If you don’t believe your company is going to take over the world you probably shouldn’t be a startup founder. At least not one where you’re raising tens of millions of dollars of VC capital.
This article misses the more interesting thing, which is tech founders getting huge pay packages for companies that haven't yet delivered anything or have no realistic path to profitability. They call out WeWork and Theranos, but fail to see how close many of these others are to those. Archer? We're never going to see air taxis in our lifetimes. Nikola is already a collapsing scam. Bird? They are never going to be able to charge what it actually costs for a scooter rental, just like all of failed bike shares.
The measure for founder success is now "able to raise an obscene amount of capital", and not "able to build a sustainable business". Investors should run screaming from SPACs, but they don't, because the sheer inertia of a high valuation brings in the next wave of dumb money, allowing the early investors to cash out. It's a damned Pyramid scheme. We are truly living in the golden age of scams.
There is a startup plan that is basically a cookie cutter plan that a lot of startup follow.
1. Invent new technology/software/website.
2. Get VCs to invest in it.
3. Sell ads on the website and use ML to target people with those ads.
4. IPO to go public to raise up the stock price.
5. Issue yourself a different type of stock that has different voting rights so you retain control of your company.
6. Keep investing new stuff for growth and sell off shares to raise more money.
The problem is people who become CEO without ever taking a business management class or understanding how a business or the laws that effect it work. Steve Jobs found it hard and resigned from Apple in 1985 and had to go back to college to learn business management to learn how to manage a company better. It paid off when Apple merged with Next and Jobs knew how to manage Apple better than he did in 1985.
We haven't seen Bitstock companies yet that trade on Bitcoin instead of the US Dollar. Nobody ever thought to make a Bitstock market based on Bitcoin. You just modify Bitcoin to issue shares of stock called Bitstock and you have issues the company puts that Bitstock can vote on based on what type of Bitstock it is, and then you avoid the lawsuits of signing the wrong document because Bitstock replaces that old system with a new one. Zuck just votes with his Bitsock on each issue and makes it official no need to sign documents anymore.
But, as the article says, their "moderate successes" have failed to be profitable.
A startup can get away with not figuring out every monetization angle and focusing on developing cool stuff, as long as they're profitable overall. But once the startup hires a non-technical CEO and IPO's, the CEO's job is supposed to be monetization. Sure, some things can be out there to build public goodwill and brand image, but when you're a publicly-held for-profit, "cool technology" is no longer the benchmark for the CEO's success.
First, it assumes that traditional cash flow models of publicly-traded companies are the appropriate measure for startup investment. But seed and VC investors aren't looking for current revenue - they're looking for potential revenue. They're gambling, and quite explicitly so. Most companies will fail to deliver the dream. Investors know this, which is why they limit their exposure in this high-risk field to what they can afford to lose.
Second, it assumes that investors are not savvy, and are easily manipulated by bogus numbers. Every decent investor I've seen has a pretty good bullshit detector. It's one thing to sell them a dream, it's another to sell them snake oil. And if you try to sell snake oil, you'll be passed over in favor of other companies with plausible stories.
Startups are just illiquid investments, like real estate or even like chunks of public-company equity so large that the market can't absorb their sale. Every single investor who ever existed has talked their own book; i.e. they promote the assets in which they have a stake. This is not a Ponzi scheme, it's a market. And unlike Ponzi schemes, in venture, there is an underlying asset, which is the company that's growing. Growth and profit are two different things. Profit and valuation are two different things. Valuation, or market cap, are based on the expectation of future revenue. With tech companies, these expectations can be very high, and rightly so. Even if they are grounded in human psychology, and subject to projections, distortions and the like.
Corporate governance for startups is such a joke sometimes, it’s unbelievable. And investors bring it upon themselves.
You want sustained hockey stick growth, regardless of the cost to the team and the business, no matter what? Then you’re gonna find some founders that are much better at making the business look promising by hitting certain metrics than actually building a solid operational foundation for the business.
You're missing a nuance-- he believes that less-liquid assets like early startups, or startups outside of B2C tech (and outside of Silicon Valley), are a place to still find value.
Being honest and forthright goes a lot further than you think. Startups have risk, outline the risk, and ask for what you want.
You don't need the thousands of investors who want you to work for free, you need one who believes in the business enough to think the CEO is worth being paid. If the CEO isn't worth being paid the startup isn't worth investing in.
As someone who has started a business in the finance space trying to leverage technology, I take some offense to this. My business partners and I have worked our asses off over the last several years to get to where we are today: billions of dollars in assets powered by our investment models. Trust me: asking someone to give you money to put in your strategies is not easy. Unlike the start-up space, there is no "minimum viable product," "traction" metric, or even "asset" that has some intrinsic value (like a unique algorithm or brand). You either have a track record, or you don't. New strategies don't, so it's all "trust." Sure, I can show a "back-test" or "stress-test" -- but everyone knows those are bullshit anyway.
You think you know stress? Imagine knowing that every day, your models are making investment decisions for billions of dollars. Sure, it's a drop in the overall pool of assets in markets, but it is enough to keep you up at night, worried about someone's retirement or someone's college fund. Drop a few more percentage points than the market? Goodbye hundreds of millions of dollars. Yep, that's going to happen at 50 when you start your "easy life" as a hedge-fund manager.
I'm not saying my stress is greater. I'm just trying to make the point that every business has its own share of problems, and to say that being a tech entrepreneur takes any more balls than being any other kind of entrepreneur is naive.
Can we please stop, as a community, with the "woe is us, the tech entrepreneur?" It's embarrassing. Starting a business is starting a business, no matter the industry. In fact, I'd argue that we live in a golden age for tech entrepreneurship that has never existed in another industry. Imagine trying to start a bio-tech business or a manufacturing business (well, arguably "outsourcing" could be the manufacturing entrepreneur's "scale"...). There are no "seed" rounds. The assets you have to raise are probably 100x what a tech entrepreneur has to initially raise. On top of trying to build a product, you probably have to manage building and factory development, understand legal regulations for your industry, and manage tons of labor.
We live in a time where you can roll the dice and start a business in the tech space with a handful of smart people, some elbow-grease and maybe $50k in a seed round. This is a golden era.
I respect the hell out of what you are doing -- starting a business is NOT easy -- but please don't say it takes any more balls than starting a business in any other industry. It doesn't.
I agree that Google and Alibaba pouring on hundreds of millions adds credibility. But my skepticism is more banal: I've never seen a successful technology startup built this way.
Startups need to be nimble. When you raise 1.4 billion from the outset and hire hundreds of employees, you quickly build an internal bureaucracy. That's a hard ship to steer.
Most startups need to make course corrections, both big and small, before they find product/market fit. The political & psychological difficulty of those corrections becomes quite high when you have 100's of employees.
Investment dollars are like gasoline. Too much too early and you can actually drown out the flame.
So you do all the work of a founder, for way less equity, and the venture studio basically gets a huge stake for what amounts to a small seed investment.
Why even bother when you as the fake founder can just...go out there and do this yourself? All the value is in execution, even an AI can spit out startup ideas
Clearly true, if you value money more than whatever it is you founded your startup to do. Which is likely true, if you're in the business of selling startups. Now we're going in circles.
reply