“Dance, startup, dance!”
Is the current VC funding model obsolete?
--
The venture funded ecosystem is, in theory, amazing. It’s where founders with world-changing ideas meet visionary investors looking to make money while helping them change the world.
In practice, the start-up ecosystem is the equivalent of Takeshi’s castle, where founders face ever more complicated challenges and almost always end up with their face in the mud.
I’ve joined my first startup in 2003, founded my first startup in 2008 and got venture funding for another startup in 2014. Despite its failure, I do not regret long hours of working for peanuts. But I regret the futile effort I spent “working” the VC ecosystem: pitching, attending startup events, wooing investors, preparing pitch decks, and working on ever more complex business projections. At least I worked with a great team and built a pretty cool product (the market disagreed); the rest resulted only in countless wasted hours.
The “startup service ecosystem”
A surprising late development of the startup ecosystem is a legion of predators hawking their services to start-ups and billing themselves as the one true ticket to riches.
Web Summit is perhaps the largest offender of all, drawing startups in with misleading advertising. The actual event space resembles nothing more than a chicken coop, with all the investors and important people used to attract the startups safe in their VIP lounges, far from the plebes.
Other examples of either charging startups or simply wasting their time include countless pitching contests, conferences, investor presentations, speed dates and similar events that make money by selling access to a herd of startups. Same goes for the exponentially rising number of accelerators and incubators, all anxious to give you 20,000 USD for 10% of your equity, over-promising and under-delivering on the quality of the programme and assistance in further raising.
“Very Important VC” syndrome
The relationship between the investor and the startup is by definition asymmetric. But the proliferation of startups and people styling themselves investors has tipped the scale even further. Every investor and potential investor believes they know best, even though they have no specific domain expertise, and they expect start-ups clamouring for their money to adapt to them. This results in endless rewrites of the pitch deck, with team member slide and the mandatory hockey stick chart the only constant.
The situation in Europe is especially silly. While the US investors make you jump through hoops, the final seed rounds are often in the range of millions. In Europe an equal amount of effort gets you 200K, forcing you to start raising again practically immediately.
So now what?
The VC model used to be revolutionary — however, Che Guevara was replaced by Cohiba. But there is a promise of another revolution in the air — startup crowdfunding via blockchain App tokens enables startups to completely by-pass the VC world. Perhaps the best overview of the potential future is this post by Fred Ehrsam — “App Coins and the dawn of the Decentralized Business Model”.
Viva la revolution!
