(highlight:: VC Funding Is Not a Success, It’s a Failure
The first and main takeaway is this: Companies which receive VC funding are not profitable. They would run
out of money if they wouldn’t get the VC funding. So the news announcement that your company MagicalUnicorn
received VC funding is actually not a message of success, it’s rather a confession of failure. You confess
that you as a founder were still not able to make the company profitable with the resources you currently
had. You’re bleeding money, and you need more.)
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- [note::Huh, never thought of it this way.
This perspective doesn't really apply to companies in which you actually need capital to make the product you intend to sell.]

(highlight:: So, we’d actually need to rewrite all news headlines related to VC funding. Instead of a headline like this:
“Company MagicalUnicorn receives 10m € funding from famous investor DudeFund! Great success! This will
enable them to democratize food delivery by blabla scaling up blabla.”
We’d need to write:
“Company MagicalUnicorn has still not figured out how to perform food delivery in a profitable way. They’re
going to run out of money soon. But to buy themselves more time, they sold parts of the company for 10m € to
the VC investor DudeFund.”)
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(highlight:: Now, all of this might be none of your business, you might think. But it is! Because now the inevitable
consequence, once you’ve taken VC funding, is that the objective of your company has changed: You’re no longer
building your company the way you like it. You’re building your and the VCs company so that they can
sell it, for a price higher than the one they paid. There are no alternatives. The course is set. You’re
building to sell.
If you had any romanticized notion of building the company of your dreams with your employees becoming your
best friends or family, well, now’s the time to let go of those ideas, because you’re about to sell your
family for a lot of money. I often chuckle at VC-backed startup founders describing their startups as their
“baby”. I mean.. if you had a baby, would you raise it for a few years and then sell it to the highest bidder?
Are you okay with that?
Most people are not. Then again, most people only realize this after they’ve taken VC funding.)
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Second-Order Effects
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- [note::1. In order to grow, you'll have to hire more people than you would probably want to bring on (some of which will not fit your team's existing culture)
2. You'll have to allocate a lot of time towards finding investors to give you more money in the event you run out.
3. You're forced to focus on large markets with many (or large) customers, as building great products for niche markets is not sustainable.
4. You'll be more focused on acquiring more new customers than making existing customer happy (focus on shipping "mediocre product to many" instead of shipping a "superior product to few")]

(highlight:: This “feedback loop of profitability” is, in my opinion, the most important feedback loop any business can
ever have. It’s the reason capitalism as a system works (mostly). It constantly forces you to question whether
you’re doing the right thing. And “doing the right thing” usually means how you spend your time, and how you
spend your money.)
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- [note::Non-VC-backed companies typically have better profitability feedback loops than VC-backed ones. Because if you don't make money, bankruptcy is a much more salient risk!]

(highlight:: In your restaurant, would it make sense for your chef to spend their first six months on building a stove?
No, that doesn’t make a lot of sense - your chef should instead be preparing food and supervising other people
in the kitchen. Buy the stove, don’t build it yourself.
This may sound obvious. Yet, at VC-backed software startups, I see software engineers spending months on
building “internal tooling” without shipping an actual product.
In your restaurant, would it make sense to purchase gold-plated toilets for the bathrooms? No, that doesn’t
make a lot of sense because those won’t bring in more customers. Good food, however, will.
This, again, may sound obvious. Yet, at VC-backed software startup, I’ve seen insane purchases. Phone booths
for 10k€ a piece? No problem. Hiring a boutique designer firm to redesign your Wordpress website for 50k€?
Sure. Gold-plated toilets? Who knows.)
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- [note::This makes a lot of sense - the meta stuff is important, but when you're VC-backed it's easy to lose sight of what's actually important - making a great product (and turning a profit).]

(highlight:: Now you might say “dude, all of your points make sense, but my company MagicalUnicorn is only possible with VC
funding because it has huge up-front costs”.
Valid point, but I’d caution you to think again whether that’s really true. Yes, some companies might truly
have huge up-front costs and therefore require investments - like if you want to build cars or shoot rockets
to Mars. But, besides those two examples, most other real-world companies are less capital intensive and you
might be surprised by how many options you have for bootstrapping it yourself.)
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(highlight:: Most product-based businesses can be “projectified” to something more akin to consulting. Give it a
try. You’ll learn many things along the way which will be invaluable later on - meeting other companies in the
industry and learning about their products, finding a good tax advisor, hiring and managing people, and
yes.. being profitable.)
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