This, in a nutshell, explains the problem with uniformly applying the VC model to all tech startups. Some tech startups -- often the ones involving creation of substantive new technology with deep intrinsic value -- require many years of slogging. There's nothing wrong with startups like that as long as there is a way to fund them to completion. But how to do that?
THANK YOU. I am not one to usually use caps (normally, what I say is bombastic enough) but I am so fucking glad you said that.
It's not even "slogging". It's growth at a rate (10-40%/year) that is (a) extraordinarily fast by pre-technological standards, but (b) fails to deliver immediate liquidity/gratification.
The problem is that the standard VC model doesn't really fit well for these startups, because the VCs by necessity have fixed, relatively short time horizons.
VCs deride everything designed for lesser-than-50% annual growth as a "lifestyle business", which is why they end up funding so much get-big-or-die social media bullshit and so little Real Technology. Real Technology enables rapid (50+ percent per year) growth in applications (often discovered by external parties with important but non-technological knowledge) but it almost never, itself, grows at such a rate. Instead, 10 to 40 percent per year is fairly typical. Reliable, genuine improvement is hard and requires a certain sobriety-- don't load up on technical debt, get the basics down as well as you can before building applications-- that's incompatible with the "triple-up the sprinters, kill the laggards" climate of current "technology" financing.
To be clear: I'm not saying the VC model is bad; I'm just saying it's not universally applicable. And I honestly don't know what to tell entrepreneurs who want to create companies that don't fit the model well, unless they are already rich enough to self-fund, in which case I ask if I can invest. :)
I'm writing a long series on the causes of organizational malfunction (specifically software engineering, but probably more applicable) and the conclusion I've come to is that VC-istan's mandatory rapid growth (in headcount; 100+ percent revenue growth is fine if you can do it) is just incompatible with stable, long-term cultural integrity. We need to find a way to finance mid-growth "lifestyle" businesses that optimize for genuine technological contribution and cultural health, but don't double their headcount every 12 months.
I wrote about the financial/trust problems here: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . It's the 17th in a ~21 part series on how to unfuck Corporate America. The short version is that we need to come up with a way to connect passive capital with a Fleet of 50,000 mid-growth (10-30% per year; moderate failure risk) businesses, focused on long-term goals and therefore more able to mentor talent and serve specialized niches, that are currently underbanked. The solution I come up with is a profit-sharing-heavy compensation mechanism that is extremely transparent and kicks back dividends to (passive) equity-holders.
THANK YOU. I am not one to usually use caps (normally, what I say is bombastic enough) but I am so fucking glad you said that.
It's not even "slogging". It's growth at a rate (10-40%/year) that is (a) extraordinarily fast by pre-technological standards, but (b) fails to deliver immediate liquidity/gratification.
The problem is that the standard VC model doesn't really fit well for these startups, because the VCs by necessity have fixed, relatively short time horizons.
VCs deride everything designed for lesser-than-50% annual growth as a "lifestyle business", which is why they end up funding so much get-big-or-die social media bullshit and so little Real Technology. Real Technology enables rapid (50+ percent per year) growth in applications (often discovered by external parties with important but non-technological knowledge) but it almost never, itself, grows at such a rate. Instead, 10 to 40 percent per year is fairly typical. Reliable, genuine improvement is hard and requires a certain sobriety-- don't load up on technical debt, get the basics down as well as you can before building applications-- that's incompatible with the "triple-up the sprinters, kill the laggards" climate of current "technology" financing.
To be clear: I'm not saying the VC model is bad; I'm just saying it's not universally applicable. And I honestly don't know what to tell entrepreneurs who want to create companies that don't fit the model well, unless they are already rich enough to self-fund, in which case I ask if I can invest. :)
I'm writing a long series on the causes of organizational malfunction (specifically software engineering, but probably more applicable) and the conclusion I've come to is that VC-istan's mandatory rapid growth (in headcount; 100+ percent revenue growth is fine if you can do it) is just incompatible with stable, long-term cultural integrity. We need to find a way to finance mid-growth "lifestyle" businesses that optimize for genuine technological contribution and cultural health, but don't double their headcount every 12 months.
I wrote about the financial/trust problems here: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . It's the 17th in a ~21 part series on how to unfuck Corporate America. The short version is that we need to come up with a way to connect passive capital with a Fleet of 50,000 mid-growth (10-30% per year; moderate failure risk) businesses, focused on long-term goals and therefore more able to mentor talent and serve specialized niches, that are currently underbanked. The solution I come up with is a profit-sharing-heavy compensation mechanism that is extremely transparent and kicks back dividends to (passive) equity-holders.