Friday, February 15, 2008

In Silicon Valley, Start-Ups Begin Hitting the Brakes

There is an interesting article in today's WSJ, page B1 titled "In Silicon Valley, Start-Ups Hitting the Brakes". As I just moved to the Bay Area in August, specifically to join a startup, this article caught my eye immediately. The article starts off by talking about several small companies that have recently raised additional funds to build a financial cushion in case business turns south. It talks about another company that is carefully watching its spending and "only making critical new hires". I worked at a startup before iMiners that was angel-funded, and we were always careful about how we spent money. Hiring always came after revenues were generated, and that discipline from our Founder enabled the company to survive and thrive through the dot-com bust and 9/11. It wasn't always easy, but it was what we needed to do to ensure our survival against much larger, much better funded competitors. iMiners is no different; all of us have been through the dot-com bust and understand how to be fiscally responsible. We are growing our business, but always careful about spending.

My question is: When DOES it make sense to not watch spending, and to make non-essential hires? My startup experience is only with angel funded companies, so perhaps one needs to be more fiscally responsible when you only have angel money to tap. VC-backed companies (from what I've heard) tend to burn through money at a faster clip because they feel the need to put the money to use or the VCs will ask why they are not using the funding for product development, marketing and sales. Which model is better? An angel funded company where the founders maintain complete autonomy, there is less dilution of the company, but you have less funding (usually), thus making it more difficult to grow quickly? Or a VC model where you dilute the company, risk losing control of decision making, but have the funding to spend on marketing outreach and to hire a large sales team? What do you think? I'd like to get comments and experiences from people who have worked for both angel-funded startups AND VC-backed startups.

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