I regularly go from hating VCs (DHH style) to thinking that they are pivotal in creating categories that didn’t exist before. A charismatic founder with a strong vision and supporting VC can indeed change the world (hopefully to the better)
I believe this is false by at least two orders of magnitude. Particularly if major means high scale, with properly researched and designed to your customer, with proper support for users/customer, with proper infrastructure technically, financially and legally wise.
I am all for bootstrapping business and have as role models the likes of DHH more than VC-funded founders. But that doesn't mean I don't understand the need of capital.
WhatsApp is proof that they’re off by at most one order of magnitude. I’m sure others can come up with solo founders who made really impressive things. Plentyoffish and Minecraft come to mind as not necessarily immensely technically complex but having created huge amounts of value as one man shows.
Sure, I can code an app in my bedroom after work in a year, but what about all of the prerequisite customer development (ie talking to your target market and making sure your app solves real problems and has reasonable usability etc)? What about marketing and sales? Support? Accounting? Hiring people (fulltime, part time or contract) who have skills you do not have yourself? Legal advice?
There’s a lot more to running a business than the coding part and these things take time (and sometimes money). The 50k to 1M estimate is greatly inflated by those other concerns.
Plus, while I can save, say, 250k, that would take me years and then I wouldn’t want to risk all of my savings into one gamble (I obviously wouldn’t take the startup risk if I didn’t believe in what I was building but even if I thought it was a sure thing, I’ve founded two failed startups already, it would be prudent to allow for a high chance of failure even if certain that the business is perfect)
Also, let’s assume everything above is irrelevant and I decide to save up my earnings and go all in on a startup. Let’s say I put 250k in and it takes me five years to save (in reality, I don’t think I could do it in that time, but let’s inagine I can). Let’s also assume that I do as much as work during those five years as possible so that when I have the money, I’m ready to launch. That means that five years from now, I can launch my startup, spend the money on whatever is needed that I couldn’t do previously and hopefully not lose it all (assuming the market still exists, 5 years is a long time in tech land). OR I could give up 5–40% of the company, put up with some hassle of having an investor and launch in a year (assuming development takes a year regardless). That gives me four years to make sure that the remaining % is worth more than -250k (which is where I’m at with the first scenario after that time). The investment route seems like a no brainier to me in this case.
Obviously it is possible to bootstrap a company and it should be the preferred route imho if you can pull it off. For many people, this isn’t an option though and that’s why VCs are becessary.
I suspect it's because many can't save that much early in their career and may not want to bet their life savings.
Alternatively, VC interest is both a cheap experiment in market fit and a boost to your brand. Media is more likely to report on your little startup if it's a YC darling and marketing or sales are at least as important as engineering.
The theory is, a faster-growing company will outcompete a slower one in a winner-take-most market. You could grow faster with more capital. If you eschew it, someone else will take it and overtake you.
It's a lot harder to build an app, plus find new customers, handle marketing, documentation, support, operations, etc. Consider you have to do all of this at the same time. It probably can't be done for a "major" app by a single person in a year, but maybe for something small.
Though you still might build it, then find nobody wants it. Now you've wasted a year or more of your life. It happens all the time even with funded companies. You build it and nobody comes... or two few customers to support a real business.
To do something "major", you need people. People want to get paid.
Because if you finance your idea yourself you're going all in. You're basically putting your career at stake there. If you have family then that can be a very difficult choice to make.
The other reason is that if you have other people invested in it (the VCs) they will also try to help you through things like helping you get contacts etc.
Also, even if you build an app that doesn't mean anything. You need to get some marketing campaign out and you need to make sure you don't violate any laws or regulations. You have to do all of this alone.
Not everyone wants to risk their nest egg on a bootstrapped shot at success. Much better to give up 10%, keep getting a salary, and not lose everything if it fails.
I agree that a single person can build a major app in a year. Can a single person build, market, sell, and support that app in a year without giving up their entire life?
I would be very interested to compare the relative success of one man bands like Plenty of Fish and (originally) Minecraft, with VC-funded unicorn-wannabes.
And to ask a different question - can a founder funded by VC money run their startup without giving up their entire life, and a substantial proportion of their potential earnings?
If you raise VC (series A) you can pay yourself a decent salary while keeping a good chunk of equity and building your company. Not a huge salary and not saving tons of money of you live in SF, but you won't be burning resources.
Very different from using all of your resources to self fund it.
POF was a minimalist app in a well trodden market. You shouldn't raise VC to do something like this, and you shouldn't be able to (though yes it happens far too often).
There are many problems and markets that just don't fit this approach.
