This article should be another datapoint in every entrepreneur's handbook that simply going through the YC and Silicon Valley VC community does not ensure good outcomes. Owning 100% of a company making $1M/year is far more rewarding and valuable than owning 1% of a company making $100M/year.
Consider YC as a last resort if you have no other options.
> Consider YC as a last resort if you have no other options.
I think you mean, consider "accelerators" / outside-investment from Angels and VCs as a last resort? YC can't be last resort, because it would be foolish to think you'd get in, given the quality of startups and founders that apply-- Might as well pack up bags and brush up on leet-code, instead, as that's a last-resort more likely to work.
> I think you mean, consider "accelerators" / outside-investment from Angels and VCs as a last resort?
More generally I mean, give up a piece of your company as a last resort. Not saying investor money is always evil, sometimes it's simply necessary to make it through a bad patch or to get off the ground if you're broke. But if someone is giving you money for your company, it means that they value it more than you, which is immediately suspect.
For most people, owning 100% of a company making $1M/year would be preferable to owning 10% of a company making $1B. It's not just that money has decreasing marginal value. It's about what life you want to live. The ten percent life is... just not for everyone, and maybe not for anyone, which is why it needs to be incentivized so much to ever happen.
> It's not just that money has decreasing marginal value. It's about what life you want to live.
I reached a point where I realized that the life experiences I was having were essentially the same as what much richer people are able to enjoy. A great example is when we got a pool. My wife had talked about it for a while, we have young kids and an unusually large backyard for a downtown home, and thought it'd be a great addition to our property. So I looked into it and it was going to cost at least $40,000 to $60,000 for an in-ground pool.
So I went to Walmart and bought the biggest above-ground, self-assembly pool I could find. It cost me $400 for a 16' diameter, 4' deep pool which holds somewhere around 15,000 litres of water (IIRC). A couple of days later my wife and I were sitting in inflatable chairs, floating in our pool and drinking cocktails in our backyard.
At that moment I realized that for 1% of the investment I was having at least 90% of the enjoyment. The experience of laying in an inflatable chair with your feet in the water and the sun beating down on you while you sip Aperol spritzes is essentially identical no matter the size and type of pool so long as it's deep enough to float in.
The same goes for so many other experiences: a rich person can buy a $250,000 car, but at the end of the day, their butt is on a seat like us and their hands are on a wheel like us and they're stuck in traffic just like us. If you can afford a helicopter, that's certainly a step change in terms of experience, but the sacrifices you have to make to get one and the overall chances of reaching that point just don't make it an appealing path for me.
The truth is, if you want a pool because you like floating in water, then the Walmart pool is enough. If you want a pool because you want your friends to envy how much money you have, then nothing will ever be enough.
> For most people, owning 100% of a company making $1M/year would be preferable to owning 10% of a company making $1B. It's not just that money has decreasing marginal value. It's about what life you want to live.
Being in control of your life, or of anything, is a huge benefit and comes with a big premium. When one company acquires a public company, they usually pay more than the public stock price. If you don't drive to work, owning a car is very likely more expensive than renting, but many buy because control over when and how to drive is gained is worth the cost.
There is a small car rental company in my town that does just this although it's more like an hour rather than 15 minutes. They've got all of my details on file so it's as easy as a 10 second phone call because the person recognises me by voice.
Founders often have controlling shares in their companies. This means they control a $1B revenue company instead of a $1M one, can become CEO if they want, etc. CEO salary for a $1B revenue company is more than for a $1M revenue one.
Also, if you own 100% you are the only person who is worried that the company is doing well. As often said, with great power comes great responsibility and in this instance it means you are the only person responsible that your 100% owned company is doing well. You can't just hire a manager. $1M/year revenue won't attract any good managers. They are going for the $1B/year class of companies. If a company has multiple shareholders, it has multiple people who care about share value increases. Investors are usually well networked.
If you own anything, you're not a peon. However, owning 100% of something is simply a very different mindset than owning just 99% of something. In the former, you solely control you own destiny.
In the latter example, you're beholden or subject to others. Not necessarily bad, but a very different experience.
Kind of like long term dating versus getting married.
If you only own 1% of your company after raising funds, you've made some serious mistakes along the way. Even Bezos, prior to his divorce, still owned 16% of Amazon, and that's after they raised money and went public - he owned 48% prior to the IPO.
> If you only own 1% of your company after raising funds, you've made some serious mistakes along the way.
This was a simple example to illustrate a point. A more realistic example would be: owning 100% of a company making $1M/year is better than owning 40% of a company making $100M/year where investors put in $500M with a 4X liquidation preference. This case is even clearer here, but not quite as easy to parse.
Modern VCs allow founders to retain a large "percentage" of their company in stock or other ownership terms, but they use liquidation preferences and other mechanisms to effectively increase their financial leverage.
Better in terms of financial gains, sure. But in the ability of the business to have an impact on an industry, group of people or the world at large, the smaller business has infinitely less leverage.
Fundamentally these kind of comparisons are not really relevant. The $1 million/year business is not even in the same universe as the $1 billion/year one, nor are the motivations of the typical founders.
Bezos founded Amazon in a different era. It predates even Google. In fact, by the time Google was founded, Amazon has already IPOd. Back then the tech VC system was highly different. Bezos had to explain to early investors what the internet was. If you found a company now, you will be exposed to much different conditions.
Wait a second... Half joke: Isn't being founder and running a company about making mistakes all the time, learning from them and hoping you avoided the really bad mistakes?
no joke: I wouldn't criticize someone who
1. Founded a company
2. Had the company under his or other people management go to 100m USD
“Mistake” is very clearly referring to the topic of retaining equity, with the assumption that more is better. I’m not criticizing the founder in general; e. g. Microsoft has made many mistakes in its history, but clearly Gates is immensely successful.
Obviously if giving up 99% is what enabled you to get to the 100m, then sure, it could be considered worth it. But if we look at virtually any startup with a high valuation, the founders always manage to maintain more than 1%.
Consider YC as a last resort if you have no other options.