"They had been completely priced out!"<p>This is a fallacy. People use this term "priced out" as if it meant some sort of process, but it means nothing more than that the investor thought the startup's stock was too expensive. And it is very stupid to let valuation decide which startups you invest in, because the variation in outcomes between startups is orders of magnitude greater than the variation in valuations. I.e. there is no value investing in startups.<p>What we have here is a case of anecdotal evidence. A founder happened to get some investors who hadn't invested in other startups because they felt the valuations were too high, and those investors turned out to be really helpful. But there are other investors who are willing to invest at high valuations who are helpful, and investors who seek out low valuations who aren't.
This is my first company, but I've found that by having a lower valuation cap on my note two great things have happened. Some of my more powerful investors have felt comfortable introducing me to people who don't give two shits about the latest consumer web fad or investment trends, found my terms very easy to buy in on, and have been enormously helpful. Second, a lot of my friends have found they couldn't recapitalize or raise an A. Having the terms that I do, it was pretty easy for my investors to re-up when I needed it.
I think this fits into the larger conversation around what terms to take in a funding round. The anecdote about all the YC companies bragging about valuation post-Demo Day rings true - but what else did they agree to in getting that high valuation? Ensuring that those who have partial control of your company and your future have interests aligned with yours does seem much more valuable than wringing every dollar out of a cap rate.
My company wasn't able to raise much money, but the money we did raise was from people who, luckily, have turned out to be amazing. We've gone through some really terrible things (my submissions will point you to some details), but they've stood by us 100%. Even though we had to shut down 3 months ago, these guys are still trying to make connections for us that would allow us to restart. You can't put a price on that, especially with the importance of not dying.<p>Everything is going to go wrong: optimize for having people around you that are going to help you out of THOSE times, because when it's going well help will chase you down. When it's going bad, you better have backup.
Not sure if I believe boot strapping because of my background and location Latvia, but it seems crazy people trying to raise millions of dollars, like their lifes would depend from it!! How could possibly you need money like that to launch a successful project???<p>I understand in USA all the hires are much more expensive, but why not aim towards bootstrapping if you have some money, hire cheaper Philippinos to help out at starters, and then go all shiny and hustla!!
"Think about it. With too high of a cap or valuation, what incentive does an investor have to go to work on your behalf in the short term when the real return on their investment requires several orders of magnitude of growth, which has a very low likelihood of happening ever?"<p>It seems to me that if the angel investors in question are really able and willing to do productive work, you could get a similar result by simply paying them additional equity as an incentive after allowing the market to set the company valuation in the natural way. In other words, same as you would for any other early stage employee. No need to artificially interfere with the valuation and set it low to attract them.
I like the concept of the investors having some skin in the game. One way might be to have them invest a lot -- and have a lot to lose, in addition to having a lot to gain from a smaller valuation. I also wonder if a smaller valuation makes a company more hungry and more driven to innovate and work harder than a company that knows they can throw money at a problem and 'solve it'.
Without ever using those terms, this article was a great commentary on the difference between "smart money" and "dumb money." Not to say that the investors snapping up YC companies at big valuations were necessarily dumb; but that the author optimized his fundraising for the smartest of the smart. A good way to position your company for long-term growth.
Another post on celebrating "I got some moneys" and yay! this time without YC, even though I was in YC.<p>Guys, get over it. Can some of you please post some inspirational articles on how you created a bootstrapped company?