A startup doesn't need to be a unicorn

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.

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.

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.

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.

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.

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.

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.

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?

> 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

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.

HN wants to hear what they already know, what to hear, or agree on.

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.

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.

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.

'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.

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.

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.

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 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).

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.

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.

Portfolio diversification

I mean, by the time Evernote died, they were an SFBA skyline company, not a startup.

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?