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We Need a Middle Class for Startups

We Need a Middle Class for Startups

This is one astonishing constituent!

Problem: There are only two types of businesses on social media:

Bootstrapped from zero.“Sell a product or course online! Sell services locally!”There are millions of different get rich quick schemes floating online now.The goal here is to secure the bag and escape the grind ASAP.Raised $100M+ from VCs.“Are you a Unicorn yet? Which Y Combinator class were you in?”Startups are now getting $20M+ pre-seed valuations.The goal here is to go public or exit for $1B+ as quickly as possible.
Result: Aspiring entrepreneurs think these are the only two paths to startup success.

Founders with access to VCs raise money too early.It’s easy to get stuck on a fundraising treadmill, especially in high-cost markets.Entrepreneurs without these connections use whatever funds they can find.Credit cards, family and friends, loans, and lines of credit are risky and costly ways to fund a business, especially with personal guarantees.
Idea: Make Mittelstands cool in America.

Rebrand the US Middle Market ($10M-$1B in annual revenue).Create a studio and fund to build and buy Mittelstands.
Why? Many VC-backed startups would be better as Mittelstands.

I learned this lesson the hard way with my startup Labdoor.We raised $7M+ in Seed and Series A funding from investors like Y Combinator, Mark Cuban, and Floodgate, couldn’t raise Series B, had to downsize and rebuild through cash flows, now profitable and growing again.Because we raised money from flexible investors, we were able to pivot to becoming a Mittelstand, but this is rare with VC-backed startups.My first business, Avomeen, is a classic Mittelstand.Founded in 2010 by me and my dad.Now over $10M annual revenues and nearly 100 employees.Acquired in 2016 for $30M+ and again in 2021 for $60M+.
Secret: Mittelstands are already about one-third of our whole economy.

This is over $10T in annual revenues.48 million Americans work for the 200,000 businesses in this sector.
Advice for Founders: Stay indie as long as possible.

Take advantage of new bootstrapping tools and non-dilutive funding sources.Raising VC funding increases growth potential but reduces optionality.Startups can always raise money later.It’s near impossible to return money raised and get your equity back.
Trend: It’s easier now to fund businesses without giving Up equity.

Remote work, no code, social media, and ecommerce platforms all make it easier to bootstrap new businesses from zero to revenue.New non-dilutive funding sources are now available for revenue-generating businesses.See: Pipe, Stripe Capital
Key: Fundraise only for specific purposes, not for general operations.

Too many early-stage startups are entirely dependent on VC funding to survive.See Default Alive vs. Default Dead by Paul Graham.Seed funding can and should be a path to profitability for most startups.Mittelstands can launch and get profitable for
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About the author: Charlie
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