Hungry but humble wrote a good piece which I almost entirely disagree with. Getting VC money is about knowing what kind of startup you will be, and what kind of money you will need.
Web Startups generally fall in to two types I normally say swans and butterflies, but to follow the Hungry analogy, Chickens and Butterflies.
A Chicken is a site which could likely be organically funded, growing as the company develops reinvesting in itself the profits which it made. These startups work well for two income households, where the entrepreneur can just use sweat equity to get the company started. These companies can get off to the ground with 2-4 people who are primarily code writers.
A Butterfly site starts as a worm, ugly, loading up and stockpiling IP which will be used to help with its transformation after a period in a cocoon. These Startups require a lot of code, infrastructure and “glue” which has to be put in place before a finished product can emerge.
Chickens use their VC money to accelerate their launch. In most cases the money from a VC is going to be used for marketing, product testing, and UI enhancements. To get VC money for this type of startup you need to have good working code that may not be stable, but demonstrates that you have a solid offering that just needs the right PR and finishing touches to enter the market.
Butterflies use their VC to establish their Patent portfolio, order hardware, hire experts in the field, and get off the ground. A butterfly web startup’s launch is it’s own PR in many respects. You don’t have to build buzz because it should solve a problem in such a manner that the press sings its praises and only after a few months, and some proven revenue does a PR campaign really need to be undertaken.
The risk reward of these two types of start-ups attracts very different VC firms. Some VC’s will “bet the farm” on a high risk high return butterfly, while others prefer the “They are unlikely to lose all my investment” on a chicken.
Raising Chickens is a reasonably safe bet, if you set goals hold the company to them and say you get X dollars when you get to X mile marker, you can only lose so much money, and you will generally always have some amount of usable IP that can either be monetized slowly, or sold to someone else to finish later.
Raising Butterflies is a bit more risky. If one of the mile markers is unobtainable then the VC may have nothing but a few patents in their portfolio which they can hope to monetize from future competitors, or to try again after market changes.
Hungry talks about the “Chicken and the Egg” and really misses that there are “Butterflies” that are like his Chicken and Egg Examples. You can’t prove the tech will work with out the money. If I have a doctoral thesis which explains a method for recommending skin care products based on DNA analysis and spectral analysis of the product, I could patent it, go raise money try to build a service around it but, if either the technology is flawed because it turns out that people don’t care, or you can’t detect an element that 80% of people are allergic to, so your only right 30% of the time, then the VC is left with some patents, and a worthless product. Conversely if it works breathtakingly well, and every woman on the planet sends her $150 for testing, and then buys products exclusively through you to the tune of $200 a month, you just launched a Billion dollar a year grand slam that couldn’t have gotten off the ground with out that Million dollar Spectral Analyzer that no amount of sweat equity was going to pull off.
In the current economy it is likely better to be pitching Chicken’s than Butterflies. If you are unemployed with 3 of your friends there is no reason to not sit around all day churning out code that may or may not make you money later. If nothing else you are keeping your skills keen, and adding to your portfolio. If you do strike gold or even lead on some code that makes you $50k a year a piece for the next 5 years, you will have extra income later when you do have a job, or will have a track record of success to show a VC, when you ask for $3m to do a bigger project.