I would watch his life on Facebook and be like, this is amazing.
I'm like, am I the idiot?
And like, quite possibly Michael, quite positive.
This is Alton plus Michael, and today we're going to talk about should you bootstrap or should you start a VC backed company?
This is like a confusingly controversial topic.
Yeah, I'm not really sure why it's controversial.
Well, it's one of those sort of one sided things where a lot of people don't care.
topic versus people that care a lot.
And so I think there's a lot of people that strongly identify and are really excited about bootstrapping that are very like fired up about this.
And there's a lot of people that this just isn't a topic that comes up much.
The place we should start, I think, is that the vast majority of businesses
should not raise venture capital.
And I'll extend that point.
Venture capital is not interested in investing, yeah, in the vast majority of businesses.
So like one of the things I think founders get really screwed up on is that VCs have become a little bit more marketing-y.
right, talk into people, and they might be confused, well, I want to start a restaurant.
VCs don't want to fund your restaurant.
Well, I think another thing that's confusing as a side note is a lot of the stuff on Shark Tank.
I would argue is not venture capital backable.
You know, a lot of the stuff that I see on the television show, you would never in a million years be able to raise VC from it.
And so I think you watch Shark Tank and you think that that is reality.
That's the first thing is that if you're starting a business that can appear on Shark Tank for the most part, you probably shouldn't raise venture capital.
But I think there's actually like a deeper thing here, which is that let's say you want to start a startup business.
You don't have to raise venture capital either.
And I'll say the same thing.
I don't believe venture capitalists want to invest in all software businesses and I don't believe all software founders should raise venture capital.
Yeah, let's talk about the math.
I think what's really going on is I think if you looked at how many businesses are started every year.
What percentage of those are venture funded?
We can ask chat GPT, but I would guess definitely single digits, if not less than 1%.
And so if you just look at businesses that are starting in the world, it is like a weird outlier freak occurrence that is a VC funded business.
But I think if you're just consuming content, you're watching media, you're watching YouTube, you don't realize that.
venture capital as a product is specifically for investing in something where their investment could be worth at least a hundred times more, if not a thousand times more.
And so trying to put that jet fuel into something that isn't going to grow to be big, everyone is going to be sad and lose.
And so you shouldn't do it.
No one's going to use it.
And so again, like, I don't think that there's this
push that I can see from investors to try to convince people to raise VC money for something that has no chance of growing like that.
It just doesn't make sense for anybody, okay?
I think the whole argument is fake news, right?
this is a real argument, right?
I don't think that anyone thinks it's more moral or good or right to start a VC backed company or a non VC backed company.
I don't think this is an actual debate.
Yeah, I think that like starting a VC backed company really hard.
Not the best way to get rich.
Like the numbers are not huge.
Like I always like to equate it to like athletics.
It's like getting into the NBA is really hard.
Like not like the best path to have a good career.
is to be like, oh, I'll just make the NBA.
Yeah, that's simple, right?
Yeah, it's like, it's a great game.
Let us be one of those guys.
They recruit from all around the world.
Yeah, very straightforward, but I like that place.
So this is not the only way to get rich.
Let's take a further step.
Most people who are rich did not raise venture capital dollars, did not start companies.
Real estate investing, stock market investing, being lawyers, being doctors.
Again, go look up the numbers.
Yeah, there's so many people, right?
So this is not even rich.
I think the other thing that's funny is like there is no one trying to force you or cajole you into starting a VC backed company.
Like if you don't want to do it, don't do it.
It's also a decision that you can revisit.
If you don't want to start a VC-backed company now,
but like your Bootstrap product starts doing well and you want to do in the future.
There's no one who's gonna say no.
You said you were Bootstrapped on Twitter, I will not give you money.
Like no, I'll get another truth.
Empirically, none of the trillion dollar software companies are Bootstrapped with no VC dollars ever.
So if someone's telling you you can make a trillion dollar company, maybe you can.
Just no one's ever done it.
And again, to look at the numbers, even if you look at software companies, even if you look at iPhone apps, if you actually did an audit of the app store and you said what percentage of the apps in the app store are VC backed, it is tiny.
But if you said what percentage of dollars that are spent in mobile apps,
go into VC backed companies.
I think that that's right because dollars are going into Amazon and eBay and like all that kind of stuff, right?
And by the way, I know I want to be clear.
Neither of us are saying you should want to make one of those companies.
That should come in from inside of you.
I actually kind of try to convince people not to.
It is because if you need to be talked into it, that's a bad sign.
So I like to talk about why it sucks.
So I think the other thing is that
No one is trying to say in our industry that if you make a great software product that allows you to make enough money to live a good life and it's not PC backed that you haven't won, you won.
Like I had a friend who made one of these companies.
You might have used this product.
His product generated about 30 to $50,000 a month and took about seven to 10 hours a month of maintenance.
The entire time I was working on my startup,
I would watch his life on Facebook and be like, this is amazing.
He traveled the world, he got married, he had kids.
Again, this is the one-sided thing is that we're like great.
We're like high-fiving that dream versus
that there's this two-sided battle.
97% of the time I was watching that Facebook, I was like, am I the idiot?
And like, the evidence was like, quite possibly, Michael.
And he's still doing great, right?
And so, like, this is really clear.
It's like, building a great small business, softwares, small softwares.
Even the term small bothers people.
It's just non-venture backed.
Yeah, non-venture backed.
Yeah, non-venture backed.
You're making millions and millions of dollars.
I think the other thing that's kind of maybe a dirty underbelly here is who is spurting this argument?
Who's incentivized for this to be a big issue?
Yeah, I think that this has been just like a topic that gets a lot of engagement online.
And so, you know, if you want to get people agitated about something, this is a pretty good topic.
And then you can use it to promote stuff.
And so, yeah, I'm not going to name any names, but I can think of folks over the years that are like kind of built a
Following around encouraging people to do this and to the extent it is helpful and more people are Improving their life doing it.
Yes, but there's a little bit of like creating a fake controversy And then and then monetizing it a little bit and so maybe maybe people may have this question watching this video Michael, why should I apply to YC?
Like why should I do a bitch?
You guys just did a great job of explaining why not to do it Well, why why should I do venture so I think fit?
there are some businesses where you actually need money upfront.
And if you need money upfront and you're building a software business, the venture capital industry can help you get money upfront.
I think that what's so interesting about this is that there aren't many other good mechanisms.
If you need millions of dollars or 10 million dollars to get your company to break even.
There aren't other mechanisms in our economy to give that to you.
If you build a software company.
Let's use an example of Google, I don't know, just because famous one of the most viable companies in the world.
I don't know how you could have bootstrapped that.
And so again, maybe the audience would say, well, I don't want to build Google.
No one is saying you have to build Google.
But if Google wants to build Google.
But if Google wanted to build Google, it doesn't seem mathematically possible.
There's no route they could have done it with raising money.
There's no loans they could have gotten to buy the servers and do the things they did.
And so we should just be thinking about VC as enabling incremental entrepreneurship that wouldn't be around otherwise.
Not as cannibalizing anything.
Like it's just enabling that incremental founder.
And the other thing is you have to remember if you want to raise a lot of money, but you can't explain to the investor why you might IPO and give them a lot of money back.
It is a business transaction.
It's not a faith transaction.
It is, I give you money now.
You give me a lot more money later, or at least you try really hard to.
And if you can try really hard, but the results can't be a lot of money, I shouldn't logically give you money.
Now, not because I don't like you or because you're not a great person or these users who are trying to serve are great.
It's just because it's not a good business transaction.
It's literally nothing personal.
And I think sometimes founders kind of
are very confused when VCs say no.
Well, it's because, again, if we're trying to stoke outrage, you point- Let's stoke some outrage.
You point it's something silly that raised a lot of money.
The most extreme silly thing in the world.
You always pointed you Sarah.
Like you point to something that is like on face silly.
If they funded that, why won't they fund my social network for dogs?
And so it causes a lot of emotions.
Um, and I understand I relate, but it's don't fall for the rage.
Don't let yourself get enraged by obvious engagement bait, which is to cherry pick the craziest, silliest thing and use that to get all worked up and take that personally, like that somehow hurt you.
Like, like you were hurt by that thing over there happening.
Well, and what's so funny is like you are actually included on the real truth, real truth, which is that they screwed up.
They shouldn't have gotten that money.
That person who funded that company is an idiot.
And you're exactly right.
But like, hey, that doesn't mean
It's like, okay, this dumb thing happened.
Therefore, up is down, black is like, like forget everything we know.
That logic doesn't make sense.
That person should probably be spoken to about their investment strategy.
So yeah, so just understand that game and I have to be honest, like, I like games like this.
Like I don't like games where you have to like
convince people to like you or to align with your views.
Those are games that are way harder to play.
I like games where it's like, Hey, if I want to serve this customer and you can be a good legal partner to me and I give you money and you give me legal services, you can be a good funding partner for me.
I give you a check at my company, you give me cash, right?
If you can be a good partner to me, a simple to understand partner to me so that I can spend my time working with my customer,
The customer's complicated enough.
The customer's complicated enough.
I like the idea that the money people are like, so if I give you this money, maybe give me a lot of money back?
I give you money, you don't give me any money back?
Come back when this is all that way.
This helps clear up the debate, but I secretly hope this, like, I don't know, like, doesn't at all.
Because this is, like, so silly.
I hope we get somehow flamed more from this.