Paul Graham on the VC Squeeze

Paul Graham on the VC Squeeze.

I like what Paul is doing with VC. His Y Combinator
makes a lot of sense. When I read the name I always say “Y C” as in
“why take capital?” I think Paul’s small-dollars approach to VC is a
good answer. After all, less money is a competitive advantage.

His recent piece on the VC squeeze
is right on the money. As mentioned in my talk on Less at Web 2.0
(linked above), you need less money because software is free, hardware
is nearly free, marketing is nearly free (if you’re good, as Paul
noted), and money doesn’t buy you time or passion. And no matter what
you do, if you ain’t got passion you ain’t got a chance.

His point about outsourcing to a new language instead of to another country also rang true:

During the Bubble, a lot of people predicted that startups would
outsource their development to India. I think a better model for the
future is David Heinemeier Hansson, who outsourced his development to a
more powerful language instead. A lot of well-known applications are
now, like Basecamp,
written by just one programmer. And one guy is more than 10x cheaper
than ten, because (a) he won’t waste any time in meetings, and (b)
since he’s probably a founder, he can pay himself nothing.

Why toss an app over the pond to a programmer body shop in India when you can do it here at home with one guy? That’s what Ruby on Rails
lets you do. And that’s one of the reasons we open-sourced it. Everyone
can benefit. We not only want to make software that’s dead simple to
use, we want to make tools that make it dead simple to write software.

thing we are starting to see from VCs these days (we’ve been contacted
by over 20 so far — this figure is just for sample size, not horn
tootin’) is the idea of selling “Founder’s Shares.” They’re starting to
pitch liquidity instead of money to grow. Sort of a pre-exit stategy.
Interesting angle and probably a good move for many who want to take a
little risk off the table and be rewarded for their blood, sweat, and
tears thus far.

Time will tell how the VC industry adapts, but Paul and Y seem to be ahead of the curve. [Signal vs. Noise]

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