Welcome to Billion Dollar Startup, where we bring you visionaries and disruptors who have started scaled, sold, or invested in a billion dollar startup, also known as a unicorn. We also feature tech founders who are building the next billion dollar startup. Billion dollar startup is a unique podcast sponsored by Dragon X Capital, the venture capital firm that concentrates on seed and early stage tech companies with the X factor.

Dan Lok:

Hey Ivan, the other day I was talking to a friend of mine, he is starting a kind of tech startup and he was just asking me about, Hey, should I push strap or should I talk to VC and, and raise money? I thought that would be a very good topic to discuss for like the billion dollar startup. What do you think?

Ivan Nikkhoo:

Uh, it depends on a number of factors, but generally I tell people that if you’re starting a company, the very first thing you need to do is to really focus on what is the problem you want to solve before you spend a dime. And then you have to think about what is the team that you want to assemble mm-hmm. <affirmative>. And uh, if you’re able to recruit at least one other person to co-found with you or at least help you start the company mm-hmm. <affirmative>. And then you think about, okay, what’s the best way it used to be that you could, uh, start, uh, with nothing at all and be able to raise some capital. These days, the mental health of friends become family and friends. Yeah. And still you can do that, but I will explain to you why I have other ideas. But I think at this point, the expectation is that the founding team has to show some things towards being able to raise money.

So the idea is if you’re able to raise very small amounts of friends and family, uh, that’s okay. And by small, you know, maybe a hundred grand, 200 grand, something that will allow you to demonstrate what is the problem you’re solving, who are you’re solving it for, and so on and so forth. But in the long run, I am hugely in favor of raising institutional venture capital versus bootstrapping. Mm-hmm. <affirmative>, several reasons why if you’re bootstrapping or raising money only from friends and family or high net worth individuals or family offices, um, you are not going to know if the road you are going down the path of is actually a valid one or not. Mm. Institutional capital brings with it a high degree of validation. Yeah. And these types of, uh, other, uh, capital sources do not. Also, if you’re bootstrapping, your rate of growth will be not as high as those that have capital to grow at a faster rate and the higher growth rate in our world is worth more. So if, if you choose to bootstrap, you are going to be in a very different type of a category than a company that has raised capital. Mm. And you will remain a bootstrap company and your growth will be low and so on and so forth. But the same token, the moment you raise capital, I highly recommend that it’s institutional capital and not high net worth family, a high net growth families. And that you’re in the business of high growth, capital efficiency. And that is a much better way to

Dan Lok:

But I think a lot of founders, they afraid of almost that accountability. They’re afraid of, hey, it’s my idea and I’m not comfortable either sharing it or I’m not comfortable. It’s almost putting it in front of like a group of like savvy, intelligent investors, VCs, and kind of x-ray your business and say, Hey, this, you think, cuz we all think we’ve got the, the best thing see slice bread. Right. And then when they talk to a VC like us, no, we saw the last week.

Ivan Nikkhoo:

So let me give you some of the examples I’ve experienced. By the way Bill Gates famously said, uh, ideas have the shelf life have a banana. Yeah. Yeah. And uh, so the reality is if you have a good idea, it will be copied. Yeah. And no one cares. Yeah. And the best example of it is, uh, there’s been a lot of people that were first to market with their ideas, but they’re no longer around. Yeah. The best example is a company called Novell. Novell owned 100% of the computer networking market. Yeah. It’s not even around. Cause my

Dan Lok:

Google is not even the world’s first search engine.

Ivan Nikkhoo:

No. So it’s not that. It’s all about execution. So that anybody, which is by the way, one of the reasons, if anybody tells me they’re worried about their idea being stolen, I immediately pass because that’s the dumbest thing I will ever heard. You know? That’s, so that’s number one. Number two, I’ve heard, uh, well, I I I don’t like VCs

Dan Lok:

Then you’re not gonna

Ivan Nikkhoo:

Grow. You’re not gonna grow. And that’s another stupid comment. You know, VCs can be your best or your worst partners. Uh, just like a relationship. Yeah. If you don’t like

Dan Lok:

A good marriage

Ivan Nikkhoo:

Or a good marriage relationship for marriage, this is

Dan Lok:

A bad marriage.

Ivan Nikkhoo:

Yeah. So if you know what to do, you find a good one and they can help you enormously. And it’s not just about capital, it’s a lot of other things that they can’t help you. The other thing they say is, I don’t want to get diluted. Yeah. If you’re so worried about getting diluted, how are you going to hire the best employees?.

Dan Lok:

I Always say, if you’re worried about getting diluted, you’re delusional.

Ivan Nikkhoo:

There you are. Yeah. You should be worried about creating value. Versus being valuation sensitive. A job, the entrepreneur’s job is to about creating value. Mm-hmm. <affirmative>, maximizing value and

Dan Lok:

Build a team and build a company.

Ivan Nikkhoo:

Build a team and build a company. Or they would say like, you know, if I go to them, uh, they’re gonna take control of my company. And that is nonsense. VC doesn’t have time to take over your company. Their job is to maximize.

Dan Lok:

It’s the last thing we wanna do.

Ivan Nikkhoo:

It’s the last thing we wanna do. No. So I’ve heard lots of other excuses, but at the end of the day, it’s all excuses. And it is, those are the people that we don’t want. Yeah. So, uh, they end up going to families high nets because they tend to be families. And high net Israels are not as valuation sensitive, but there is a very negative side to it. It is very, very common for me to see companies that come to me for help where they raise lot of money from friends and family and family offices, so on and so forth. And they,

Dan Lok:

It’s almost like when they go to vc, it’s now the real world.

Ivan Nikkhoo:

Correct. They real world. But by the time, if they’ve raised too much and they get to institutional now there’s already in fighting, there’s misalignment on the board. Uh, the company has raised too much money. The cap table’s pretty screwed up. They have raised some debt on top of it and the investors around the table on that board are not thinking about the, the ultimate success of the company. They’re all thinking about their own individual positions. And that’s the worst misalignment.

Dan Lok:

The company is screwed.

Ivan Nikkhoo:

The company is screwed. Yeah. So for that reason, I believe in early adoption of institutional capital, but with a lot of diligence and with a lot of care

Dan Lok:

So there’s your answer. Should you bootstrap or should you raise capital from venture capitalists.

Ivan Nikkhoo:

In the beginning, a little bit of bootstrapping to be able to demonstrate the problem you’re solving, who you’re solving it for and how you’re gonna do it. But, at the first available opportunity, the institutional capital would be extremely valuable. If selected properly with diligence and if it’s right fit for both the BC and the entrepreneurs. It will be a good relationship to have in the long term.

Dan Lok:

Until next time, happy unicorn hunting.

Ivan Nikkhoo:

Happy unicorn hunting.

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