Introduction-UN-SILICON VALLEY — book excerpt
Introduction
LESS THAN 1 PERCENT OF startups receive angel or venture capital (VC) investment (Rose, 2012). And yet, most tech founders spend an enormous amount of time pursuing this investment. Founders apply to join the very selective incubator and accelerator programs that make up the Silicon Valley[1] startup pipeline. These programs are designed to groom them into becoming perfect candidates for venture funding. Startups are expected to have a killer team that is pursuing a big idea, a defensible strategy, and engagement metrics that would make the folks on Sand Hill Road salivate. A path to profitability, at least in the short-term, is optional. Despite the selectiveness of the both the pipeline and VCs, startups that secure funding do not improve their chances of succeeding by much. In fact, 67 percent of startups that receive VC funding fail, and fewer provide a positive exit for both the founders and VCs (CB Insights, 2018). That is why the VC industry is dependent on securing a few big wins (10x or more) to make up for the colossal loses they endure as they search for the elusive unicorn. There is also a tremendous personal toll on entrepreneurs that take this rollercoaster ride. The experience of the 1 percent has been extensively covered in tech blogs, articles, fireside chats, and books like Ben Horowitz’s The Hard Thing about Hard Things.
But what about the 99 percent of entrepreneurs that don’t make it into the pipeline? The folks I refer to as “Un-Silicon Valley.” What’s their story, and who is telling it? As a tech entrepreneur that spent five years building an Un-Silicon Valley startup, I voraciously consumed startup literature to try to figure out the secret to success. But were these secrets applicable to the Un-Silicon Valley world as well? The hard thing about being an Un-Silicon Valley entrepreneur is trying to build your startup while moonlight as an Uber driver. It’s about exploring non-traditional financing options when the traditional ones have shut their doors to you. It’s about figuring out how you are going to augment foreign software developers to your team when you can’t compete with venture-backed startups for talent. It’s about maneuvering through the labyrinth of regulatory and industry red tape without the assistance of the Silicon Valley apparatus.
I was the co-founder and CEO of CoinFling, a fintech startup based in Seattle. In many respects we had quite a few successes: we raised over $1 million, launched two products, received regulatory approval from both federal and state authorities, developed partnerships with international mobile wallet services providers, and built a business that spanned two continents. I wanted to capture the tumultuous journey of building an Un-Silicon Valley startup in this book and share the lessons I learned along the way. While we ultimately failed in building a viable business, the reason for this failure was not because we ran out of money or didn’t have paying customers. The reason we failed is because all of the large national banks in the US refused to offer banking services to CoinFling. These same banks, however, were serving our venture-backed competitors that had the same risk profile. The banks were in effect acting as gatekeepers, picking winners and losers. The market should be the arbiter of good ideas, not the banks. In this book, I talk about how senator and 2020 presidential candidate Elizabeth Warren’s proposal of instituting new anti-competitive rules for big tech, if extended to the banking industry, could have allowed CoinFling to compete fairly.
While the 1 percent have the blueprint of Facebook, Airbnb, and other well-publicized unicorns to study and emulate, as part of the 99 percent, I struggled to find startups that had succeeded outside of Silicon Valley, let alone ones that had achieved unicorn status. The Silicon Valley eco-chamber (that consisted of media outlets and blogs) was dominated by headlines of startups entering the pipeline, VC funding rounds, and successful exits. Without a guide, I persisted in charting my own course into the wilderness. It was much later in my journey that I came across Atlassian[2] and MailChimp, two tech companies that reached unicorn status without receiving one cent of VC funding. This discovery was jarring to me. While I believed one could achieve some level of entrepreneurial success outside of Silicon Valley, I wasn’t convinced that you could become a unicorn without the support of the Silicon Valley apparatus. I committed myself to studying all the publicly available information on these companies, and I was surprised at the similarities between the two. They were both founded right after the dot-com crash in what would be described as austere times. They were also far removed from Silicon Valley. Atlassian was founded in Australia, while MailChimp is based in Atlanta. In the chapter “Roadmap to Building an Un-Silicon Valley Startup,” I document the lessons I drew from my study which I believe are essential for entrepreneurs that are pursuing the Silicon Valley path and ones that aren’t, to consider.
Women and entrepreneurs of color (EoC) consistently find themselves outside of the Silicon Valley tent. It is estimated that only 2 percent of women entrepreneurs receive VC funding (Olsen, 2018). For blacks and Hispanics, that number is a dismal 1 percent (Sherry, 2015). While insiders insist it’s mostly a pipeline issue and if they had more women and EoC pitching to them, the situation would improve, I believe the numbers reflect a much more systemic problem. The challenges we face in the broader society when it comes to conscious and subconscious bias and out-right racism do not end at the edge of Silicon Valley’s manicured lawns, but permeate the corridors and departments of its institutions.
As a black tech founder, I have developed my own theories of why there are so few blacks in this community. These theories have been born from my experience trying to secure funding and bringing a product to market. I believe these theories would hold true for other underrepresented groups in tech to some degree. In the book, I offer suggestions of how we can tackle these challenges from the perspective of an operator and an advocate. Distinguishing between these two roles is important. As an operator (or entrepreneur), your primary objective is to build a successful company, not to change the inequities in society, even though you might be a victim of these inequities. While an advocate’s role is to provoke and agitate the administrators of the current regime into doing the right thing. As an operator, you can find yourself occasionally playing the role of an advocate, but it it’s important not to lose focus of your primary objective. I applaud the efforts being taken by supporters of diversity in creating friendly doors along the Silicon Valley pipeline to allow women and EoC to enter. But I believe the real opportunity lies outside of Silicon Valley. Movements like Zebra Unite and sustainable growth model followed by our Un-Silicon Valley unicorns might hold the key to enabling more entrepreneurs to bring their products[3] to the market.
Finally, this is not an anti-Silicon Valley book. It goes without saying that Silicon Valley as a whole has been vastly successful, creating hundreds of billions of dollars in value. Its products have made it easier for people to connect and has expanded our options of how we work and play. The phrase “Un-Silicon Valley” means “not Silicon Valley,” and with this book it is my hope that I can bring a voice to a segment of the founder community that isn’t covered well by startup literature: the silent majority. I also hope that this book provokes a discussion on how we can democratize the process of building breakthrough products and by extension, democratize the process of shaping the future…
[1] I’m defining Silicon Valley more broadly to include the startup ecosystem that first formed in the Santa Clara Valley and which has now been emulated by other cities in the US and internationally. This ecosystem consists of universities, companies, startups, accelerators, and investors (angels and venture capitalists).
[2]Atlassian raised $60 million from Accel Partners in 2010, not because they needed the money to grow, but to build credibility with the business community before their anticipated initial public offering (IPO). The company was struggling to recruit board members. Prospective candidates were unconvinced that Atlassian was a serious company since it hadn’t raised any venture funding. By this time, Atlassian was already a unicorn.
[3] I’m defining a product as hardware, software, and services that rely on applied scientific knowledge (technology) to solve a real problem.
