Do we need more alternatives to VC?
Have you ever had that feeling where you’re struck by something that really interests you or resonates with you, then you start to notice it everywhere?
Our kids started playing a game in the car where they shout out “yellow car, 5 points!” every time they pass a yellow car. It gets old really quickly, but now I can’t help noticing yellow cars every time I see them — and I’m pretty sure there aren’t any more yellow cars on the roads than the previous 30 years!
In the same way, I’ve been really struck in the past few weeks and months by a few posts that all seem to lead in the same direction. That is, that VC isn’t the holy grail for startup tech companies, both in terms of the scale and velocity that is required when VC is taken, and also highlighting alternative business models for successful aspiring entrepreneurs to follow.
This was one I came across this week by Bryce Roberts commenting on a Seth Godin post: If Scale Isn’t The Goal, Then What Is? In it, Bryce finds a different approach from software company, Balsamiq.
Growth has never been a goal of ours. Our growth comes as a direct result of building a product customers love. We love talking with and listening to our customers. As their needs and challenges grow, our vision for how to support them grows too. Giacomo ‘Peldi’ Guilizzoni
Then this post from Alex Turnbull at Groove came out a few days ago:
Why I Stopped Hustling. It’s a brilliant post about finding your own core motivations.
Before you let anyone tell you what ‘It’ takes, figure out what your ‘It’ even is. And then figure out what your ‘It’ will take to accomplish.
Figuring out the end goal, can really help making decisions about the business model, and the direction a certain funding route will take you.
Next up, we have this slide deck from Mark Suster. Mark highlights really clearly why the current VC business model basically requires startups to aim for exits in the billions rather than millions. It’s a good reminder of what you’re signing up for when you start on the VC trail.
If you’re interested in a simpler explanation on this, check out CB Insights who explain it really clearly here.
I’m not trying to say that VC money is fundamentally the wrong way to go. It could be exactly what is required for a business that needs to scale quickly, has a proven business model, or is in a really competitive space. It’s just not the only way… and as Alex Turnbull says, defining what you want for the business to be successful, is probably the most important, yet difficult thing for any founder to realise.
What I have realised is that I didn’t start a business to “work” for a VC. And some of the VCs I’ve met are great people, really switched on, really fun, really insightful. I’d actually love to work with them. But I also don’t want to be a slave to their chosen business model. I’ve invested long hours, sleepless nights, and the pursuit of learning, because I love it, and want to build a great business and great product with a great team. It’s not important to me that the business becomes a “unicorn” — there are many more things that I’d rather prioritise over that.
It’s not important to me that the business becomes a “unicorn”.
Speaking of unicorns (companies over $1bn valuation) there is a great movement towards rethinking our focus on this.
This post, Zebras Fix What Unicorns Break , states:
We believe that developing alternative business models to the startup status quo has become a central moral challenge of our time. These alternative models will balance profit and purpose, champion democracy, and put a premium on sharing power and resources. Companies that create a more just and responsible society will hear, help, and heal the customers and communities they serve.
I love that quote. Please do read the whole article. It feels worth simply acknowledging that there is some great thinking going on right now on how we can move away from old models, and think about creating meaningful, sustainable companies that will make life better for businesses, employees, families and society as a whole.
Further reading:
Clement Vouillon from Point Nine Capital reflects on the rise of non-compatible VC businesses.
Tomas Tunguz points out that when it comes to VC funds, size really does matter in terms of the size of the exit required to make a difference to the VC target.
Tomer Dean explores the VC model further in this tear down.
Finally, If you’re reading this from the UK, check out this group gathering in Edinburgh. http://www.impactangels.space/
