I recognize a lot of this from startups I've been involved in.
At the height of the bubble I co-founded a vanity e-mail business. We wanted it to be a paid service. Our only competitor was a paid service. But when we looked around, we saw ludicrous valuations per user for users that provided little to no revenue. And the VC's saw it too. And everyone were seduced into going for a free service and figure out monetization later. So that's what we did.
Of course the bubble burst, and the lofty valuations disappeared, and we had to hunker down. The business survived, but we fired 45 or so people - the vast majority of the team, and the VC's lost most of their investment.
I have two big takeaways from that experience: Be conscious whether or not you want to gamble. A gamble can be worth it, but you may be much happier building a company that'll stand a reasonable chance of giving you steady returns and pay you a salary than taking a long shot at millions. We started out wanting that reasonable chance, but got seduced into the long shot without really thinking about it.
Secondly: Keep in mind the VC's often have a vastly different risk preference than you. A founder is usually investing all his/her time in a single business, often for years. A VC spreads their investment over a wide range of companies, and spreads risk accordingly. For them, it's not such a big deal if a few of their portfolio companies fail, if they get the occasional massive return, so it may make sense for them to be willing to take risks with your business that are not in your interest.
It's vitally important to think through how much risk you're ok with before going out and getting investment, and to look for money accordingly, as well as consider how much control you're willing to give up depending on how aligned you think your interests are with the profile of any investors you bring in.
Failures makes valuable lessons (and I've had more lessons...).
At the height of the bubble I co-founded a vanity e-mail business. We wanted it to be a paid service. Our only competitor was a paid service. But when we looked around, we saw ludicrous valuations per user for users that provided little to no revenue. And the VC's saw it too. And everyone were seduced into going for a free service and figure out monetization later. So that's what we did.
Of course the bubble burst, and the lofty valuations disappeared, and we had to hunker down. The business survived, but we fired 45 or so people - the vast majority of the team, and the VC's lost most of their investment.
I have two big takeaways from that experience: Be conscious whether or not you want to gamble. A gamble can be worth it, but you may be much happier building a company that'll stand a reasonable chance of giving you steady returns and pay you a salary than taking a long shot at millions. We started out wanting that reasonable chance, but got seduced into the long shot without really thinking about it.
Secondly: Keep in mind the VC's often have a vastly different risk preference than you. A founder is usually investing all his/her time in a single business, often for years. A VC spreads their investment over a wide range of companies, and spreads risk accordingly. For them, it's not such a big deal if a few of their portfolio companies fail, if they get the occasional massive return, so it may make sense for them to be willing to take risks with your business that are not in your interest.
It's vitally important to think through how much risk you're ok with before going out and getting investment, and to look for money accordingly, as well as consider how much control you're willing to give up depending on how aligned you think your interests are with the profile of any investors you bring in.
Failures makes valuable lessons (and I've had more lessons...).