I complain about positive interest but having fixed return expectations on an overfunded startup sounds just as bad to me. How many profitable companies have died simply because they didn't match the profit expectations of the bank or VC?
The startup becomes desperate to grow even if growth isn't what the startup needs. It's just another case of "when the money runs out, people stop working" but in this case it is not customers' money (whose money is flooding the bank accounts of the startup), it's the investors' returns that are running out as he pumps an increasing quantity of money into the company. Just like the bank has certain expectations of how big a company should be so has the VC. One of the bigger problems in developed economies is that small businesses do not get the funding they need. VCs want big chunky companies and they want growth potential at every stage.
Has anyone created a mini incubator that simply buys all the failed startups that the big VCs didn't want?
The small software startup funding problem seems like a very hard nut to crack. First I think its best to stop thinking of yourself as a "startup" and start thinking of yourself as closer to a normal business. PG's Startup = Growth article really explains this, and all the VC madness and overfunding comes from this expectation.
So you've moved the problem from getting VC funding to getting a bank loan like a normal business. But now the problem is that your small software business is still a higher risk proposition than a donut shop, because we've clearly validated that there's a market for donut shops, but your software company still needs to validate that it even has a business.
Now your software company sits in this murkey middle where your lack of potential is too risky for a VC, but your lack of market validation makes you too risky for a traditional bank loan.
Why then start a small software business? Because its the lowest risk proposition for the founder. Get 2 founders together and bootstrap a 2M ARR, with the appropriate development a business experience and a decent understanding of your market, there's a very high chance you can pull this off. Now you're looking at a $750,000 annual income and half an asset that is worth at least 10M at a 5x multiple.
Point being, given that the whole point of a small software company is to minimize founder risk in order to give the founders the best chance at a very substantial income, it shouldn't be surprising that the most realistic way to fund such a company is bootstrapping. I doubt there's a better answer to the problem since the whole reason you're in this situation is that you the founder wanted to keep all the gains while removing all the long-term risks to yourself. To make that happen you the founder are the one who has to front the cash.
The startup becomes desperate to grow even if growth isn't what the startup needs. It's just another case of "when the money runs out, people stop working" but in this case it is not customers' money (whose money is flooding the bank accounts of the startup), it's the investors' returns that are running out as he pumps an increasing quantity of money into the company. Just like the bank has certain expectations of how big a company should be so has the VC. One of the bigger problems in developed economies is that small businesses do not get the funding they need. VCs want big chunky companies and they want growth potential at every stage.
Has anyone created a mini incubator that simply buys all the failed startups that the big VCs didn't want?