The Best Equity is Sweat Equity

http://blogmaverick.com/2008/01/02/the-best-equity-is-sweat-equity/

by sayemm • 14 years ago

30 10 14 years ago

StavrosK2• 14 years ago

This post sounds like a lot of hindsight bias and confirmation bias. There are companies that raised money and went on to become Google and Facebook, too. Namely, Google and Facebook.

akg• 14 years ago

Right, but I think Mark's point was that great companies can also be built slowly. These may not be the "best" companies but great one's can be built brick-by-brick. I feel that most startup founders today strive for a large funding round before focusing on building a solid business foundation.

For some businesses, it is not possible to create value until you have a large amount of capital in-hand (e.g., Aerospace, Automobiles) but for most it is and we shouldn't lose sight of that. People solve problems, not money; and it is unlikely that a large pile of cash will be the solution to your problems if you don't first start with a good business model.

eirikm• 14 years ago

Reminds me of this article. http://www.joelonsoftware.com/articles/fog0000000056.html

StavrosK2• 14 years ago

Oh, in that case, I am in absolute agreement.

sayemm3• 14 years ago

Exactly. Funding is only a means to an end, and all too often startups forget that. Even if you look at the Google, Facebook, and Microsofts of the world you'll see that they were very lean to begin with and proved their market before scaling up with funding.

The money line in his post: "The reality is that for most businesses, they don’t need more cash, they need more brains."

bradleyland• 14 years ago

Mark says right up front that his advice only fits for a specific type of business:

> My businesses have had hundreds and now more than a thousand employees. My world has been limited to starting, building, growing and running businesses that are never going to make the Fortune 500. My dreams were never to build the biggest corporation in the world.

dmk23• 14 years ago

The money quote -

  These investors, including myself, know what you don’t, and they are not telling
  you. The minute you ask for money, you are playing in their game, they aren’t 
  playing in yours. You are at a huge disadvantage, and it’s only going to get
  worse if you take their money. The minute you take money, the leverage completely
  flips to the investor. They control the destiny of your dreams, not you.

sayemm3• 14 years ago

But if you've done all the hard work of building your business, proving your market, and crushing revenues or hitting profitability, then talking to investors becomes more like a partnership discussion than it does one where you're a poor, starving founder begging for money (you bring zero value to the table).

Github is my favorite example. They bootstrapped themselves all the way through, and in the process, they maintained their own identity and culture, built a great product and killer team, and were minting $$$. Then when the right time came for them to scale up to the enterprise and move fast, they decided to take VC money.

michaelochurch• 14 years ago

I think the real calamity is that VCs are a clique and they all talk to each other in all kinds of inappropriate ways. They're like high school girls in the sense that if a few like you, they all do. That gives them a shocking amount of power for a supposedly "meritocratic" industry. VC-istan is still more meritocratic than most other industries, but only because the competition in that dimension is ridiculously soft.

If you had a few hundred independent decision makers, you'd probably have something that looks like a legitimate market. Instead, you end up with something where the VCs hold all the cards (because they can turn off supposedly unrelated interest with a phone call) and still don't do well financially. The financial underperformance exists because of the morale problems inflicted by their disproportionate power; startups are staffed with enormously competent people, but the good ones are viciously careerist-- and why shouldn't they be?-- and you get evaporative-cooling problems if you don't have an well-above-normal (~1%) ability to lead in such an environment.

We revitalize the startup world by moving power away from active, power-hungry investors focused on making their careers and back in favor of passive investors interested in making money.

So, I'd like to see Kickstarter or something like it succeed. Right now, average people with $0.1-2.5M net worth ("mom-and-pop investors") can only invest in securities related to massive corporations, in which case the only good option is to invest in a broad-based index fund (90+ percent of "stock pickers" leave you worse off than an index fund; and these companies are just too complex for individuals to get a consistent advantage by "knowing the company") or they can invest in individual small businesses (restaurants started by people they know) but that's extremely risky. Some diversified way for average people to invest in small-business talent and get the potentially well-above-normal returns available in doing it would be great.

The Best Equity is Sweat Equity

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