3 Reasons Why David Heinemeier Hansson is Correct: You Don’t Need Investors to Start a Business
Personally, I think David Heinemeier Hansson (DHH) is correct when he says that the VC, angel investment is a gamble, and that entrepreneurs should be very careful when taking money from investors. DHH is the founder of Ruby on Rails and Partner at 37Signals. I recently listend to an interview with DHH on a podcast, and I’ve been listening to DHH’s thoughts and philosophies ever since I started on my own entrepreneurial journey.
Bootstrapped Business VS Angel/VC-Funded Startup
When I was just starting out as an entrepreneur, I would listen to DHH’s point of view of the long-term, sustainable, profitable and bootstrapped business, and I would compare it with the view of actual angel investors, venture capitals and the general startup media’s portrayal of the hero entrepreneur who gets millions of dolars of investment.
My first ventures would all be bootstrapped. But as my startups gained traction, I did try out the angel, VC-route.
My most recent startup originally gained traction on a very smal team withe bootstrapped funds and a few grants. Nevertheless, when I joined an incubator, the pressures of getting an angel or VC investment started to influence me, and i thought: “Why not take the money?” And I did pitches in front of investors, met up with investors for coffee at their offices for “chats”, and eventually we did take money from an investment firm.
1) We were distracted with chasing money, rather than focusing on building value
While the experience was very useful to understand how to pitch, raise money and woo investors, I think we did waste alot of time trying to get money instead of actually building the business and providing more value to customers. DHH is right in that you lose focus and raising money ends up being like a “drug”, and you always are trying to get a bigger and bigger hit (infusion of cash from investors).
2) Investor has different values & agenda to us
What really bothered me in the end thought was not so much the waste of time, but what irked me was that the investor we ended up going with actually had different values to us. Not only that, they tried to heavily steer the direction of the company even though their number of shares was minimal and I felt they actually had no personal experience in certain matters that they were so adamant about. It felt as if they thought they knew the business better than we did, even though they had no entrepreneurial experience nor no experience in the field of the business. The investors really pushed us to make short-term profits and hitting those targets instead of considering about building long-term value for customers. They also forced us to make certain hires that was in their interest, but not in the interest of the business.
3) Investor did NOT help us when we needed it, even though it would have been so simple for them to do so
Furthermore, whenever we asked them for help, they never gave it. For example, we knew they had some contacts with certain clients and I asked them for an introduction and they said they would arrange it, but never did. That annoyed me. More and more we questioned their value to us. They couldn’t even do basic tasks such as following up something they said they would do to help us, and yet they would totally flip if we had different opinions to them and wanted to do other things our way. The attitude seemed to be that the investor just wanted to give us money, then dictate for us what to do, and then not even genuinely help us wout when we needed it. I now see the value of smart money, and if I were to do it all over again, I would not take their money. I would rather take investment from someone who truly would help us (at the very least, if it was simple for them to do), and to give us advice because they actually had first-hand experience as an entrepreneur in the same field as my business.
Can You Build a Profitable, Fun, Bootstrapped Business that Lasts 10+ Years?
Having sold that business, and having a few months break of reflecting on it all, I’m ready to move on and try another venture. This time around, though, I will take on DHH’s advice to go at it alone, bootstrap, and focus on a business that I am personally passionate about, without having to chase money and investors and getting tripped up by the whole vicious circle and reliance on funding. I’ve started businesses in a bootstrapped fashion, but never grew and sustained them over 10+ years, which DHH has done. I wonder if I can do it, and that’s what I’m aiming to do now as I move forward.