things are overblown, but "AI" in one form or another is here to stay, for better or for worse (almost certainly worse).
'Be a normal person/company and do normal person/company things,' isn't talked about very often, and it can be useful to be reminded that it is a pathway that can lead to success.
It's not a "regular" company, because it's still raising angel investment, presumably from the tech/startup ecosystem.
A more common route for non-tech-startup companies is to get money via debt - in other words, borrow money from a bank or financiers. That's a different model to with different risk/reward characteristics, but it's how most non-innovative entrepreneurship is done, I believe - things like building restaurants, buildings, etc.
This is indeed a "middle path" in terms of raising money by selling equity, but selling a smaller amount of it for less money, which keeps more ownership stake and control in the hands of the founders, but necessitates slower spending cause they raised less capital.
> What do you think angel investors are if not financiers, and what do you think those investments are if not debt?
No, those are equity investments, usually. It's a different thing with different rules.
Equity investments give the angel investors ownership of the company - equity. This is either direct selling of shares of a company to angels, or (more typically nowadays) via instruments like convertible notes, which convert to equity in future funding rounds. Other than this ownership stake, they are typically not entitled to anything else.
Debt investments, on the other hand, don't give any ownership to the financier. They only entitle them to receive some future payments from the borrower.
These are completely different things, and large companies often use a mix of both. But in startup-land, the typical investment is done via equity.
I run a small 20 year old service business in the US. Just getting a $300K line of credit from a bank required a lot of paperwork and both the company and me personally being on the hook. It took about a month to secure. In contrast, on a different occasion a secured a personal home equity line of credit for $100K in a bout 5 minutes.
That’s pretty much what I took away. I guess the difference is that in my mind a “regular” company gets its funding via a loan. The post is from someone who got into YC.
But yeah “building for profitability” sounds a lot like… good business!
It's obviously better to raise the optimal amount and no more. But things are not always so clean, and the best time to raise is when your company is killing it, not when you're running out of cash and trying to make it to profitability.
I think one option this approach ignores is the ability to raise, but not spend profligately and not give up board seats.
E.g. if you raise $10m, but still have $8m in the bank, a $10+8m exit is still possible. You do lose whatever percentage on top of liquidation preferences you sold, but the $10m in insurance can be helpful.
Another thing to keep in mind is that once you have competitors, the pace at which your invest and ship is not entirely up to you. If your competitors raise more and manage to ship more or out-market you, your product is going to get squeezed out of the market.
Slack is sort of the prime example in my mind here of a pretty unimpressive product dominating the space through fundraising. None of their erstwhile competitors had good outcomes because Slack just sucked all the oxygen out of that space and the only company who could really compete with that turned out to be Microsoft.
If you raised $18MM total in two rounds and then sell for $18MM, you're going to walk away with a signing bonus for the new company and little else, right? You can't generally sell in order to distribute the proceeds of an investment round to the company operators.
I am mostly imagining the "happy middle" scenario where you raise $1m and sell for $10m in cash, but modified to assume you raised $10m and spent $2m of it, and then got the $10m in cash from the acquirer, and still have $8m in the bank account, you would give back $10m to your investors per the liquidation preferences and then split the remaining $8m.
You are in a worse boat than if you had only raised the $1m and then sold for $10m, but the founders probably still walk away with ~5-7m pre-tax (depending on how much equity the $10m cost you over 1-2 rounds), and you're in a better position than if you had run through the $1m and hadn't quite gotten to a thing worth $10m.
"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth."
Yes, this is what every venture capitalist says. You aren't doing a startup unless you want extreme growth, which requires our services and cuts us in. Building in a capital efficient way that generates substantial wealth for founders, but without giving VCs a cut of the pie, is, of course, "not a real startup," and often also slandered as a "lifestyle business" for low-ambition people.
PG is great in many ways but he's not the person I'd turn to for an unbiased opinion on what counts as a "startup."
The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle when they can basically dictate terms and want hundreds of millions for liquidity or whatever (see, e.g., Joe Mansueto).
It is the definition of the word. Nowhere does pg say you can't start a non-startup business.
>The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle
That isn't "understanding capital efficiency" it is called having enough capital already.
Your comment seems to suggest that you don't see any difference between "capital efficiency" and "having capital."
The terms mean very different things. Capital efficiency is measured by metrics such as the cash conversion cycle. It's possible to design a business model in such a way that you have negative cash conversion cycles, which cause you to actually generate cash as a function of growth (even when unprofitable by GAAP!), which is the opposite of most VC funded businesses whose burn rate is roughly a function of their growth rate.
>It's possible to design a business model in such a way that you have negative cash conversion cycles,
This seems like it would only be possible if your DPO is greater than the sum of your DIO and DSO. In other words, you are so tardy in paying your invoices (or good at negotiating payment terms, I suppose) that you manage to sit on cash worth more than the value of your inventory + outstanding receivables. That is... one way to run your business.
Maybe I am missing something but this seems like a house of cards. Eventually you need to pay your invoices, and time shifting that a bit doesn't actually make your business profitable.
Quite willing to accept I have missed something though.
Because gold will appreciate reliably to an extent but a company can appreciate in value far exceeding what gold can -- that's the risk/reward trade off.
if an investor already has X% amount of their portfolio invested in gold, they might seek to diversify by investing in uncorrelated ventured such as startups. an investments idiosyncratic risk/reward is only meaningful in relation to other investments in the universe of choices the investor can make.
There are other good replies as well, but I would add to the list mission-based investing.
I would easily consider a positive impact along with risk and returns when making an investment decision. Not everyone would, and not everyone should, but it is a part of the funding landscape.
10M to 20M in what amount of time? This is not incidental, it is critical to determining IRR (Internal Rate of Return).
If the company goes to 20M in 10 years, that sounds great, but is only a 7% compound rate of growth. I can get that with much less risk by investing in the S&P 500. And don’t discount the risk. It is critical. A small business has a very large chance of 100% total loss. Compare that to the 500 index, which has a very small chance of a 50% loss, max.
To count for risk, I would look for a doubling (10M to 20M) in at least 2-3 years, min.
You also have to think about liquidity. If you want to cash out, who is going to buy your shares at the price you want? This might not be as easy as you might think. I can liquidate 500 index shares in seconds. It might take a year or more to find a buyer for your 10% at the price you want.
> For most B2B SaaS businesses, you shouldn’t need more than $1M in capital to get to PMF
I'm not sure that's true today. Author is a one-time founder that had some success. He exudes selection bias. Note: i'm not poo-pooing him that "oh he's only founded one company". Don't read into it that much. I'm just expressing that he has the standard hubris that any one-time successful founder would have. After that single success he's already enlightening us with his wisdom.
Of course there are such businesses, but "most" of those aren't startups. I don't think PMF is a term that even applies to such SMBs. PMF implies scale and repeatability of the sales process -- becoming a unicorn is baseline now.
This is what we did for Sudowrite. Took a small seed and got to profitability within 2 years by hiring within our means and laser focusing on our users. Happy to answer questions!
Hi, I write as a hobby and really like Sudowrite. There's a huge gap between it and virtually every other AI writing tool I know of. The insight that writers:
A) Largely only want AI when they are blocked, and not all the time
B) Want to consider options (which is how writing happens all the time, IMO)
Is really what sets your product apart. So I'm curious, how did you get these insights? Were you a writer and instinctively knew of these, and so you dogfooded your own product? Or did you do a YC style feedeback loop to writers to find this differentiator?
Nobody disagrees with that. The clear subtext to that comment is "if you plan to raise money". You can bootstrap a successful firm without raising a dollar.
Trouble is that there isn't much the consumer is willing to pay for anymore. They've become accustomed to devices like their phone where a single purchase fulfills an endless number of functions. The thought of buying much more is becoming a foreign concept. To complicate matters: For what they are not buying, they aren't saving up the money ready to deploy when something compelling does come around. They've decided to redirect that money into paying more for things like housing instead. Good luck chipping that away.
There is still plenty of opportunity to build a business that sells to customers who are collecting those angel checks (directly or indirectly). But that is dependent on at least some businesses being funded by angels.
I respectfully disagree that there’s no business opportunity that people are willing to pay for.
If your only target are developers or the tech industry, maybe, but there’s a whole world of non technical business people with problems that have extremely easy (and boring) technical solutions.
I’ve recently signed up my third customer paying $49/mo with a simple CRUD app. No targeted ads or landing pages. I literally walked into offices in my town and asked what the most annoying part of their job is and I made a prototype. They signed a 6 month commitment.
They’re amazed at my “computer skills” only because they don’t know any better.
Not saying I’ll become insanely rich, but my goal is a reasonable living ($200-$300k) within 5 years.
All this to say I think the opportunities in this market are there, but they look different.
> I literally walked into offices in my town and asked what the most annoying part of their job is and I made a prototype.
Consumers don't have offices. You are looking at a business-to-business transaction, which is where we said there is still opportunity, in large part thanks to those collecting angel money.
If you are going to disagree, surely you can provide an example of where you have sold to the consumer? Affirming that you could only find opportunity selling to other businesses too makes it seem like you do agree.
My broader point is that if you want to build a business there's a ton of opportunity if you're not overly picky on what that opportunity looks like. B2B, B2C, mobile, web, node, Python, PHP. None of it really matters.
> You are looking at a business-to-business.. which is where we said there is still opportunity, in large part thanks to those collecting angel money.
You might be mixing up opportunities within the tech industry with using tech to build a business within other industries. Angel money isn't really a "thing" for the latter, and that's where I'm pointing to opportunity.
But by all means keep on pushing B2C if that's your passion
> My broader point is that if you want to build a business there's a ton of opportunity if you're not overly picky on what that opportunity looks like.
That point was already firmly established before you arrived. What were you hoping to add?
> You might be mixing up opportunities within the tech industry with using tech to build a business within other industries.
Industry doesn't matter. An economy is all connected. What does matter is that at some point your sale needs a "final destination". If you sell to another business, they are going to need to pass the need on to the next hop. If they fail to do that, they will go out of business, and soon you will too.
That means either a consumer, someone with angel money to burn, or government (which is, as it pertains to this discussion, basically the same as angel money). Angel money keeps a lot of these B2B businesses alive. You might not need to accept the angel money directly, but someone needs to in order to support the system we have.
No. I remain unsure about what you were trying to add. You must have had some kind of astute observation that warranted your time to formulate a response – more than once. But, I'm afraid it went over my head. Perhaps you can frame it in another light?
The only real tech "freelancing", if we are to call it that, opportunities as it pertains to consumers is possibly in fixing someone's home computer/phone, and that is within the small set of things consumers are still willing to pay for. In fact, one's phone was explicitly mentioned. But it is unlikely that most "freelancers", within the tech sphere, are making a business out of that.
Maybe we all have a grandmother tossing a few bucks out here and there when she needs help. Is that what you mean?
But that's ignoring that freelancing itself is normally a business-to-business transaction by definition, so your assertion is a bit strange if we are to stick to general understandings. What is the pet definition you are trying to use here that should change our understanding?
Are we just talking past each other here? Are you saying that it's hard to bootstrap a pure B2C business using only B2C revenue sources? Because that's not what I'd do; I'd consult to other businesses. That's what 37signals did.
> Are you saying that it's hard to bootstrap a pure B2C business using only B2C revenue sources?
I said that consumers don't like to buy much these days, so business opportunities are effectively limited to selling to other businesses.
But businesses can't absorb buying your wares if they can't sell to someone else in kind – eventually meaning the consumer. That is, unless they have angel money to burn. So what was also said is that even within the B2B space, you are bound to be dependent on angel money even if you don't receive it directly. Meaning, as it pertained to the comment that came before it, that someone needs to accept the angel money to keep the house of cards standing.
> That's what 37signals did.
37signals doesn't strike me as trying to tackle B2C in any meaningful capacity either. 'Hey' plays that angle a little bit, which is maybe what you are thinking of, but it is clear that selling to business is still the bread and butter even there.
"Yes" doesn't explain your perspective, though. Obviously you can make money selling to other businesses. Nobody would think otherwise and the discussion that was taking place fundamentally wouldn't have been possible if that weren't the case. But what is it that you want to add to the discussion? That is what is not clear.
You put in time to tell us something. It is no doubt interesting. But, unfortunately, it got lost along the way. I am still interested in whatever it may be.
> businesses and governments pay for a ton of stuff.
Yes, that was addressed in the second half of the comment. But ultimately business must serve consumers – unless angel money is paying for. If you sell to a business, who sells to a business, who sells to a business, who sells to a business collecting angel checks you are still dependent on angel money.
Government too is effectively the angel model. The money will be there even if the consumer isn't being served anything they want to pay for.
I am a big believer in Seed-Strapping. You need some initial capital to get you started (can be as low as a few months of your own salary). But you should aim to bootstrap your solution.
Being forced to bootstrap with your own funds is the best bullshit business filter I am aware of. I also think it says a little bit about the founder's ability to maintain some amount of stability in their life and put their money where their mouth is. Everyone can come up with ideas. How sure are you of yours? Are you willing to use some of your own money to prove it out? No? Then I guess I'm not that interested either.
The way I am trying to do this now is to only ask for money if I can obtain at least one paying customer who is willing to vouch for me. If I can't market an MVP to at least one small shop, I don't know why a non-fraudulent business partner would want to work with me. In any case, I wouldnt feel great about that relationship.
I've done the burn someone else's fifteen million bucks thing on tech stack shiny rabbit chases. It's really not a fun time in retrospect. Mostly just a sick feeling all the way to the bottom.
The company I work for is a small company that has enabled above-market results for everyone employed. Almost 20 years ago the founder saw a specific niche, and went after it aggressively, having software built out of his own savings. We've never taken a dime of outside funding (aside from PPP loan in 2020, allowing to us to lose no employees despite our income being decimated). He's very aggressive about keeping expenses low, but he takes care of his employees, knowing they are the most valuable part of his company. (Self-serving for me to say I know, but it really is his value system)
No VC company has done what valve has done. More companies should be like valve. YC is also no longer a good deal for a company which has even a little bit traction.
How exactly is a VC—or any investor, really—supposed to make money from a startup that’s aiming for a “middle of the road” outcome? That just doesn’t add up. In that case, wouldn’t it make more sense to invest in something safer or more traditional?
From what I understand, the very definition of a startup is tied to ambition. Founders need to be aiming for the moon—or at least something close to it. If you’re not taking big risks with the potential for big rewards, can you even call it a startup?
People use "startup" to mean "start up business" and not "business that is aiming for rapid, borderline-unsustainable growth and very likely requires hundreds of thousands, millions, tens of millions of dollar to even start thinking about achieving it," which is what the actual definition is.
VCs aim for 1 out of 50 investments to return 100x what they put into it, and the rest of them to die quickly and stop taking their attention. A company kicking off 5% returns every year is counterintuitively worse than flaming out immediately.
Hopefully, over time, we will get better and better in creating the world of software from small interoperable pieces that can be maintained by small teams or even solo entrepreneurs.
> For most B2B SaaS businesses, you shouldn’t need more than $1M in capital to get to PMF, find a GTM motion that works (not that it needs to scale), and reach an ARR figure where the revenue multiple for valuation starts to look pretty tasty—enough to offer significant upside even after investors are paid out.
That sentence (yes, ONE sentence) is some of the worst I've seen.
Abbreviations :-) being defined or not depends on the audience, so it is not a law that you need to define them. PMF (product-market fit) and GTM (go to market) I would define though.
> so if you're aiming for a $10M outcome, they won't be interested
VCs won't be interested if you're aiming for a $100M outcome because what you aim for is generally loftier than what you hit. If you're aiming for $100M you might sell for $25M or $50M, which is generally uninteresting to VCs.
A VC will build a portfolio of startups that each have the potential to do massively well. After that they don’t care which of the portfolio companies lives or dies, as long as one explodes and compensates for the others.
As a founder you care very much which of your companies succeeds, as you only have one.
The problem with this idea is that capital markets exist and capital seeks compounding. If there is a market to be addressed and it has size, someone will go in and displace you with a cash flywheel.
I usually compare them as sharks vs bottom feeders. Either you become the predator that eats all the big fish. Or you go somewhere the big fish won't go.
There's the 'crab' model, but this isn't for startups. They're old, companies like Yahoo who have a moat and can't leave it. They're at evolutionary peak or rather a local maxima. They're too difficult to change and a major change would make them too vulnerable.
An ecosystem analogy should draw attention to the fact that most biomass in most ecosystems is not in the apex predators but in the lower trophic levels. Apex predators are a useful regulatory mechanism for the ecosystem, not the be all end all of natural selection.
Although it's good to look into alternatives to bootstrapping vs VCs, the funding source isn't the only factor to consider. Balancing how quickly you need to enter the market and how much ownership you feel comfortable having over the final product will ultimately drive the decision on how to fund a venture too.
Currently in a seed funded by a very simple cap table, pre-series whatever SaaS company. This post resonated with me as we will have to raise money later this year and I'm dreading having to take institutional capital. There is another way.
Also the other thing that I realised after working with a bunch of VCs is that they are all incredibly dumb. Few VCs are founders themselves and you will have better luck with them but the majority of VCs have simply no idea about product and technology and they are simply pattern matching. What that means is that they will cargo cult everything and if your startup doesn't fit the mold they will not respond to you favorably and the sad part is that the actual 10x, 100x returns that their VC firm needs comes from those type of investments but they simply cannot see them.
We also have a problem with VCs that want start-ups to scale quickly, even though this often builds incapable teams. We then say, "Oh, it's because they stopped being in founder's mode," whereas in reality, the team is so malcomposed and mismanaged that it could not build even a simple product.
This has happened a lot in games. Now, VCs have almost stopped pre-seed and seed funding in this industry. The global annual VC funding in games is about $1B, about 1.5 Call of Dutys. This is down from around 12B in 2022.
One could say they threw the baby out with the bathwater because while many executives were abusing the found-scale-exit business model and taking investors' money, many were also not. It's pattern-matching through and through, very little due diligence.
Yes it does. The definition of a startup is that it's high-risk and fast growth. If you want slow growth, it's a small business (which is fine), but not a startup.
I think there are two common definitions of startup, and neither require VCs to be involved.
One (seen elsewhere in these comments) is any small business. I personally don't like that definition because there is a pretty big difference between a local coffee shop and the thing we all mean when we say "startup".
The other one which is more common here is a company that is currently small, but the business model involves getting much much larger. There's a blurry line between a small business and a startup with this definition, but it seems to be a "you know it when you see it" type of thing.
Companies like Mailchimp and Atlassian (in their early days) clearly qualified as startups even though they hadn't raised VC. You might say they're outliers, but so are the VC-backed companies that reach that level of success. If a small company is growing quickly and on pace to become a multi-billion dollar company, it seems weird to say they're not a startup just because they didn't raise money from the right people.
I’m by no means an expert on this, but I never assumed “startup” implies VC-backed. I thought “VC-backed startup” meant that and “bootstrapped startup” meant not.
That “startup” was an indicator of not being an incumbent in the space and using technology to disrupt things.
But in an increasingly tech-first world, it does beg the question what separates a tech first SMB from a startup.
I was being called a unicorn in a professional setting... unfamiliar with the term, I immediately thought I was being insulted, because unicorns exist just in people's imagination and fairy tales.
We are currently fundraising - and we consider this a valid path if VCs don't bite. We have customers and no matter what - we are building something valuable. Nice post!
Glad someone is talking about the option other than selling to VCs or ramen diet start ups. The tech community might have collectively forgotten the other option.
Here's a model that exists in Germany, which I like:
You can present a business plan to the state's investment bank and apply for several financial aides, including:
* 1.5 years of universal basic income for you plus up to 2 other people. It's a tiny amount of money, but the point is to free you up to invest your actual time an money into the business. You do not have to pay this back.
* up to 20k EUR in "consulting fees", for which the bank will contribute up to 50%. Again, you don't have to pay it back, but obviously you need money for them to match.
* discounted loans, amount depends on business plan outlook
I've worked with an accelerator that helps founders write the required pitches and plans for this program. And while the majority don't make it (because they mostly realize their idea won't actually hold up to business planning scrutiny), some do. And those don't become hyperscaling unicorns, they become normal companies, growing organically as stable, solvent employers in the region.
Every once in a while a VC would stick its head in and encourage the startup to take on VC funding, and for an even smaller percentage (one in my time doing this), this worked. But for me, the organic growers are the best success story.
It's also connected to so much bureaucracy that you almost need to hire someone for that alone, because you wont have as much time for your actual business. Founding a company in Germany is so much unnecessary paperwork its crazy. Single handedly the only reason I will never try it in my home country.
I agree that the process is unnecessarily complex, but I also think hiring someone for that would be the wise choice in most places anyway.
And even in Germany hiring someone for that would probably amount to paying 500-1000€ for the whole registration of the company instead of doing everything yourself and only paying the 100-200€ notary fees. It's not as bad as you might think.
> I will never try it in my home country.
May I ask, where would you try it? As I understand it, it's not really possible to found in a different European country while you're still living in Germany.
> but I also think hiring someone for [government paperwork] would be the wise choice in most places anyway.
I’m not sure if you’ve ever tried founding a business or fundraising in any other non-Germany country, but this is an insane thing to say imo.
Is this why Germany has no globally relevant software (or hardware tbh) companies founded in the last 40 years?
Are we sure we want to be holding up this model as an example of “a good one”?
> I’m not sure if you’ve ever tried founding a business or fundraising in any other non-Germany country, but this is an insane thing to say imo.
In the US, people also tell you pay an expensive lawyer to deal with government paperwork.
I may be misunderstanding, is this statement suggesting that the advice to use lawyers in Germany is simply standard op procedure, and not even remotely necessary? As it really isn't necessary in the US, especially with how easy it is to change or update later if it gets to that point.
I have incorporated (s-corp), created a couple LLC's and briefly used a sole proprietorship with a DBA filed in my county - this one was by far the most annoying, time consuming, and confusing one. The state filings took maybe 10-15 minutes of filling out straight forward online forms, $1 (at the time for a name search) and $300 to file. Soon after I was the paper owner of a legal corporation (or LLC's). The most complicated part was understanding taxes, but the application of taxes is separate from starting the company (assuming you understand the best tax structure for what you are doing). If anything, an Accountant is way more important imo.
I don't know much about Germany, but the statement was a response to the threads above,
(1) > but I also think hiring someone for [government paperwork] would be the wise choice in most places anyway.
(2) > I’m not sure if you’ve ever tried founding a business or fundraising in any other non-Germany country, but this is an insane thing to say imo.
My point was that it's not an insane thing in the USA (non-German country) to hire someone for government paperwork.
In the US, getting a lawyer just to incorporate is flushing money down the drain. At best you can do it yourself (and in most states it's not particularly complex), at worst there are cheap online services to help you.
Don’t forget the accountant. Once you start payroll things get an order of magnitude more complex.
There's a lot of small, one-person shops that manage to make LLC's and stuff in the U.S.. There's books on how to do it yourself. In my state, there's little paperwork, too.
Germany sounds way more difficult.
Not at the early stages.
Why should there be a globally relevant software company? How about locally relevant software companies? If it is successful enough to pay for its own expenses and decent income for the employees/founders, it is a good business.
Because software has enormous fixed costs and low marginal costs, so spreading the fixed costs across more users improves the economics, often by a large factor.
It’s not that it’s strictly required, but it’s so beneficial that it’s often chosen.
> Is this why Germany has no globally relevant software (or hardware tbh) companies founded in the last 40 years?
Ableton, Native Instruments, SoundCloud, TeamViewer
MA Lighting, by far the largest and most dominant lighting console manufacturer.
They are the industry standard around the world, no one even comes close.
SAP
You probably missed SAP then.
> The company is the largest non-American software company by revenue and the world's third-largest publicly traded software company by revenue. As of December 2023, SAP is the largest German company by market capitalization.
https://en.m.wikipedia.org/wiki/SAP
I suppose OP specifically excluded SAP as it was founded more than 40 years ago.
SAP is kinda of a monopoly no ? The software is bloated and complex to use. The UI is dated but everyone still uses it because it is so embedded into the core arteries of businesses.
It's not a monopoly if it is hard to migrate from. SAP doesn't go out of its way to prevent you from migrating out of the HANA database. It's just that by the time you need a software like SAP, whatever you're buying becomes business critical and hard to migrate from regardless. And SAP is good enough to handle all kinds of edge case scenarios reasonably strongly. SAP doesn't even engage in monopolistic practices like what Microsoft or Apple do.
SAP and Salesforce are pretty much in the same bucket imo. The reason there is no Hubspot for SAP is that most smaller companies don't really need an ERP system.
true. SAP is more of an entrenched SaaS. Once you have it, the switching costs are too high later on. What an amazing kind of biz. The stickiness is crazy.
SAP predates the personal computer and the rise of the VC model in the 80s.
Its a bad sign if you have to go back over 50 years.
SUSE was founded (checks) 33 years ago if you want something more recent.
Siemens is also huge in software.
AUTOSAR alliance is an organization based in Germany defining automotive ECU software architectures. Most automotive SW development is happening in Germany.
It was founded over 50 years ago. It had already been running for decades before Amazon, Google or Facebook were even founded.
Why would that be “a wise choice”?
I’m from Sweden and live in Switzerland. I know many people who have their own companies, and I was looking to start one myself before moving to Switzerland. It is SUPER EASY.
I’ve helped my wife become self employed in Switzerland. I do most of the admin work for her. Again, very straight forward.
I think Sweden is one of the very most entrepreneur-friendly EU countries. It's got a big safety net, but doesn't impose much bureaucratic or financial burden on new businesses or even solopreneurs just getting started out.
It's so easy (relative to this) to just go grab a SAFE. No strings, no bureaucracy. You can structure your endeavor however you want. And you can sometimes do it with just a conversation.
I never thought about founding my own company while living in Germany. I hate this countries bureaucracy to the core. If I ever wanted to found one, I'd first move out of Germany.
German Bureaucracy: see Th Trial by Franz Kafka for a fictional view that is surprisingly accurate
I just founded in Germany. The paperwork is … okay.
Not much more crazy than tax returns or internal accounting you need to do in any jurisdiction.
But yes, running any organization is a lot of work.
In terms of tax craziness (most crazy to least):
1) India. Lots of conflicting laws. Lots of conflicting paperwork. And as a foreign company you'll probably pay more in bribes ("voluntary non-disclosed payments to ensure success") than you would in taxes, because the alternative is that they send the police after your local employees and maybe try to have the local court seize your property.
2) EU. The VATOSS is straightforward, but the income tax systems are not. Within the EU, France is the worst, followed by Belgium, Denmark, and Germany. Portugal and Ireland are very chill about tax returns. For the bad countries, there is lots of paperwork. Literally every transaction must be documented. On both sides. And they will ask for the documents when they audit. And they will challenge any cross-border transaction that results in reduced local income.
3) Africa. I've only dealt with South Africa, Nigeria, and Egypt. South Africa was the easiest to deal with, and Nigeria was surprisingly business friendly other than the constant requests for bribes. Egypt should have been straightforward (and there is a bit of language barrier), but the bribes were not optional, even to file basic tax returns.
4) South America. There's a lot of it. So much of it. In Brazil, you need certified letters just to send and receive money...including tax payments. And there's a lot of requests for bribes in other countries. But once you get past the language barrier and the logistical hassle, it's actually quite straightforward and logical. If not for the military dictatorships and drug gangs, South America would be a good place to do business (from a compliance perspective).
5) USA. Lots of laws. Lots of jurisdictions. But all relatively straightforward. It only gets complicated if you choose to minimize your tax burden (or maximize your refund) by taking advantage of the many, many complications. If your only source of income is W2 income, you could finish your tax return in 15 minutes.
6) Canada. Even Quebec, which insists on doing everything in French.
7) Australia. It's the least complicated tax system I've dealt with, and the easiest to work with as a taxpayer. The ATO is also quite easy to reach...I'm almost always able to get a human on the phone within 5 minutes.
Huge +1 to Australia, speaking from a salary worker PoV. So many of the Australian digital services are absolutely fantastic. As an American who was working there, there were often situations where I thought I did something incorrectly because my mentality was, "if it was this easy, I did something wrong and there are more steps".
It often literally is that easy.
> Canada. Even Quebec, which insists on doing everything in French.
Quebec would be the one place in Canada where you’re expected to do business in French. Maybe New Brunswick? Even right across the river in Ottawa you’d have no reason to use French in any official capacity.
Sure, you might want a FR/EN selector at the top of your site since Quebec is a big market (within Canada).
Having formed multiple companies in India - my experience was that I did not pay any bribes and it was relatively easy (not as easy as USA - where too I have formed multiple companies)
Consider yourself lucky. I've never worked for a company that's been able to avoid paying bribes in India.
"If your only source of income is W2 income, you could finish your tax return in 15 minutes."
Also free on H&R Block now. They can scan your W2's with your phone camera, too, if they can't pull it. Then, direct deposit it into your bank account. It was great.
Creating a company in the US doesn't require tax returns or internal accounting. (But perhaps you meant European jurisdictions).
It does if you're actually incorporating (C or S corp). You'll need to at least file both federal and state returns. And in many cases you'll need to pay money even if your business earned $0.
An LLC setup as a passthrough can get away with filing personal returns, but that only works for small freelance operations. Once you've got payroll or investors it's constant paperwork hassle.
Having payroll is always a tax hassle, but I've been at passthrough-structured LLCs with employees and mid-high 7 figure revenue (at some point, you start filing as an S for your LLC).
But can we get back to the original thing here? Creating an LLC in the US is trivial and does not require accounting.
Payroll is relatively simple for a basic LLC. You can use a service like Rippling or a local CPA to do it for you. Usually costs around $40 per month per employee.
S Corp filings are drop dead simple. The tax return may take a CPA’s help if your structure is complicated or you want to get the absolute best tax breaks possible.
Yes it could be simpler - jurisdictions like Estonia figured this out.
Tax returns is once a year, which is okay. I see my bosses having to do paperwork every week...
I have an LLC in the US and have to deal with tax stuff all the freaking time
I've had a couple of LLCs in the US (now and in the past) and they've been pretty hands-off as far as paperwork/tax stuff go. More or less, just keep good books and file/pay quarterly taxes and that's about it. I'm curious about what you've run into?
You deal with essentially (probably exactly) the same tax issues any freelancer would deal with, right?
Mine is almost certainly almost the minimal case, except for someone running in Delaware. Federally, I file quarterly 941s (employee tax withholding), annual 940 (unemployment) and 1020 (tax return). In Delaware I final annually (stamp tax). I then file locally for Washington (excise tax) and Seattle (licensing tax).
I believe a freelancers wouldn't file employee tax forms. They frequently roll their filings into their personal taxes.
[edit: this is for a C corp]
Is there an opportunity to streamline the paperwork mentioned to reduce friction for founding in Germany?
There are already services that do that, e.g. firma.de[0]
But in general, not really. I also just founded a GmbH in Germany, and the paperwork really isn't that crazy, and for the more complicated parts you'll generally will want to have a tax advisor you are going to have a long-term relationship with (rather than a one-off founding service). I considered using a founding service, but ultimately, most of the "hard parts" about the process is in understanding what agency you have to talk to for what parts, which you'll have to learn anyways if you want to run a business in a way that doesn't land you in jail, so the benefits of such a service are marginal.
The only real way to streamline it would be to deregulate the process (e.g. getting rid of notary requirement).
[0]: https://www.firma.de
Having gone through the process of incorporation myself, I agree with everything you said: Yes, there is some paperwork you'll have to take care of and a bit of a learning curve to everything but not outrageously so. It can all be done within ~2 weeks (including roundtrip times for mail). Yes, that's still a lot more than it'll take you in e.g. Estonia (where you can do everything online in a few minutes from what I've been told) but it really would be the least of my worries, compared to actually running the company.
That being said, I do think the process could be simplified drastically. Not necessarily by getting rid of the notary requirement but 1) through digitalization and 2) by streamlining (possibly centralizing) the whole back and forth between notary (official incorporation & signing of articles of incorporation), bank (getting a business account + obtaining proof you actually put the money in that account that you're claiming to have during incorporation), local court (registering the company, including articles of incorporation), tax authorities (getting a tax ID and sales tax ID), local authorities (getting a business permit), local chamber of commerce (paying dues for mandatory membership), Federal Gazette / federal company register (submitting your initial balance sheet).
This is my general opinion with regards to bureaucracy in Germany. All the data is most likely already there and all the technical challenges have been solved in the meantime. Why do I have to do the runaround from office to office, when they are physically connected by a piece if wire (aka the internet).
There is a reason why we have so much bureaucracy in Germany (1. because we like it) and second because it is supposed to provide trust, trust that every company I deal with is legit, trust that the system knows who is participating. Without trust nobody would make business or business would be very hard, because you would have to price in the risk of not having trust.
There is something to be said for trust here. I like that I can go straight to the imprint ("Impressum") to know with whom I'm dealing with online, where the company is located and who the CEO is. This is not always easy to decipher from the "Terms" pages companies in the US and elsewhere provide.
The downside for founders is that you have to divulge your address, unless you take additional steps to give yourself a mailbox address, but this can also be illegal if you're not careful. You can also rent an office of course, but for indie devs and freelancers, this is usually not financially viable.
Yes, there are ways to buy up existing “empty” companies with a bank account, commercial registration, etc. If you want to found a new one, there are also services that will prepare all paperwork and set up appointments with notaries, etc. for you for affordable prices Day to day operations do generally not require much else than bookkeeping and accounting which you can almost fully outsource (though accountant fees are not cheap, however, doing it yourself is also not to hard if you have the right software and do not sell thousands of different products) unless you are in specific industries There are a few unnecessary fees and it takes longer than it should to get started but for most businesses it does not really matter and is limited in scope when it comes to time and money needed
This makes it sound like a lot of unnecessary work…
I have founded multiple companies in Germany and in the US. Sure, in the US you have services like Stripe Atlas that make it a bit easier. But still, I would not say it's much crazier registering a company in Germany compared to the US.
Of course, it helps if you have a bit of an idea of legal concepts and accounting, but to be honest, that also makes sense, since you are starting a business.
This is not to say that we should not work to make it less bureaucratic in Germany (and other countries).
I agree that applying to loan and grant programs within Germany, and especially EU, are a super pain in the ass. I definitely see some potential there.
You can essentially create an LLC in Delaware (from anywhere in the country) as easily as you can create an Amazon account, so that's a big claim.
You can create a full blow corporation in Delaware from Europe in an easier way that you can open here.
Anyway, the benefits go beyond how easy it is to open, the most important things are moving forward with things like stock options, issuing shares, creating preferred ones, etc, etc, taxes access to funding, etc..
You’d just be moving the complexity around if you did that. If you’re residing and working in Europe then having your company in the US will cause all kinds of tax and logistical issues that you’re probably not qualified to deal with. Probably much less so than dealing with the local paperwork. Everything your company does will now be scrutinized and has to fit through two separate tax and legal systems. Nothing simple about it
I have multiple friends that incorporated their companies in US from Europe.
It isn't a particularly worse arrangement with founders, and, again corporate law in Europe is really behind, making things like attracting talent for equity much more difficult.
Are they? With a founding team? You can just boot up an LLC and have a short operating agreement with 4/1 vesting and equal allocations.
You still need to deal with business registration, taxes, accounting and so on.
You can also create a GmbH in Germany by downloading a few free templates from the internet and making an appointment with a notary. It's a bit more expensive than creating an LLC, but not significantly (maybe a few hundred dollars).
Especially since most of the cost come from running the business (tax filings, accountings, business registrations) and not the initial founding costs.
I've done it a couple times, successfully, and it hasn't been my experience that getting started had any real paperwork complexity.
In the US, you mean?
And what do you use for a bank account?
That's been one hurdle I've seen when trying to found a business outside your own country.
The other hurdle was requirements for local directors (New Zealand, Cayman Islands)
You walk into your nearest Chase (or similar) branch. Out in 10 mins.
The context is creating companies in another country.
The states hasn't yet devolved into separate countries (I'm not sure what advantages California gets from the union. But a Brexit is clearly a costly move).
Here it is in Mississippi:
https://www.chamberofcommerce.org/how-to-start-an-llc-in-mis...
How does that compare to Germany?
I think the main difference is that you physically need to go to a notary in Germany. But that meeting takes like 10 minutes, it's all boilerplate.
Some still do it. And while I would never start my own company in Germany. Working at a startup in Germnay is going pretty well for me so far. 1.5 years in.
Ye been working in a startup as well. I just witness all the appointments my boss has to go through and I could never do that. But I'm also the type of person not picking up their phone when it rings.
Actually just founding the company is the easy part nowadays. You can do it online or let a notary work it out for you.
It's just everything else that's dreadful.
Small German business owner here. I still find the notary egregious. But yeah, the admin afterwards is facepalming.
Had a startup in the UK before; that was a walk in the park in comparison.
Not true.
Go to your hometown administration, pay 35 Euro and leave 15 minutes later with a "Gewerbeanmeldung" which enables you to start doing business right away.
You are lying by omission.
The Gewerbeanmeldung typically registers you as a sole proprietor (Einzelunternehmer) or GbR (partnership). Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG. Those require notarized founding documents, minimum capital requirements (€25,000 for GmbH), and a commercial register entry (Handelsregister)
The simple Gewerbeanmeldung structure is problematic for venture capital because most VCs require a corporate entity structure (GmbH/UG) and converting from a simple structure to a proper corporation later can trigger tax consequences.
At each investment round all shareholders must appear before a notary or provide notarized power of attorney, the entire investment agreement must be read aloud by the notary, changes to company documents require notarization, and each notarization costs thousands of euros and creates delays.
Major decisions which are likely to affect shareholders require formal shareholder meetings with proper notice periods. Unanimous consent is often required for key decisions. Capital increases must be executed through complex formal processes. Registration with the commercial register takes weeks. Minimum nominal values of shares restrict flexibility. Required reporting to tax authorities is extensive. I can go on and on. And don't even get me started about German employee stock option plans.
> And don't even get me started about German employee stock option plans.
My landlord and greengrocer want hard cash, not stocks of a startup that may collapse next month.
It's so stupid to have a minimum capital requirement for incorporating a business. Who could have ever thought that was a good idea?
> Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG.
Meh, do they really? Only if they want to go the VC route. But in this topic we're talking about more healthy ways to build and grow a company and for that you don't need a GmbH or GbR to start.
You are effectively locking yourself out of the outside investment route if you choose to do this.
And open up for liability
Is this really true? I'm in the US, and have a corporation in the US. I am shielded from liability through the corporate veil, but I also have a $50/mo $2M/incidence liability umbrella. I honestly have no idea if either are necessary, in 20 years of "doing business" I've never had a single liability needing to be covered by insurance or the veil.
I think it's wise to have, just in case, but even in lawsuit happy America where I have had to fire multiple clients mid-project due to various reason. I've never had blowback or even the treat of a suit. We all just went our separate ways.
Lawsuits are more common in Germany than the US. Possibly because the procedure is different, with lower overhead, and penalties are not reduced for reasons like: you don't have the money to pay.
I believe Germany is generally heavy on liability and light on ways to avoid it. If you damage someone's property, there may be a procedure to confirm that you damaged their property, and then you must pay the value of the damage - as well as the court fee because you didn't just pay it upon asking. No ifs or buts. You cannot avoid paying it in any way, including the clever use of paperwork to avoid paying it. That's why there's a high bar to form a GmbH. As you correctly pointed out, good insurance can also limit your effective liability. I think such business liability insurance products are very common in Germany.
After reading that, for all the talk the USA has about "personal responsibility", it doesn't seem that serious about it, does it?
I haven't been sued either, and I live in Germany. I did pay someone $100 to replace something I accidentally broke, and walked away with the broken thing. No court was involved there and I didn't bother to claim insurance.
Limited liability is something you should always want, and if it merely costs a $30 filing fee and some forms, you should get it, but it's obviously jurisdiction-specific and in Germany, with the much higher requirements, it's obvious that they really only want medium to large businesses to have it (though this isn't a direct rule, I think).
From this thread I just learned about the Unternehmergesellschaft (haftungsbeschränkt) which is apparently a GmbH that can be formed for less than $25,000, but instead, you have to set aside 25% of your profit until you have $25,000, at which point you can convert to a normal GmbH.
> I've never had a single liability needing to be covered by insurance or the veil.
That’s how insurance works. You don’t need it often and maybe not even your entire life, but if it happens and you aren’t covered it will ruin your life.
If this description is not accurate for the situation then you probably don’t need insurance.
I'll warn you that insurance companies often try not to cover a loss or all of it. They often try to cheat their customers. So, having insurance isnt equal to a structure that makes you personally immune to liability because what the insurance company will do is unknown.
And I'll warn you a limited liability entity doesn't necessarily protect your personal assets either.
Undercapitalization is a big one that people don't often realize - going without insurance an not enough funds to cover a claim will usually pierce the veil.
Same goes with little things that typically don't matter to the owner of a one person company, like failing to keep board/member annual meeting minutes and sending them to the state body that requires them, and the biggest one for most small businesses - commingling funds and "alter ego" doctrine - the company is not you, the company's money is not yours.
There are a lot of ways that limited liabilities vanish - especially for smaller businesses like OP is describing.
Yes, it is true for germany. You're only somewhat shielded from liability with a GmbH/UG.
> > Most tech startups need a limited liability structure like GmbH (similar to LLC) or UG.
> Meh, do they really? Only if they want to go the VC route.
Funnily enough, a German friend of mine and his buddy got accepted into YC some years ago and apparently YC handed them the funds before they had even incorporated or anything, so at least from the point of view of German law they were essentially a partnership (GbR). Not sure how that even worked, especially in terms of delineating what the entity actually was that they and YC owned together. Did YC own 7% (standard deal) of… them? (Without incorporating you are personally liable after all.)
Anyway, from what my friend told me they had a whole bunch of cash lying around on a personal account for quite some time lol
Then again, this was before covid – money was incredibly cheap back then.
That feels like an exaggeration. I did that last year. They took several months to process the registration itself.
And this was just to freelance as a developer. In my case I was allowed to start while they were processing the registration. But had it been something that would require their permission, I'd have to wait several months before I could start my business, while they wave through a form that basically says "I'll be selling goods".
I'm not one to blindly hate on all bureaucracy. But in this case it feels unnecessarily complex.
This might depend on where you live and the kind of business… last time I made an Unmeldung online I needed to call after a week waiting and they literally told me that in person would be solved the same day. And it was.
That's a bit exaggerated. I did have a company, and while it did come with bureaucracy, the vast majority of my time was spent on what you expect a founder to do (sales, marketing, product, etc.).
Technically, you can just ask your co-founder if they want to found a company with you and if they say yes, you did it.
Comparing to what country? A lot of EU countries has big administration.
These things do work and created a few unicorns here in Malaysia.
The catch is that they're usually very bureaucratic as it's public funds, and the more corruption, the more rules there are. Someone might say, come in from New Zealand to get a grant, then the condition becomes "must be 51% locally owned". A conglomerate creates a sister company to get the grant and then it becomes, "parent company must be less than 3 years old and have under $500k revenue". The rules just keep stacking on until agile is basically banned lol
Companies funded this way were actually one of my income sources when I was freelancing, but sadly most don't continue on unless there's a Series B later on.
> These things do work and created a few unicorns here in Malaysia.
Which ones?
Carsome and Aerodyne?
I was thinking Grab, back when they were called MyTeksi. Honestly the reason I don't answer these questions is that it's just so hard to dig up this info. It feels like genealogy, which is fine for curiosity, but I can't tell which of these questions are just being contentious.
Best I can get this this link from 7 years ago: https://vulcanpost.com/624177/malaysia-memorable-startup-fun...
And it was about their investments from ~17 years ago. These things are slow.
This is somewhat akin to the U.S. government's SBIR grant program. Phase I (generally $250-500K for a year)to develop and pilot novel tech. Phase II ($1M) to develop scalable tech. And Phase III to go-to-market. (I'm being intentionally brief here as there is a lot of variability between participating agencies).
Because each award solicitation is closely aligned to the industry needs associated with a given agency (DoD, DHS, HHS, NSF, DoEd, DoEnergy, DoCommerce, USDA, EPA, DoT, NASA), you are on a fast-track if you can get into Phase I.
It's a ton of paperwork and bureaucracy --probably even more so under current administration-- but still a great alternative/addition to VC that doesn't take equity and forces you into technical clarity.
That just sounds like traditional small businesses. Which is cool but re-branding them to "startup" seems silly. The US has 35 million small businesses and maybe 1 million would qualify as startups.
You said this below, too. What's the difference? In my mind a startup is just a newly established business, but you seem to have a different vision?
Startups aim to grow quickly.
Every single definition highlights that difference versus traditional small businesses. Trying to re-brand small businesses into "startups" for the cool name factor just seems silly to me. If you're making a sustainable small business then call it that. Don't call it a startup. You'll get more customers that way as well and more relevant business contacts.
People care about startups because of the high growth rate. Renaming a small business to a startup achieves as much as slapping a porsche logo onto a honda civic. The civic is a solid car but you won't make people'd heads turn with that logo on it or not.
Gotcha, thanks. I always thought it was "first 3-5 years". Could be an example of word meaning diluting as it goes mainstream - hacker being the ur-example. ("Semantic bleaching" is the jargon term, apparently).
I was wondering when the first use of the term in its modern sense was, so I just glanced at Google Books and found this from 1805, which is just too good: "a startup was a coarse kind of half-boot with thick soles; [...] its use is now superseded by that of the modern spatterdash." [spats?]
By 1949 I've got this: "But startup businesses, and even mature businesses in some localities, may face financial constraints" -- Agriculture Information Bulletin, Issue 664, Page 113. I can't find anything pre-WWII.
> Startups aim to grow quickly
Maybe this is a US centric definition. It's definitely not what I mean when I talk about a startup with European or Asian tech founders.
>Maybe this is a US centric definition.
It's a common definition for new companies that intend to grow quickly beyond a small/medium size and very often associated with funding from VC.
1st paragraph from https://en.wikipedia.org/wiki/Startup_company :
>A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model.[1][2] While entrepreneurship includes all new businesses including self-employment and businesses that do not intend to go public, startups are new businesses that intend to grow large beyond the solo-founder.[3] During the beginning, startups face high uncertainty[4] and have high rates of failure, but a minority of them do go on to become successful and influential, such as unicorns.
The characteristics in that paragraph don't apply to new mom & pop restaurants, dry cleaners, new law practices, etc so most people don't usually label them as "startups".
But there is no Global Language Police that everybody has to obey so if some folks wants to label their new neighborhood coffee house a "startup", nobody will stop them.
EDIT to REPLY: >If you keep reading we get to: "Unlike an entrepreneur, a start up founder doesn’t have a major financial motive." I'm not sure that is in line with the YC program.
I see that you're referring to a LinkedIn article that someone added to Wikipedia. I agree with you. That Linkedin blog by Japjot Sethi has bad heuristics and should be removed as a citation. The Wiki user that added it in May 2019 has been flagged and blocked for bad edits to Wikipedia: https://en.wikipedia.org/wiki/User:Sensate8
https://en.wikipedia.org/w/index.php?title=Startup_company&d...
> The characteristics in that paragraph don't apply to new mom & pop restaurants, dry cleaners, new law practices, etc
I fully expect the founders of those businesses originally have dreams of their business becoming the next F500. But when validation fails...
> and very often associated with funding from VC.
If you keep reading we get to: "Unlike an entrepreneur, a start up founder doesn’t have a major financial motive." I'm not sure that is in line with the YC program. It is clearly focused on the huge exit.
> I fully expect the founders of those businesses originally have dreams of their business becoming the next F500. But when validation fails...
I take it you've not met many such people or business owners. No one except the utterly delusional would think a mom & pop restaurants, dry cleaners, new law practices, etc. would become a F500 company. Amazingly people start companies for reasons other than becoming a F500 company one day.
> No one except the utterly delusional would think a mom & pop restaurants, dry cleaners, new law practices, etc. would become a F500 company.
Do they fail at achieving F500 status at a higher or lower rate than "startups"? Who then is delusional - those who have realizable visions, or the strivers who dream of unicorn-status and still fail.
> No one except the utterly delusional would think a mom & pop restaurants ... would become a F500 company.
The F500 has quite a few restaurants on the list. Other than maybe Starbucks, it seems all of them have humble "mom & pop" beginnings.
Who opens a business thinking "I hope customer response is so poor that I will struggle and never be able to grow"? That is often the outcome – but when is that the dream?
> But there is no Global Language Police that everybody has to obey so if some folks wants to label their new neighborhood coffee house a "startup", nobody will stop them.
This is the trick that VCs/investors use to justify certain behaviors (which I don't care to enumerate here). When you have terms with colloquial meanings and mean different things to different people, the terms are ripe for manipulation. As an example, there are people who still call Uber a "startup". It's very much not a startup in sense of the word, but yet there are still people who refer to it as such.
> That Linkedin blog by Japjot Sethi has bad heuristics and should be removed as a citation.
Which is precisely why the wikipedia article is heavily biased by those who are responsible for maintaining content on the Wikipedia who happened to lean towards the tech circles (yes I'm aware I could submit a petition to Wikipedia to change it). If anything, Wikipedia should create a disambiguation between a Webster's definition and silicon valley's definition.
Then the people you're talking to aren't actually tech founders. They're small business owners, which is fine, but it's a different thing.
Replying here because nesting,
Regardless of if the startup intends to hit it big or remain smallish, a startup is really something that's appropriate until it's operating for profits rather than growth and/or growth in it's market niche naturally slows down due to saturation.
From your point of view, when does a startup is no longer a startup? Seed, Series A, B, C, pre-IPO? Can you be a startup after IPO?
That's another reason I find the re-naming of small business to startup so silly. Putting a billion dollar company and a family small business on the same label is silly just because were started recently. Some startups are worth billions the second they are created. Personally I think startups generally stop being called startups when they get old enough or go public. Then they get other labels such as a private company or a public company.
The point of labels is to quickly give a lot of relevant information about some entity. This helps customers, investors, clients, future employees and so on understand the entity quickly.
> What's the difference? In my mind a startup is just a newly established business, but you seem to have a different vision?
A commonly accepted answer to this question is "The exit strategy does not involve 100X[1] valuation"
[1] Pick the appropriate multiplier.
The dictionary defines startup as: "a newly established business."
Your take is typical on HN, but not the common interpretation.
But then, this is HN.
Hence the hourly reminder that most people don't think like the HN crowd does.
If you are dealing with funding rounds and recaps, you are a startup. I know of one that is twenty years old.
> Your take is typical on HN, but not the common interpretation.
TBH, it appears to be the commonly accepted answer to the question asked, but that doesn't mean it's a commmon interpretation.
To be even more honest, I'm not really sure how I'd classify the difference either; there's a lot of blurring of lines there.
> You do not have to pay this back.
There's a very big key difference from standard small business here
Good to see startup strategies which help build stable, solid middle-sized companies.
Germany has a great success story by the name of the "Mittelstand" (SME businesses), which means a big part if the market are small to middle enterprises. This is far more consumer-friendly and innovative, as more competitive as it's not relying on a few big players like in the US that might also collude with each other.
Small business owner here. Only works if you can carve out a niche. Lots of software areas have clear scaling benefits and then you just can’t compete as a small company.
That’s why MS Office continues to dominate after decades.
Parts of this feel a lot like Canada's SRED program, which is intended to be a subsidy for technology research but the expected bureacracy has spawned an industry of consultancies that work solely to find marginal & questionable activities within companies that qualify. It can be worth it for a company to jump through the hoops - especially if they get something while another company does all the work - but it's an incredibly inefficient way to grow tech businesses.
SRED and other grants/tax rebates is lifeblood for small tech companies here. Also, you know you're a senior dev when you make the yearly pilgrimage to meet with SRED consultants with architecture diagrams in hand!
SRED is a waste of time for companies actually doing R&D, and a profit center for consultancies getting 50% of a pizza joint's write-off of a ski-doo.
Nitpick - if you need to apply and it comes with conditions, it's not UBI. Perhaps a better word would be stipend?
So KFW (state investment bank?) has a thing called StartGeld (startup loan). I've wondered about few practicalities 1) What sort of collateral does bank expect from you? 2) Can you really get 125ke or more like 10-20ke? 3) Interest rate is a single digit number? 4) Can you really get 10 year payback periods?
Reason why I'm asking is that in Finland(where I live) these startgeld terms seem like a dream come true for entrepreneur. To give you an example;
1) Tradiotional bank wants collateral for the loan. For a 5k€ loan, 5k€ in deposits are needed. 2) There a lots of Swedish/Norwegian "loan-houses" advertising their services for companies, with interest rates are somewhere between 23-30% per annum.
Do you have a link for any more information on this? This sounds interesting.
I was working with the "ego." programs in particular: https://www.ib-sachsen-anhalt.de/gruender/gruenden-in-sachse...
This might be different from state to state. There are also EU grants you can apply for, which might contribute to employee salaries. Those are somewhat difficult to navigate and apply for, but sometimes worth it to bridge the salary gap between a "normal" German company and FANG.
Not sure which one the original comment is talking about, but look into "Gründerstipendium" / "EXIST Stipendium".
Then there are also more scholarships based on other criteria, e.g. your state or if you are at an university, many universities also have some sort of entrepreneurial scholarship which will then also help you get the larger scholarships afterwards.
You still need the 25k to register a LLC or whatever the acronym is in Germany, right?
No that's for a full GmbH. You can start with an "UG", which realistically needs maybe 1500 EUR to get registered and up and running. Then, a certain percentage of the profit is contributed towards the 25k (of which in turn only 12.5k have to be deposited in cash) each financial year. If the threshold is met, you can convert from UG to GmbH.
Always go for GmbH. UG will make you account for everything with your private money. If something goes wrong in your business you'll be dirt poor.
That doesn't sound correct. UG is identical to the GmbH in that regard. Do you mean a GbR?
Ahh might have confused it with one of the other forms then... It's been a while since I had to learn all that stuff.
You are confusing UG with something like GbR. UG is basically a baby GmbH with constraints of the name of the company and how much money the associates can extract from it (until the company got 25k€ captial and can become a normal GmbH).
Only up to 25k.
UG allows you to incorporate for 1eur (600eur with accountant, notary, etc) and you are liable only up to level of full GmbH which is 25k.
This sounds crazy to me. What is the €25k for? Hell, what is the €1.5k for? Is there some advantage to this system when compared to the US one where I can start an LLC for $35 or a C-corp for a couple hundred?
What a morass.
You need 25k€ to register a GmbH, but you can nowadays register a UG which only requires 1€ and can later be converted to a GmbH
First, it is sufficient to only pay 50 % of the stock capital at registration of the GMbH, ie. 12500 EUR. Obviously you also have less operating capital then.
Second, the money is not gone. It is right there in the company's account. You use it to pay company bills.
The only thing annoying about German GmbH is that it can take 6-8 weeks until you get your tax id and registration numbers. You can, of course, already do business with the name postfix "i.G.", ie. instead of "Foobar GmbH" you write "Foobar GmbH i.G." and done.
EDIT: typo
> Second, the money is not gone. It is right there in the company's account. You use it to pay company bills.
That's fine if you start a restaurant or small workshop and need money for salaries, materials etc, of course.
It's a barrier to entry when you can start something digital only with just a person or three putting in sweat equity and zero to very little actual cash.
The barrier to entry is the idea that you need a limited liability corporation to start something digital by the seats of your pants. You can always start as a GbR (virtually no costs, spend a day at your city's administration to get a tax id). I mean this in the most charitable way, what kinds of liabilities are you afraid of in that scenario?
Once your idea gets traction and money comes in you hopefully will be able to spare the 1 EUR you need for an UG. Anyway, I recommend investing into founding a GmbH as soon as possible, not for liability's sake but marketing's. You will not make inroads into corporate procurement without a "proper" incorporation.
> I mean this in the most charitable way, what kinds of liabilities are you afraid of in that scenario?
Why do you think I know all the kinds of companies one can register in Germany? :)
I'm not even german or in germany, just keeping myself informed. You never know when it becomes useful.
Up until today I only knew of the GmBH. Now I know of two more types.
I've got the impression that you knew a little about German corporations, but I have been wrong before, so my apologies.
I guess, one can assume that all countries with working institutions (and some without) have at least a simple personal liability corporation, which is easy and cheap to establish, and a basic limited liability corporation, which is a little bit more involved and expensive to establish. I guess, because I haven't done any research, but I've come across such corporate forms in Germany, Italy, France, UK, Luxembourg, Hungary, Serbia, Congo, UAE, Estonia, Netherlands, Denmark, Norway, USA, Canada, the Philippines and probably a few more.
> I've got the impression that you knew a little about German corporations
I did, about the GmBH, from other discussions on HN. As I said, now I know more, thanks.
> have at least a simple personal liability corporation, which is easy and cheap to establish, and a basic limited liability corporation, which is a little bit more involved and expensive to establish
Yes, but in RO where I am the minimum capital for a LLC is like 100 EUR not 25k :)
That's barely enough to pay a cheap accountant for a month ofc.
Oh, cool info. Thank you! I'm always surprised how large the differences of cost between EU nations are. We really need better arbitrage ;)
Why not try Estonia instead? You’ll need to get an e-signature card (“e-Residency”) which might take about a month, then you just submit an online form and get your company number the same day. Mimimum capital is 1 €, and the fees are about 400 € for setup and 100 €/yr for virtual address. https://www.e-resident.gov.ee/eresidency-germans/
The downside, of course, is that you probably won’t get any direct(-ish) subsidies from Germany — although any pan-EU options should be on the table.
> Mimimum capital is 1 €,
If you are talking about an OÜ this is often repeated and technically wrong (the best kind of wrong). One, actually the minimum capital requirement is 0.01 Euro per shareholder, and two, Estonian courts are pretty clear that in an OÜ with less than 2500 EUR capital the shareholders are personally liable to cover the difference between share capital and 2500 EUR to trustees.
Yeah, you’re technically right (the best kind of right!) — on both counts.
However, if I understand everything correctly (IANAL), personal liability is basically the same. If you go for 2500 € capital and your company becomes undercapitalized, you’ll still be personally liable for any claims against your company, no?
(But personally, I just like how this opens opportunities even for people for whom 2500 € is a serious amount of money. Granted, you probably shouldn’t open up a company in this kind of situation, but at least you can!)
Sweet gorilla of Manila! Anyway, I only had to deal with an OÜ once, so take it with a grain of salt. And IANAL, too ;) What I took away is that you are sheltered from claims against the company by economic avtivity, ie. outstanding fullfilment, but you are liable for claims against the company from management misconduct, ie. neglecting tax duties or, worst case, bankruptcy.
Which will cost many thousands in admin per year
Can you elaborate on what you mean by that?
Annual admin costs very much depend on how complex the business is, no? The primary recurring obligation for a UG is the mandatory retention of 25% of annual net profits until the share capital reaches €25k, enabling tax-neutral conversion to a GmbH.
What I could think of for UG with idea on converting to GmbH, you could have:
- UG setup cost (fairly low compared to GmbH)
- UG/GmbH accounting & tax compliance
- Commercial register updates
- Notary fees for structural changes, and eventually the conversion process
I run a small (software) startup in Berlin, the administrative cost is more like €1000/year (of course increasing the bigger your business gets) .
Can non-German citizens apply (citizen of another EU-country, though)? I am planning to move to another EU country and Germany is one strong contender, and this would make it even better.
Not for these specifically, but most of them are funded by EU grants. The current ESF funding period runs until 2027, so you'd need to research which pathways to funding exist in your country and how to apply.
How can I learn more about this? Is it the EXIST program?
I looked into programs like this but they seemed to require so much bureaucracy that I'd be better off without them :(
I posted a bunch of links further downthread. There are also likely non-profit/public institution in your state that will help you navigate this. Of course they can't write the business plan for you :)
I would love to know of some of the companies you know of that have gone this route. Maybe nothing we've heard of, but still sounds interesting.
That sounds amazing! As a founder I'd be over the moon for it.
Are you talking about the "Gründerstipendium"?
Yes, ego.-START: https://www.ib-sachsen-anhalt.de/gruender/neue-existenz-grue... (just of the programs)
Maybe the ones I meant are for NRW (Nordrhein-Westfalen) only:
- https://www.xn--grndungsstipendium-n6b.nrw/
- https://www.foerderdatenbank.de/FDB/Content/DE/Foerderprogra...
So Founder's scholarship: 2,000 euros per month for a period of max. 18 months?
Wow, much better than I expected. How difficult is it to get this scholarship?
Not at all. Here's how you'd go about it:
* for each medium to large University, there will usually be at least one person, if not an entire org of people that will guide you through the process, manage comms with the bank and help you to frame the business plan. These institutions (what I referred to as an "accelerator" in my OP) are publicly funded. You do not pay them.
* prepare your business plan (milestones, market research, financial plan) - at this point you can also utilize other financial support (e.g. matched funds for market research)
* you nominate a "mentor" - this is meant to be an independent expert that will serve as an informal advisor and secondary contact for the bank. There's no liability involved, and usually this is an industry expert, or professor, etc.
* bank accepts the business plan and starts payments
* during the scholarship, the bank will keep in touch with you and the mentor to check in on your business plan milestones. This is mostly an anti-fraud check.
It's important to realize there's an alignment of incentives here:
* you want to start a company and get financial support
* the accelerator advanced its mission (get more startups going)
* the bank advances its mission (create more value in the local region)
* the business plan and milestones unlock ultra-low-interest follow-up financing if you need it, since the bank has already been involved for 18 months and knows the potential/liabilities of your business
This all sounds like a lot, but I've seen founders go through the entire process in just a few weeks of planning. And much of the work, like business planning, is what you need to do anyway.
Thanks for the clarification. So few question about this investment bank and their startup-loans (IB-Gründungsdarlehen).
1) Are those difficult to get? Do you need to put lots of collateral into use?(like putting your personal assets/home as guarantee?)
2) Are the interest rates really in the range of 2.99 to 6.12%? For new company?
3) Is it expected that you personally pay back the full amount if the company fails?
Which land?
Last time I checked and looked for different support scheme all that was offered in Berlin was some 90s style support for office equipment (we are fully remote) support or 1/2 salary on an intern.
Truly pathetic back in the early 2024.
SA, links are below.
Berlin has different programs. An equivalent scholarship is available through ESF+ funds: https://www.foerderdatenbank.de/FDB/Content/DE/Foerderprogra...
I've also been part of HTGF and bmp funded startups in Berlin, and those two are the most active players in seed funding, if more traditional capital-for-equity is what you're looking for. Both are also experienced with augmenting their investment with EU and state (IBB) funds.
> state's investment bank
Eww, no.
I would love to see the actual long term statistics for this program and others like it, because from the outside looking in, it seems to produce a lot of zombie companies and companies that are wholly structured around financing themselves through more grants and other public programs.
The incentives are just bad all around. The “LP”s are lawmakers and politicians, but in the best case only insofar as the program is popular or contributed to economic good vibes that keep them in office and lawn. The "GP"s are bureaucrats with no skin in the game except for avoiding fraud and impropriety and keeping their management chain happy (ultimately reporting to politicians who can also have worst case incentives of directory the money towards, ahem, personally expedient things).
Then on the other side, clearly it is such a bureaucratic program that regular entrepreneurs struggle to navigate it. The accelerator you mention is spending potential teaching/helping time towards the goal of building a sustainable business on figuring out how to get money from the program (normally accelerators GIVE you money) - presumably they are coinvesting or taking a cut somehow, which ultimately means they are basically getting paid to shuttle people through the program [0]. And founders are spending time they should spend building and validating their product, or fundraising from people with skin in the game (who care about the important things and not so much whether form 47b was stamped by a notary), on figuring out how to get a grant.
In my opinion this kind of funding should be split between a much lower-bureaucracy and overhead public program (eg UBI) and the private sector. That makes the overhead for security “operational” startup expenses like housing/feeding the founders very very low, and directs “capital” startup expenses like buildings, equipment, and employees’ initial salaries more efficiently [1]. Or you can tax middle class workers less (you guys have really high payroll/VAT) and give them more control over their retirement money so it’s easier to build a solid amount of personal wealth to start a business.
IMO there is a misconception with new founders in general, including me when first starting a company, that you should spend a lot of time fundraising and need to get a big check to get started [2]. Programs like this make it worse because you spend crucial time building the company and your skills as a founder on passing some well-defined hurdle like “get the big grant” or “get accepted into program X” - it is your first major task as a startup founder - only to then be faced with the fact that almost *no future company task will be that well-defined*, and the realization that *you spent a lot of time “buying more time” to get to profitability when you could have just worked on that to begin with*.
[0] Unless you are a lawyer, in the US it's seen as corruption when private parties serve as paid facilitators and gatekeepers to public programs.
[1] One of the reasons it's hard to start a mid-sized company is that "traditional" lenders only want you to borrow things like equipment and buildings that you can get almost all the value back from if you fail, VC only want you to spend money on things with the possibility of yielding huge returns, and PE just have better opportunities than taking a chance on Joe Schmo. So if you can reach ramen-profitability without VC and only need traditional loans to get started it should be much easier to start a medium sized company.
[2] Obviously raising money can be essential or really beneficial, and it's a "founder task" but I think many people forget that it's not an end-unto-itself, but a way to get you from point A to point B. The only people who should truly see it as an end-unto-itself are people who just want to pay themselves and their friends with no intention of starting a sustainable business (that is also called fraud or scamming). Everybody else should just see it as a step on the path towards a sustainable business, and not a legitimizing mark/right of passage. Actually, if you take VC money on a convertible note to spend on stuff that you could have financed traditionally or didn't really need you are essentially giving away tons of upside with little change in downside.
And yet Germany still doesn't seem to have much more startup / entrepreneurial success than any other European country. What gives?
What are you looking for in particular? The model is geared towards slow, sustainable growth. And that growth might also not need to exceed a certain level. So you're unlikely to hear about many of them. Not all are in tech or software, many are focused on German-only (or DACH region) research, industrial development, etc. I think that's fine.
There was even an expression coined for this phenomenon in Germany: https://en.m.wikipedia.org/wiki/Hidden_champions
We have lots of SMEs that are world leading in their niche, but most people have never heard of them.
Presumably you'd want to see that such initiatives are increasing the number of sustainable businesses created, per capita. Is that the case?
---
EDIT: Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
Just wondering what actually moves the needle and how to better create a society that is entrepreneurial, and not just in a "billion dollar social media unicorn" kinda way, but businesses that provide actual tangible value. Definitely recognize that the "quality" of businesses being started in Germany could be higher, but I think you actually need to measure these things and understand what interventions actually make a difference. It is a similar issue with UBI in general: while it sounds nice and might be necessary if our "AI is the future" overlords get their way, you do actually need to back up the promise of "UBI will unlock human creativity" with some amount of hard data, imo.
> Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
It sounds like these are small businesses and not startups. The US has 10% small businesses per capita.
My brief research was looking at new business registrations per year.
> Some quick searching indicates that the startup rate (per capita) in Germany is about 1.1%, while the USA is 1.5%. Not a huge difference, but the USA doesn't have any of those initiatives afaik.
I believe there's differences between east and west Germany, so if you look at the west specifically, the gamp might get a little bit smaller.
Beyond that, Germany doesn't have as much of a startup culture as the USA, which is precisely why we need to incentivise people in a way that others don't.
> Just wondering what actually moves the needle and how to better create a society that is entrepreneurial
Willingness and awareness, where the latter is probably easy to fix but the former is a bit trickier: You need those people who have the ability to pull it off to want it in the first place.
And there I guess it splits into a) the benefits of entreprenaurship b) the benefits of employment and c) the cultural influence on how these are weighed against each other.
So tl;dr: a) make starting a company attractive, b) make employment suck more and c) convince people that independence beats security.
Employment in Germany is definitely a lot cozier than in the US, so unless we want to get rid of that, a) and c) are the options we have. If you want to achieve it without propaganda, then all you can really do is a), and that's what these programmes are already doing.
I think reducing buerocracy and offering good social safety nets so a failing business doesn't translate to a ruined life are the way to go, at least in the short term.
Or maybe having a social safety net has the opposite effect you think it does, in that anyone starting a business without one is going to try that much harder to make sure their business doesn't fail, as otherwise their life is ruined. Someone with a safety net might be happy to give up after some minimum of effort because they know they'll be fine. Necessity is an incredibly strong motivator for people.
Not necessarily saying that relying on the specter of ruination would be the right choice (if the above was true), but I don't think you can reduce it to such simplistic levers.
Is slow growth sustainable?
Entrepreneurial success they definitely have, it's just not in-your-face tech/digital stuff, it's lots of Mittelstand companies focusing on niches, like in high-precision machines that are then used for precision manufacturing (optical lenses, chemistry reactors, etc.).
What gives is that it isn't a primarily marketing-driven consumer-facing entrepreneurship so you don't hear about Peter Huber Kältemaschinenbau, or Rational AG-like companies[0].
[0] https://www.chargeurs.com/wp-content/uploads/2020/01/The-Bes...
German bureaucracy is a constant hindrance. Your first year in business is pure compliance work, and waiting for various paper-based processes to complete.
Germany are also very risk averse. So we need such programs even just to counter this risk aversion.
Have you heard of Rocket Internet? It's one of the most successful models in the world. They may avoid the US market and such, but most of the unicorns in Malaysia are backed by Rocket. And most of the people who stay and start their own, backed by YC or whoever, are usually ex-Rocket. They hit 10% growth per week, even at unicorn sizes.
I would anecdotally put Germany at #3 globally just for Rocket alone, with US and China ahead of them.
There's lots of successful non-Rocket startups from Germany too, but most are boring stuff like agriculture, grocery delivery, pet stuff, etc. We normally don't take note of startups until they're Stripe-sized or something.
Isn't Rocket's reputation that they just steal ideas from other startups and create cheap clones of them? Not a terrible business to be in, but not massively inspiring or globally reproducible.
I'm not a big fan of Rocket, but I think that's an unfair way to put it. I'd say they're similar to what Bezos would be like if he had to start from Europe lol.
They take an existing model with a lot of potential and focus on implementation. They had a golden period with e-commerce because e-commerce is heavily logistics. And they do it in the hardest places, because the harder it is, the more they can sell the company for.
Back when Lazada started, Indonesia had terrible credit card penetration. Roads were not suited to delivery; heck they built their own logistics because the local logistics were not suited for e-commerce. There's a lot of complex laws on hiring, or incorporating companies there (which are nicer now).
China won't do it. They don't want to build companies in 6 different low income country with a total of 500m population or so. Normal people would just target the US or EU, which has more people and more money.
But Rocket goes into these countries. They have a lot of emphasis on leadership. They drop a scalable playbook for the locals. They grow it fast until it hits a cap before they sell it off to something like Alibaba. They do have some dark patterns as well. Whatever caricatures people have of China, Rocket does it better - they work longer hours, work people harder, build things for extreme scale, do what the Chinese won't.
It is not the funding model that GP speaks of. But it is a fairly successful model of creating and exiting startups. It's quite autocratic to my understanding. I don't have that kind of work ethic and I feel like there's a hint of envy when people call them copycats. They don't have a good presence on the English Wikipedia though.
It is a New Pied Piper...
Is there any way to put numbers to this success? As in, by what metric is Germany #3?
> And yet Germany still doesn't seem to have much more startup / entrepreneurial success than any other European country. What gives?
Too much bureaucracy.
Many people in Germany do hate it; there even exist quite some people in Germany who would really deeply from their heart love to see the politicians dead who are responsible for the whole bureaucratic mess (which are lots of politicians).
EDIT: nicbou gives a similar point: https://news.ycombinator.com/item?id=43609839
Bureaucracy is crazy in Germany. Forget about doing anything online, paper and in person only.
Founding any form of limited company is expensive and complicated. Want to put a website online? Have fun putting your full name and address in the imprint. Want to offer some courses that teach X? Yeah, no, you need a license for that, mate!
Also being self-employed you lose most social benefits. You need to get private healthcare, you need to save up for retirement and so on. Getting back into public health care later on can be a bit complicated.
So my advice is to keep working part time on a job that gives you health insurance and everything and work on your company in your free time.
Germany is also one of the least friendly countries for expats. And I say that as a native Germain. Officials will refuse to speak English to you. Yes, refuse. Most people know how to speak English but often can't be arsed to do so. Plus general xenophobia and people being very tight-knit and not open to making new friends.
> You need to get private healthcare
No you don't, you can stay in the public system.
> you need to save up for retirement and so on
You can still contribute voluntarily to the public pension if you want to but the majority of self-employed people here don't as this is seen as a feature not a bug.
Part of the concept of being self-employed in Germany is that you're opting out of the welfare state and are responsible for taking care of yourself. With the potential upside of better raw earning potential.
While I completely agree with many of the points that you made, I disagree with some:
> Bureaucracy is crazy in Germany. Forget about doing anything online, paper and in person only.
The latter point has nothing to do with bureaucracy.
> Germany is also one of the least friendly countries for expats. And I say that as a native Germain. Officials will refuse to speak English to you. Yes, refuse.
For example in the USA, they will refuse to speak German with you. So what?
In my opinion there actually exist good reasons for this:
1. A lot of legal, bureaucratic German terms have no direct analogue in English (and their word forming sometimes depends on subtle grammatical features of the German leanguage).
2. For official purposes, it does not suffice if the clerk can somewhat speak English; he/she rather has to be fluent in a way that is "negotiation-safe" ("verhandlungssicher"; I know that this German term is usually translated with "confident in business discussions", "business fluent", "language proficient", but all of these translations don't catch the subtlety of the German term).
> people [are] not open to making new friends.
The German word "Freund" (commonly translated with "friend") has a different meaning than the English "friend" - the relationship goes much deeper. I don't think that Germans are not open to making new "Freunde", but if you want to have shallow, superficial relationships, Germany is not the ideal country. Vice versa, if you want to have deep relationships, you will likely be annoyed by the USA.
> For example in the USA, they will refuse to speak German with you. So what?
Actually they would most likely be delighted to show off their German if they knew any. But that is besides the point. English for better or worse is the current international language.
I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
If you want to attract international talent you have to adapt.
> The German word "Freund" (commonly translated with "friend") has a different meaning than the English "friend" - the relationship goes much deeper. I don't think that Germans are not open to making new "Freunde", but if you want to have shallow, superficial relationships, Germany is not the ideal country. Vice versa, if you want to have deep relationships, you will likely be annoyed by the USA.
Yeah, Americans have only superficial friendships, only us Germans know the value of real friendships. (Sarcasm)
You are not wrong about there being subtle cultural differences but it isn't an either or. You can value deep friendships but still be friendly towards acquaintances.
In the end it doesn't matter the reason. If expats feel like Germans are acting coldly towards them and have a bad time in Germany, that is what they are feeling. It doesn't matter if there are good reason for that or if Germans didn't even intend to act coldly. It just fact that Germany is often seen as one of the least friendly countries for outsiders. Not everyone, some do find it easy to integrate but most don't.
I sick of the chauvinism is see from other Germans. Our culture isn't better or worse than others. We certainly have many areas we could improve.
> I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
> If you want to attract international talent you have to adapt.
Calling English "international" is like calling Spanish, Chinese, Russian, Arabic, French, Portuguese, Turkish or German "international". Internationality is not "English".
> You can value deep friendships but still be friendly towards acquaintances.
I insist that Germans are typically not less friendly, but they are indeed less warm (compared to, say, people from South American countries, and also some South European countries). This is coherent with your claim "If expats feel like Germans are acting coldly towards them", which I would not consider to be unfriendly. Indeed: what is considered to be "friendly" differs a lot between countries.
> Not everyone, some do find it easy to integrate but most don't.
If you don't want to learn German, it will likely be hard (or at least much harder) to integrate. The problem rather is that many people invested years, sometimes decades, into learning English and US-American customs instead of learning German and customs of German-speaking countries. Thus the situation that your mentioned people don't find it easy to integrate is in my opinion partially self-inflicted.
> I can found a new company in Estonia in literal minutes without speaking a single word of Estonian and without being physically present in the country because the whole process is digital and in English.
Bad example. When you incorporate in Estonia, if you come through eResidency, they are very clear and very open in stating that ANY interaction with tax office and/or judicial system WILL be and MUST be performed in Estonian.
Is that an practical issue? I imagine you wouldn't interact with the tax office anyway as you fill the taxes them electronically and as for the judicial system, you are going to need an Estonian lawyer anyway.
Genuinely asking. Wondering if someone has experience doing business in Estonia. It looks pretty nice in the prospectus so would love to hear what the reality is.
In practical terms you can hire someone. Mind you if you hit an audit, those hourly fees quickly add up.
Also side note, Estonian companies have been recently overrun with Russians. I don't deal with EE companies anymore. Got burned too many times.
> For example in the USA, they will refuse to speak German with you. So what?
In the USA many official government forms are made in several different languages.
This may not always be the federal government (probably less likely these days), but in California you can cast your vote in like 5 different languages (maybe more)?
This would never happen in Europe. It's simply less friendly to diversity.
> This would never happen in Europe. It's simply less friendly to diversity.
In Germany, six minority languages are protected:
* Dänisch (Danish)
* Nordfriesisch (North Frisian)
* Saterfriesisch (Saterland Frisian)
* Romanes (Romany)
* Niedersorbisch (Lower Sorbian)
* Obersorbisch (Upper Sorbian)
Source: https://www.bmi.bund.de/DE/themen/heimat-integration/gesells...
This means in the respective German regions you can also speak to the administrative agencies in these minority languages.
The difference is that in the USA people are willing to add languages just based on the languages the people there already speak.
Edit to add: In Germany this might mean you could interact with the government if not in english, then also arabic, turkish or vietnamese.
Only applies to people with a degree. Institutionalised nepotism. Just like how your chamber of commerce keeps out the competition. Typical western decay/corruption. Closing the ranks and drawing in other peoples money.
I live in a country (Germany) that is famous for having a lot of "mittelstand". These are basically family owned businesses. Some large German companies fall under this. Aldi and LIDL for example, which are super market chains that at this point have a global presence. And some large companies (Bosch, Siemens, VW, etc.) are actually a multitude of smaller companies. Much of the German economy is smaller and bigger specialized companies doing their thing. Only some of them are public companies.
What these companies have in common is that they start small and then grow organically. The main issue from a VC point of view is not that these aren't good companies but that it can take decades for them to turn into big companies. But from the point of view of the people founding these businesses, it's a good, honest way to succeed in life.
There's nothing wrong with the principle of starting a company to make money from whatever it is you do at whatever scale you are doing it. But it should drive your decision making as to whether or not you give chunks of your company away to an investor. It might stop being your company if you do.
Also, if you go down this path. Stop calling yourself a startup. It scares away customers. They don't want to hear that you are a flaky wannabe that is still figuring it out. They want to hear about your other customers and how awesome whatever it is you are selling is. They want to be re-assured that it is safe for them to enter into a multi year customer relationship with you. Projecting that you are new to all this company stuff and might not be around in six months is exactly the wrong message for them. They don't want to hear about what you are going to do, they want to hear about what you have done already. The stuff that gets VCs horny will scare away customers. If you are pitching customers and VCs at the same time, make sure you have two very different pitches. And if you are going to pitch VCs, it actually helps if you have customers. The more business you have the stronger your negotiation position.
I was part of mittelstand once.
I think it is very hard to compete in the market where lot of things are subsidized by VC money. The new VC backed companies have more money for marketing, subsidized sales wherein older orgs are hard to move.
Esp. for german orgs, they are very hierarchical, getting an innovation out is hard. Add union to the mix. Their margins are razor thing. It is a struggle. I can imagine back in the day, they moved the innovation needle.
Lot of these companies are often bailed out by the government as they employ alot of people.
I see your point, but at the end of the day you look at the 30 biggest companies in Germany by market cap and they are essentially the same after decades which is not really a symptom of a dynamic economy (for good and bad).
Yes that’s not how Germany produces OpenAI or Space X.
But it’s how you produce a lot of other things.
If you were the sole proprietor of the 1000th largest company in Germany, you'd be fabulously rich. If your objective is personal enrichment then it doesn't really matter whether you have 10% of a huge pie vs 100% of a smaller pie, and the latter may be easier.
Only psychopaths with other people's money to burn want to produce OpenAI or Space X.
I think if you want to produce a sustainable business that lasts a long, long time, and provides a good product to a lot of customers, and employ a lot of good people and provide them with a good living, you want to do this, not that.
So…VCs
(:
I do like the idea in general and feel there's a lot of room for improvement between the (VC / bootstrapping) extremes.
However, the middle path from the article presumes the existence of VCs willing to join you on that path. The article waves this away with:
> angel investors are generally more open to a 2-3x ROI
For a $1M round you'd need to find 10-20 such angels (assuming $50k-$100k average check size) willing to accept small upside, for which you'll have convince them there's commensurately smaller risk. This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
Do not underestimate the value of YC brand and being able to present on Demo Day gives you. A random Jane from Ohio building her tech company would have a lot harder time finding those 10-20 angels, to put it mildly. I'd be more careful when extrapolating path-dependent success into a general strategy.
That said, my gut feeling is there's room for the next Paul Graham to fill that space - somehow.
That is what I was wondering as well. Where can I find investors willing to invest up to $1M with an expected 2-3x ROI on typical VC terms? In particular, for pre-revenue ventures. And how can you keep that 90%+ equity with 10 angel investors?
Yeah, unless they're your friends or rich uncle, these investors don't exist.
When the OP raised money, it sounds like he was still planning on going the VC-funded route, and that's the assumption investors would have been operating under.
In the end, they were probably okay with a 2-3x ROI because they expect most of their investments not to work out, and 2-3x is better than 0x. But I doubt they would have invested if the plan all along was to aim for a 2-3x return.
> This will probably mean you have some revenue and some sense of where PMF might lay or some kind of brand/pedigree.
> Do not underestimate the value of YC brand and being able to present on Demo Day gives you
Except to get into YC you also need to have very good traction and a plan to 10x that quickly
The two exceptions to that I’ve seen are: 1) you’ve had a good exit before, 2) you graduated from Stanford, Yale, Harvard, or similar
So for people with neither of the above, finding 10-20 angels might actually be more doable than getting into YC. Although, once you’ve done that, YC is a lot more likely to take you in
I can't speak for YC, but as an operator: the primary reason to go to YC is to smooth a path for later fundraising, and if you plan to fundraise, you need something like a 10x trajectory, because VC portfolio math doesn't work for companies without it.
For smaller amounts of monies such as £250k or £1mm, it is much easier to get funding, since a decent amount of countries offer tax relief to the investors for example in the UK through EIS, SEIS, or even VCT. These offer advantages to angels over the VC's.
In addition the whole point of this piece is that you are generally looking to grow slower, thus having smaller capital requirements and burn rate.
Also almost always angels profit either from secondary in next rounds from VC or acquisition or IPO. In general it is very hard to return back 2-3x in say 2-3 years without going to VC for next round.
I'm always conflicted about this because it's like saying the sky is blue.
Stepping outside of the VC startup bubble, we see small self-funded businesses are the norm. It's the neighborhood businesses all around us.
82% of all US business have <10 employees https://forstarters.substack.com/p/for-starters-10-the-three...
99.976% of new businesses don’t raise venture capital. https://forstarters.substack.com/p/for-starters-32-start-wit...
I'm guessing you know this, but for those new to the terms: what this post describes as the "VC route" and the "bootstrap route" are usually referred to as "growth businesses" and "lifestyle businesses" (i.e. pays for the lifestyle of the founders).
As a big believer in the need for syndicated worker's coops, I think this basic distinction is a pretty great radicalization tool against the current system ;)
VC vs bootstrap is usually based on company TAM. There are certainly high growth bootstrapped businesses.
But the percentage we're really interested in is "what percentage of tech based startups are VC vs. bootstrapped." Especially in, say, the Bay Area. I don't know what that figure is, but I'd like to know.
Not common in Silicon Valley, but much more common in the rest of the country. There’s an archetype for bootstrapped tech businesses: - highly vertical specific - couple hundred million TAM - founder started the business in their 30s and is now in their 40s
HN wants to hear what they already know, what to hear, or agree on.
> even a relatively small deal would produce a life-changing outcome for the founding team.
I run a SaaS with a business partner and this is basically our thesis for getting rich. My saying around this is "This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt, but it will make a company of 5-10 filthy rich"
This is exactly what I am doing. I started another startup in February 2024. After a year, I crossed $1M in annual profit with three employees. I am not planning to scale humans. Profits are growing, and we don't need to hire more people. LLMs and scripting automation are doing the work of approx. 20-30 people — this wasn't possible before.
I'd be curious to hear about how you are managing quality on LLM generated stuff.
They probably mostly don't need to be.
Most SaaS companies are not doing anything particularly innovative or novel. Most of them provide value via putting in the work to glue together several other APIs, automating something that previously was harder to script/automate, or simply applying an idea that another company pioneered to another market segment: "It's like Theranos but for barbers!"
These use cases are generally so typical of the technology being used, that LLMs can do a lot of work to script things and it's usually pretty easy to QC.
I'm using LLMs to analyze 13F corporate filings, options flow, market news, etc. This was very labor intensive before. Essentially impossible for small companies. A 13F report can have 150 pages or so.
Just eliminating redious things. It's nothing difficult for a human, but we would have to hire a ton of humans and couldn't compete against the big guys then.
I'm not offering an LLM wrapper SaaS for my clients. We are just using this internally.
Sorry but I think your saying is wrong.
> This amount of revenue/profit will cause a company of 500 or 1000 to go bankrupt
Or more likely it would make them fire 995 out of 1000 and the remaining 5 could be almost as rich as you 10, and they have advantage of spending for few years on marketing and better development.
Well yes, that's called a regular company. Not sure if I'm missing something here?
At least some years ago, browsing HN's comment section felt like it was a different world, separated from reality. I think some people need this kind of grounding reminders every once in a while.
Russ (VC): Why would you go after revenue?
Richard (CEO): Because... to make money?
Russ: No. If you show revenue, people will ask how much, and it will never be enough. The company that was the hundred x-er, the thousand x-er, becomes the two x dog. But if you have no revenue, you can say you're pre-revenue... you're a potential pure play. It's not about how much you earn, it's about what you're worth, and who's worth the most? Companies that lose money. Pinterest, SnapChat, no revenue. Amazon has lost money every fucking quarter for the last twenty fucking years and that Bezos motherfucker is the king. There's no revenue. No one wants to see revenue. Go!
Richard: Oh, um, I just thought that mainly the goal of companies is to make money.
Russ: Yeah, no no no, that's not how it works. I don't want to make a little bit of money every day, I want to make a fuckton of money all at once. ROI. ROI!
— Silicon Valley, "Bad Money" (2015). https://www.youtube.com/watch?v=BzAdXyPYKQo
One of the best shows of all time, both extremely sarcastic but so on-point at the same time. We laugh because we know it's true
Part of it was Mike Judge (Office Space, among others). Part was that they did really good research. They nailed lots of little details about VC, technology, tech businesses, the locale, and industry.
> ROI
Radio on Internet
If you read enough comments about AI or LLMs on here you will realize the people of Hacker News do live in a different world from reality.
I've been on here long enough to see it with every tech hype cycle in the past ~20 years. Self driving cars, VR, bitcoin, then generically 'crypto', web3, now AI/LLMs, probably a lot I'm missing right now... It's funny how the optimist control the narrative in the beginning then the pessimist start chiming in around the time the hype starts to vaporize. The AI/LLM cynicism is rising right now it seems.
I guess I have a different view on this... I feel like you left out that the past 20 years has also seen enormous success in this industry, even to a historically unprecedented degree.
You listed a number of things that have been super hyped flashes in the pan that never really panned out (or in the case of self driving cars, have taken way longer to pan out than people expected), but you didn't list the things that were super hyped and then became big successful sectors.
I remember when I thought "web 2.0" was overhyped, but now it's just the water we all swim in. I remember when that went from blogs to being social media, and I thought that was way overhyped too, but it turns out it was a big deal. The cloud was overhyped, "big data" was overhyped, SaaS was overhyped.
And it's true that all of these were overhyped! But they also turned into real business sectors.
It's certainly difficult to predict which hype-y things are going to mature into sustainably large markets, and which are going to fade into obscurity, but a model of "things that are hyped are doomed" is not predictive.
My own prediction is that AI tools are both overhyped and also very promising. I have no illusions that this prediction could be totally wrong. And even if it's right, I'm even more uncertain what the successful business models are going to be after the dust settles. We'll see!
> It's certainly difficult to predict which hype-y things are going to mature into sustainably large markets, and which are going to fade into obscurity, but a model of "things that are hyped are doomed" is not predictive
Perhaps this is where we differ. I offered a list of things that, granted IMO, were all hype with little substance. Or perhaps just on a timeline so long that many people got the hype timing wrong.
Your list was mostly things that were obvious winners. They were mostly building steam with real world use cases and trending hard before the buzzwords got associated with the movements (eg. Web 2.0 and saas). These were obvious enhancements to the status quo. I’m not sure they were overhyped as they did very much become the defacto standard for their time. It doesn’t mean they will hold that title for ever, but tremendous economic value falls under those umbrellas. I’d argue intrinsic value too (unlike crypto).
AI/LLM might do that in some regards. But doing it in a way that makes lasting business sense is still tbd. AI eating the world, still very much tbd. So I do think we agree on this point.
There is a happy medium between "AI eating the world" and "AI is a scam," that is generally best described as "AI performing valuable but often boring services within enterprises."
We don't often see that because it gets totally drowned out between cynics and moralist scolds battling vapid hype-bros and pumpers, and also because it's boring.
It turns out there's actually a lot of tedious classification, OCR, entity extraction, and enterprise search to be done.
Amusingly much of the money made in SaaS was also in boring products!
Well put!
My contention is that if you went back and did a sentiment analysis of the early to mid hype cycle conversations around the things in your list and compared them with the things in my list, there would be very little difference between the two sets of things. There was lots of hype and also lots of skepticism, for both sets of things.
My point is that hype vs. skepticism just isn't the useful metric.
I agree with you that this does not mean that it's impossible to identify which technologies have a "there" there, and which don't. I just don't think the level of hype is a very helpful input into the calculation.
There is a lot of cynicism (I am a cynic) but LLMs are in my opinion already past everything else you mentioned, they're being used by "ordinary" people in their daily lives. Non-tech people are using LLMs (in many cases where they shouldn't, and some where maybe they should) and the rate at which they've become more useful has far surpassed what my very cynical circles of industry friends expected. I still think things are overblown, but "AI" in one form or another is here to stay, for better or for worse (almost certainly worse).
> It's funny how the optimist
s/optimist/gullible
Actually, the rest of the comment section shows that this is still the case, at least to some extent.
Well, this is YCombinator, after all. VC-funded startups do still need to be ~unicorns.
'Be a normal person/company and do normal person/company things,' isn't talked about very often, and it can be useful to be reminded that it is a pathway that can lead to success.
It depends very much on your definition of success. Many who grew up upper middle class would define survival as failure.
Who talked about survival? If you think that anything other than becoming as rich as Mark Zuckerberg is "survival", then you're in for a treat.
Life is too short and the works is to big for that kind of mindset.
lifestyle businesses provide far more than "survival"
It's not a "regular" company, because it's still raising angel investment, presumably from the tech/startup ecosystem.
A more common route for non-tech-startup companies is to get money via debt - in other words, borrow money from a bank or financiers. That's a different model to with different risk/reward characteristics, but it's how most non-innovative entrepreneurship is done, I believe - things like building restaurants, buildings, etc.
This is indeed a "middle path" in terms of raising money by selling equity, but selling a smaller amount of it for less money, which keeps more ownership stake and control in the hands of the founders, but necessitates slower spending cause they raised less capital.
> because it's still raising angel investment, presumably from the tech/startup ecosystem.
> A more common route for non-tech-startup companies is to get money via debt - in other words, borrow money from a bank or financiers.
What do you think angel investors are if not financiers, and what do you think those investments are if not debt?
The only difference is that in the software- and software-adjacent world everyone expects a 100-fold return on their investments.
> What do you think angel investors are if not financiers, and what do you think those investments are if not debt?
No, those are equity investments, usually. It's a different thing with different rules.
Equity investments give the angel investors ownership of the company - equity. This is either direct selling of shares of a company to angels, or (more typically nowadays) via instruments like convertible notes, which convert to equity in future funding rounds. Other than this ownership stake, they are typically not entitled to anything else.
Debt investments, on the other hand, don't give any ownership to the financier. They only entitle them to receive some future payments from the borrower.
These are completely different things, and large companies often use a mix of both. But in startup-land, the typical investment is done via equity.
Regular companies aren't given $1m they don't have to pay back.
They have to get loans and founders are usually on the hook if the venture fails.
This is different from what the article advocates.
I run a small 20 year old service business in the US. Just getting a $300K line of credit from a bank required a lot of paperwork and both the company and me personally being on the hook. It took about a month to secure. In contrast, on a different occasion a secured a personal home equity line of credit for $100K in a bout 5 minutes.
Was there a mortgage right in the mix in your second occasion?
That’s pretty much what I took away. I guess the difference is that in my mind a “regular” company gets its funding via a loan. The post is from someone who got into YC.
But yeah “building for profitability” sounds a lot like… good business!
A million investment doesn't sound regular. Basically if you raise a mill for 33% you value yourself at $2m. That is without PMF or revenue!
This seems like pulling a fast one on VCs if you then pivot to bootstrapping a nice family business. That ain't why they threw $1m at your PowerPoint.
In "dragons den" style traditional business they'd offer you $50k for 50% at that stage. Maybe.
It's obviously better to raise the optimal amount and no more. But things are not always so clean, and the best time to raise is when your company is killing it, not when you're running out of cash and trying to make it to profitability.
I think one option this approach ignores is the ability to raise, but not spend profligately and not give up board seats.
E.g. if you raise $10m, but still have $8m in the bank, a $10+8m exit is still possible. You do lose whatever percentage on top of liquidation preferences you sold, but the $10m in insurance can be helpful.
Another thing to keep in mind is that once you have competitors, the pace at which your invest and ship is not entirely up to you. If your competitors raise more and manage to ship more or out-market you, your product is going to get squeezed out of the market.
Slack is sort of the prime example in my mind here of a pretty unimpressive product dominating the space through fundraising. None of their erstwhile competitors had good outcomes because Slack just sucked all the oxygen out of that space and the only company who could really compete with that turned out to be Microsoft.
If you raised $18MM total in two rounds and then sell for $18MM, you're going to walk away with a signing bonus for the new company and little else, right? You can't generally sell in order to distribute the proceeds of an investment round to the company operators.
I am mostly imagining the "happy middle" scenario where you raise $1m and sell for $10m in cash, but modified to assume you raised $10m and spent $2m of it, and then got the $10m in cash from the acquirer, and still have $8m in the bank account, you would give back $10m to your investors per the liquidation preferences and then split the remaining $8m.
You are in a worse boat than if you had only raised the $1m and then sold for $10m, but the founders probably still walk away with ~5-7m pre-tax (depending on how much equity the $10m cost you over 1-2 rounds), and you're in a better position than if you had run through the $1m and hadn't quite gotten to a thing worth $10m.
https://paulgraham.com/growth.html
"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth."
I believe there is also a quote from him about a startup being the band that sells a million records, not the bad that plays at weddings.
Yes, this is what every venture capitalist says. You aren't doing a startup unless you want extreme growth, which requires our services and cuts us in. Building in a capital efficient way that generates substantial wealth for founders, but without giving VCs a cut of the pie, is, of course, "not a real startup," and often also slandered as a "lifestyle business" for low-ambition people.
PG is great in many ways but he's not the person I'd turn to for an unbiased opinion on what counts as a "startup."
The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle when they can basically dictate terms and want hundreds of millions for liquidity or whatever (see, e.g., Joe Mansueto).
It is the definition of the word. Nowhere does pg say you can't start a non-startup business.
>The founders I'm particularly impressed with are the ones who have such a nuanced understanding of capital efficiency that they do not require VC, and only take money much later in the cycle
That isn't "understanding capital efficiency" it is called having enough capital already.
Your comment seems to suggest that you don't see any difference between "capital efficiency" and "having capital."
The terms mean very different things. Capital efficiency is measured by metrics such as the cash conversion cycle. It's possible to design a business model in such a way that you have negative cash conversion cycles, which cause you to actually generate cash as a function of growth (even when unprofitable by GAAP!), which is the opposite of most VC funded businesses whose burn rate is roughly a function of their growth rate.
>It's possible to design a business model in such a way that you have negative cash conversion cycles,
This seems like it would only be possible if your DPO is greater than the sum of your DIO and DSO. In other words, you are so tardy in paying your invoices (or good at negotiating payment terms, I suppose) that you manage to sit on cash worth more than the value of your inventory + outstanding receivables. That is... one way to run your business.
Maybe I am missing something but this seems like a house of cards. Eventually you need to pay your invoices, and time shifting that a bit doesn't actually make your business profitable.
Quite willing to accept I have missed something though.
Someone investing $1M for 10% might better off buy gold or a property.
It sounds good for me as a founder, but from investor point of view, this is pointless. Why taking a huge risk for 10%?
Because gold will appreciate reliably to an extent but a company can appreciate in value far exceeding what gold can -- that's the risk/reward trade off.
The chances of a startup failing is way higher than gold degrading in price.
It sure is and many do choose gold for this reason. It depends on how much risk you want to expose yourself to.
if an investor already has X% amount of their portfolio invested in gold, they might seek to diversify by investing in uncorrelated ventured such as startups. an investments idiosyncratic risk/reward is only meaningful in relation to other investments in the universe of choices the investor can make.
Hence why the potential upset of a business is so much higher. Risk vs. reward, as usual.
There are other good replies as well, but I would add to the list mission-based investing.
I would easily consider a positive impact along with risk and returns when making an investment decision. Not everyone would, and not everyone should, but it is a part of the funding landscape.
If for 1M I get 10%, the company is valued at 10M.
Going from 10M to 20M is not a big stretch, and that would net me 1M already. More than gold appreciation I believe.
10M to 20M in what amount of time? This is not incidental, it is critical to determining IRR (Internal Rate of Return).
If the company goes to 20M in 10 years, that sounds great, but is only a 7% compound rate of growth. I can get that with much less risk by investing in the S&P 500. And don’t discount the risk. It is critical. A small business has a very large chance of 100% total loss. Compare that to the 500 index, which has a very small chance of a 50% loss, max.
To count for risk, I would look for a doubling (10M to 20M) in at least 2-3 years, min.
You also have to think about liquidity. If you want to cash out, who is going to buy your shares at the price you want? This might not be as easy as you might think. I can liquidate 500 index shares in seconds. It might take a year or more to find a buyer for your 10% at the price you want.
1M "on paper", no cash
Portfolio diversification
Trying to be a unicorn killed many otherwise good products. For instance Evernote. Or Wunderlist. Or Soundcloud.
I mean, by the time Evernote died, they were an SFBA skyline company, not a startup.
> For most B2B SaaS businesses, you shouldn’t need more than $1M in capital to get to PMF
I'm not sure that's true today. Author is a one-time founder that had some success. He exudes selection bias. Note: i'm not poo-pooing him that "oh he's only founded one company". Don't read into it that much. I'm just expressing that he has the standard hubris that any one-time successful founder would have. After that single success he's already enlightening us with his wisdom.
Of course there are such businesses, but "most" of those aren't startups. I don't think PMF is a term that even applies to such SMBs. PMF implies scale and repeatability of the sales process -- becoming a unicorn is baseline now.
This is what we did for Sudowrite. Took a small seed and got to profitability within 2 years by hiring within our means and laser focusing on our users. Happy to answer questions!
Hi, I write as a hobby and really like Sudowrite. There's a huge gap between it and virtually every other AI writing tool I know of. The insight that writers:
A) Largely only want AI when they are blocked, and not all the time B) Want to consider options (which is how writing happens all the time, IMO)
Is really what sets your product apart. So I'm curious, how did you get these insights? Were you a writer and instinctively knew of these, and so you dogfooded your own product? Or did you do a YC style feedeback loop to writers to find this differentiator?
Yeah your small business doesn't need to be a unicorn.
But your small business that a VC has bought part of does.
You need to be a unicorn or you need to only take angel checks. This is not complicated.
Or, you know, build a business that customers are willing to pay for…
Spend less than you earn. Maybe get an SMB loan if the numbers work. This approach is older than the tech industry.
Nobody disagrees with that. The clear subtext to that comment is "if you plan to raise money". You can bootstrap a successful firm without raising a dollar.
Trouble is that there isn't much the consumer is willing to pay for anymore. They've become accustomed to devices like their phone where a single purchase fulfills an endless number of functions. The thought of buying much more is becoming a foreign concept. To complicate matters: For what they are not buying, they aren't saving up the money ready to deploy when something compelling does come around. They've decided to redirect that money into paying more for things like housing instead. Good luck chipping that away.
There is still plenty of opportunity to build a business that sells to customers who are collecting those angel checks (directly or indirectly). But that is dependent on at least some businesses being funded by angels.
I respectfully disagree that there’s no business opportunity that people are willing to pay for.
If your only target are developers or the tech industry, maybe, but there’s a whole world of non technical business people with problems that have extremely easy (and boring) technical solutions.
I’ve recently signed up my third customer paying $49/mo with a simple CRUD app. No targeted ads or landing pages. I literally walked into offices in my town and asked what the most annoying part of their job is and I made a prototype. They signed a 6 month commitment.
They’re amazed at my “computer skills” only because they don’t know any better.
Not saying I’ll become insanely rich, but my goal is a reasonable living ($200-$300k) within 5 years.
All this to say I think the opportunities in this market are there, but they look different.
> I literally walked into offices in my town and asked what the most annoying part of their job is and I made a prototype.
Consumers don't have offices. You are looking at a business-to-business transaction, which is where we said there is still opportunity, in large part thanks to those collecting angel money.
If you are going to disagree, surely you can provide an example of where you have sold to the consumer? Affirming that you could only find opportunity selling to other businesses too makes it seem like you do agree.
My broader point is that if you want to build a business there's a ton of opportunity if you're not overly picky on what that opportunity looks like. B2B, B2C, mobile, web, node, Python, PHP. None of it really matters.
> You are looking at a business-to-business.. which is where we said there is still opportunity, in large part thanks to those collecting angel money.
You might be mixing up opportunities within the tech industry with using tech to build a business within other industries. Angel money isn't really a "thing" for the latter, and that's where I'm pointing to opportunity.
But by all means keep on pushing B2C if that's your passion
> My broader point is that if you want to build a business there's a ton of opportunity if you're not overly picky on what that opportunity looks like.
That point was already firmly established before you arrived. What were you hoping to add?
> You might be mixing up opportunities within the tech industry with using tech to build a business within other industries.
Industry doesn't matter. An economy is all connected. What does matter is that at some point your sale needs a "final destination". If you sell to another business, they are going to need to pass the need on to the next hop. If they fail to do that, they will go out of business, and soon you will too.
That means either a consumer, someone with angel money to burn, or government (which is, as it pertains to this discussion, basically the same as angel money). Angel money keeps a lot of these B2B businesses alive. You might not need to accept the angel money directly, but someone needs to in order to support the system we have.
Sounds like you've got it figured out then. Best of luck!
No. I remain unsure about what you were trying to add. You must have had some kind of astute observation that warranted your time to formulate a response – more than once. But, I'm afraid it went over my head. Perhaps you can frame it in another light?
Literally every freelancer can tell you a story that refutes what you're saying here.
The only real tech "freelancing", if we are to call it that, opportunities as it pertains to consumers is possibly in fixing someone's home computer/phone, and that is within the small set of things consumers are still willing to pay for. In fact, one's phone was explicitly mentioned. But it is unlikely that most "freelancers", within the tech sphere, are making a business out of that.
Maybe we all have a grandmother tossing a few bucks out here and there when she needs help. Is that what you mean?
But that's ignoring that freelancing itself is normally a business-to-business transaction by definition, so your assertion is a bit strange if we are to stick to general understandings. What is the pet definition you are trying to use here that should change our understanding?
Are we just talking past each other here? Are you saying that it's hard to bootstrap a pure B2C business using only B2C revenue sources? Because that's not what I'd do; I'd consult to other businesses. That's what 37signals did.
> Are you saying that it's hard to bootstrap a pure B2C business using only B2C revenue sources?
I said that consumers don't like to buy much these days, so business opportunities are effectively limited to selling to other businesses.
But businesses can't absorb buying your wares if they can't sell to someone else in kind – eventually meaning the consumer. That is, unless they have angel money to burn. So what was also said is that even within the B2B space, you are bound to be dependent on angel money even if you don't receive it directly. Meaning, as it pertained to the comment that came before it, that someone needs to accept the angel money to keep the house of cards standing.
> That's what 37signals did.
37signals doesn't strike me as trying to tackle B2C in any meaningful capacity either. 'Hey' plays that angle a little bit, which is maybe what you are thinking of, but it is clear that selling to business is still the bread and butter even there.
I think you should just take "yes" here for an answer because very obviously you can make lots of money freelancing/consulting to other companies.
"Yes" doesn't explain your perspective, though. Obviously you can make money selling to other businesses. Nobody would think otherwise and the discussion that was taking place fundamentally wouldn't have been possible if that weren't the case. But what is it that you want to add to the discussion? That is what is not clear.
You put in time to tell us something. It is no doubt interesting. But, unfortunately, it got lost along the way. I am still interested in whatever it may be.
B2C isn't the only business model, businesses and governments pay for a ton of stuff.
> businesses and governments pay for a ton of stuff.
Yes, that was addressed in the second half of the comment. But ultimately business must serve consumers – unless angel money is paying for. If you sell to a business, who sells to a business, who sells to a business, who sells to a business collecting angel checks you are still dependent on angel money.
Government too is effectively the angel model. The money will be there even if the consumer isn't being served anything they want to pay for.
I am a big believer in Seed-Strapping. You need some initial capital to get you started (can be as low as a few months of your own salary). But you should aim to bootstrap your solution.
Being forced to bootstrap with your own funds is the best bullshit business filter I am aware of. I also think it says a little bit about the founder's ability to maintain some amount of stability in their life and put their money where their mouth is. Everyone can come up with ideas. How sure are you of yours? Are you willing to use some of your own money to prove it out? No? Then I guess I'm not that interested either.
The way I am trying to do this now is to only ask for money if I can obtain at least one paying customer who is willing to vouch for me. If I can't market an MVP to at least one small shop, I don't know why a non-fraudulent business partner would want to work with me. In any case, I wouldnt feel great about that relationship.
I've done the burn someone else's fifteen million bucks thing on tech stack shiny rabbit chases. It's really not a fun time in retrospect. Mostly just a sick feeling all the way to the bottom.
Totally with you. If the plumber in my neighborhood can start a business with all their overhead, then why can’t I on a $5/mo Digital Ocean server?
It really comes down to being willing to start small and grow within your means (even if that means a SMB loan or small investment).
But if you can’t find even 1 customer then it’s likely you’ve started building without talking to actual customers.
Seems like you are a startupper from Hungary? Shoot me a mail, I love getting to know other local startuppers. (in profile)
The company I work for is a small company that has enabled above-market results for everyone employed. Almost 20 years ago the founder saw a specific niche, and went after it aggressively, having software built out of his own savings. We've never taken a dime of outside funding (aside from PPP loan in 2020, allowing to us to lose no employees despite our income being decimated). He's very aggressive about keeping expenses low, but he takes care of his employees, knowing they are the most valuable part of his company. (Self-serving for me to say I know, but it really is his value system)
No VC company has done what valve has done. More companies should be like valve. YC is also no longer a good deal for a company which has even a little bit traction.
I think the post is off.
How exactly is a VC—or any investor, really—supposed to make money from a startup that’s aiming for a “middle of the road” outcome? That just doesn’t add up. In that case, wouldn’t it make more sense to invest in something safer or more traditional?
From what I understand, the very definition of a startup is tied to ambition. Founders need to be aiming for the moon—or at least something close to it. If you’re not taking big risks with the potential for big rewards, can you even call it a startup?
People use "startup" to mean "start up business" and not "business that is aiming for rapid, borderline-unsustainable growth and very likely requires hundreds of thousands, millions, tens of millions of dollar to even start thinking about achieving it," which is what the actual definition is.
VCs aim for 1 out of 50 investments to return 100x what they put into it, and the rest of them to die quickly and stop taking their attention. A company kicking off 5% returns every year is counterintuitively worse than flaming out immediately.
In the tech and venture capital (VC) world, a startup is usually defined by its intent to grow fast and at scale.
If you’re using the term “startup” in a tech/VC context: Yes, high growth is core to the definition.
Hopefully, over time, we will get better and better in creating the world of software from small interoperable pieces that can be maintained by small teams or even solo entrepreneurs.
Yuck, we already got enough OpenSSL and other foundational projects that have a bus factor approaching (or being) 1.
Just today I learned that the unzip program hasn't had an official release since 2009 (!) and everyone ships a different set of patches for it.
Relevant xkcd 2347 [1].
[1] https://xkcd.com/2347/
[2] https://news.ycombinator.com/item?id=43608052
First time on substack, apparently first time writing also. Enough undefined acronyms to get an 8th grader smacked.
> For most B2B SaaS businesses, you shouldn’t need more than $1M in capital to get to PMF, find a GTM motion that works (not that it needs to scale), and reach an ARR figure where the revenue multiple for valuation starts to look pretty tasty—enough to offer significant upside even after investors are paid out.
That sentence (yes, ONE sentence) is some of the worst I've seen.
>That sentence (yes, ONE sentence) is some of the worst I've seen.
"[S]ome", as in 'plural'? Perhaps 'one of', may be better?
Doh. You're right.
You don’t speak tech bro.
Abbreviations :-) being defined or not depends on the audience, so it is not a law that you need to define them. PMF (product-market fit) and GTM (go to market) I would define though.
> so if you're aiming for a $10M outcome, they won't be interested
VCs won't be interested if you're aiming for a $100M outcome because what you aim for is generally loftier than what you hit. If you're aiming for $100M you might sell for $25M or $50M, which is generally uninteresting to VCs.
A VC will build a portfolio of startups that each have the potential to do massively well. After that they don’t care which of the portfolio companies lives or dies, as long as one explodes and compensates for the others.
As a founder you care very much which of your companies succeeds, as you only have one.
> Your Startup Doesn’t Need to Be a Unicorn
yes it does. https://paulgraham.com/growth.html
> —say, less than $1M—
why not go for an SBA loan then instead of VC?
Isn't this the gap TinySeed tries to fill?
The problem with this idea is that capital markets exist and capital seeks compounding. If there is a market to be addressed and it has size, someone will go in and displace you with a cash flywheel.
I usually compare them as sharks vs bottom feeders. Either you become the predator that eats all the big fish. Or you go somewhere the big fish won't go.
There's the 'crab' model, but this isn't for startups. They're old, companies like Yahoo who have a moat and can't leave it. They're at evolutionary peak or rather a local maxima. They're too difficult to change and a major change would make them too vulnerable.
An ecosystem analogy should draw attention to the fact that most biomass in most ecosystems is not in the apex predators but in the lower trophic levels. Apex predators are a useful regulatory mechanism for the ecosystem, not the be all end all of natural selection.
Yup, the analogy falls apart. Basically don't eat unicorn food.
Although it's good to look into alternatives to bootstrapping vs VCs, the funding source isn't the only factor to consider. Balancing how quickly you need to enter the market and how much ownership you feel comfortable having over the final product will ultimately drive the decision on how to fund a venture too.
Here is another one, the company doesn't need to have an endless exponential growth to have a sustainable business.
Currently in a seed funded by a very simple cap table, pre-series whatever SaaS company. This post resonated with me as we will have to raise money later this year and I'm dreading having to take institutional capital. There is another way.
Also the other thing that I realised after working with a bunch of VCs is that they are all incredibly dumb. Few VCs are founders themselves and you will have better luck with them but the majority of VCs have simply no idea about product and technology and they are simply pattern matching. What that means is that they will cargo cult everything and if your startup doesn't fit the mold they will not respond to you favorably and the sad part is that the actual 10x, 100x returns that their VC firm needs comes from those type of investments but they simply cannot see them.
A long time ago - our director of research at a startup used to call VC's carnivoruous sheep ( dumb, flocking, but will eat you alive ).
Ironically he is now a VC - but a very successful one.
We also have a problem with VCs that want start-ups to scale quickly, even though this often builds incapable teams. We then say, "Oh, it's because they stopped being in founder's mode," whereas in reality, the team is so malcomposed and mismanaged that it could not build even a simple product.
This has happened a lot in games. Now, VCs have almost stopped pre-seed and seed funding in this industry. The global annual VC funding in games is about $1B, about 1.5 Call of Dutys. This is down from around 12B in 2022.
One could say they threw the baby out with the bathwater because while many executives were abusing the found-scale-exit business model and taking investors' money, many were also not. It's pattern-matching through and through, very little due diligence.
This is way too broad of a statement.
The smartest person and the dumbest person I've met professionally are both investors.
This.
Yes it does. The definition of a startup is that it's high-risk and fast growth. If you want slow growth, it's a small business (which is fine), but not a startup.
“Startup” implies VC-backed company.
And VC’s invest in companies to get a 100x return.
Which almost by definition means, if you run a startup - you need to get it to become a unicorn for it to be successful.
Otherwise, why take VC money … and just bootstrap it instead.
I think there are two common definitions of startup, and neither require VCs to be involved.
One (seen elsewhere in these comments) is any small business. I personally don't like that definition because there is a pretty big difference between a local coffee shop and the thing we all mean when we say "startup".
The other one which is more common here is a company that is currently small, but the business model involves getting much much larger. There's a blurry line between a small business and a startup with this definition, but it seems to be a "you know it when you see it" type of thing.
Companies like Mailchimp and Atlassian (in their early days) clearly qualified as startups even though they hadn't raised VC. You might say they're outliers, but so are the VC-backed companies that reach that level of success. If a small company is growing quickly and on pace to become a multi-billion dollar company, it seems weird to say they're not a startup just because they didn't raise money from the right people.
>Companies like Mailchimp and Atlassian (in their early days) clearly qualified as startups even though they hadn't raised VC.
Even the Paul Graham essay defining "startups" the way he saw it said "VC funding" wasn't required: https://www.paulgraham.com/growth.html
It's just that many mentally associate "startups" with VCs and software tech because that's often how rocket-ship growth happens.
I’m by no means an expert on this, but I never assumed “startup” implies VC-backed. I thought “VC-backed startup” meant that and “bootstrapped startup” meant not.
That “startup” was an indicator of not being an incumbent in the space and using technology to disrupt things.
But in an increasingly tech-first world, it does beg the question what separates a tech first SMB from a startup.
Most venture capital is invested into companies with traditional business models, not extreme growth ventures.
Most startups are still traditional business model. Every company was once a startup.
My local supermarket was funded by the people living in the community, each buying a few shares. I don't think any of them expected 100x return.
> Every company was once a startup.
I disagree.
Would you consider your neighborhood restaurant a "startup".
Startup for many people implies "high growth".
> Would you consider your neighborhood restaurant a "startup".
Of course, they started at one point, didn't they?
My 8-year child will be excited to know their lemonade stand is a "startup".
I'll have to put that on their college application form as an achievement.
I don't know much about the fund itself, but https://www.indie.vc/ seems like their whole thesis is this middle path.
If everyone was a unicorn, wouldn't that by definition mean they weren't unicorns??
That's why there are decacorns, because of unicorn-flation.
Given the definition I know, of a valuation of >= USD1B, no.
True that, and your startup doesn't need to be a success in people's eyes.
I was being called a unicorn in a professional setting... unfamiliar with the term, I immediately thought I was being insulted, because unicorns exist just in people's imagination and fairy tales.
Yes, this is so true. I hope all our competitors follow this advice.
We are currently fundraising - and we consider this a valid path if VCs don't bite. We have customers and no matter what - we are building something valuable. Nice post!
Glad someone is talking about the option other than selling to VCs or ramen diet start ups. The tech community might have collectively forgotten the other option.
VC culture gives you the USA, a failing empire and a "silicon valley" which hasn't seen silicon for 3 decades
"In fact, if you pitched this pathway to a VC, I’m sure they’d ghost you quicker than their last Hinge date." — oh they will, fr
I'll send this to my competition thanks!
Why are you posting here when you could be crushing it™ delivering 100x value to your shareholders? You've already failed.
-4 points, the joke worked well