in Startups

Don’t blame the system

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Attribution Some rights reserved by mdanys

Mark Evans has started an interesting conversation around my tweet (part 1 aim for success, part 2 the VCs respond).

I posted my comments about building a culture of better informed founders and early employees. But then I realized that maybe all of my comments are aimed at misbehaving children. When the real intent should be to correct the parents. That’s right I just called most startups and their founders, misbehaving children. But the culture is broken. It is broken with technologists and designers looking for handouts.  It is broken with every Tom, Dick and Sally calling themselves an entrepreneur because they think since they’ve had a “great idea” someone should give them money so they work on it because they are the next Zuckerberg.

This is ass backwards. And it’s part of the problem.

Something for Nothing

You don’t get something for nothing. There is no such thing as a free lunch. There are very few people that might invest in you to work on your dreams. Your parents. Your spouse. If you are lucky, your children. It is the belief that “I should get funded because I’m a good person” or “I went to university” or “I worked for a startup” or “I built a prototype” or “I have a pitch deck”. It is thinking like this that is absurd.

“The reason most founders think there is not enough capital is that they get rejected when they go looking for it. And one of the main reasons they get rejected is that their opportunity does not fit what VCs are looking for” – Mark MacLeod (@startupCFO)

Raising institutional capital is about building a business that matches the expectations and risks necessary to provide returns to the investors. Not every business should raise growth capital. And that is okay. Not every business is fundable at every moment in time. That is okay too. We need to get better at helping educate founders and early employees and others about how to demonstrate their ability to build a successful business and mitigate the risks associated at the different stages of corporate development.

Abundance and Scarcity

Are we suffering from a shortage of entrepreneurs? NO! We are suffering from a shortage of amazing companies. There are structural complaints about the system and some have trickle down impact on early stage companies. The limited number of LPs. The difficulty in VCs in raising funds. But even in difficult environments there are winners, look at Mark McQueen’s post about the truth of VC returns. Even during the dark days, there are VCs generating returns and getting a part of the carry.

The reason that we talk about Rypple, GoInstant, Radian6, Q9 Networks, Dayforce, Kobo, Achievers, Lightspeed, Shopify, because they are successful companies or building successful companies. They are able to raise money or get acquire or operate profitably. They are looking at how to effectively deploy capital to grow intelligently and faster.

We don’t have a shortage of entrepreneurs of good ideas. We have a shortage of great businesses. Mark’s argument is that even if you invested in the big Canadian deals early, you would still be struggling. This is a hard game. It’s a game, that I am just starting to understand the scale and scope of from a different viewpoint.

Use the Force or STFU!

“Life is to be lived, not controlled; and humanity is won by continuing to play in face of certain defeat.” – Ralph Ellison, Invisible Man

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Attribution Some rights reserved by jurvetson

I think we need to stop bitching about the systemic things that we can not change as entrepreneurs. It’s not any easier to raise money for a Canadian in the US, unless you have the pedigree, connections, demonstrated traction and mitigated risks necessary. However, if you are able to raise capital in the US, you’ll find that US investors have more capital to deploy, are more aggressive in deploying capital. You will also see that Canadian VCs face a different marketplace and structure, invest in more companies as a percentage of funds under management, and can be successful. These are not things you can change directly. We can lobby, we can vote for MPs and MPPs and political parties that support the structural changes. There are others like the CVCA and NACO that are also lobbying on behalf of their members.

“Instead of focusing on the things you can’t change, focus on the things you can change.” – Juniper

So rather than worrying about whether we should follow a Yozma model or a Helsinki model. You should worry about the things that can change. Go read about accretive milestones and getting traction. And figure out how to mitigate the risks associated with your business. Go get customers! Go build a successful business. Because if you build a successful business, they will come.

  1. I feel too many are hung up on some mythical ‘facebook/salesforce’ business rushing in to pay them 100 million dollars and they can make their grand exit instead of building the best business they can. Its out of vogue to want to work on a sustainable business based on real customers reaching for their wallets on a regular basis. 

    A great idea, with great people can always find the capital it needs to survive and thrive… you just have to work. Really work. Not many people want to hear that, which is great. Leaves more for those willing to put in the time and effort.

  2. Running an accelerator and being part of a seed fund, we see the earliest of the early. And among them we see a great number of people who would have happily been part of a successful company in the past but now want to start their own, just because they can code.

    Now, to be clear: everyone has to start somewhere. Zuck was a nobody before Facebook. So, anyone theoretically has the potential to go from start to successful company. So, as an investor, I’ll take every 1st meeting with an open mind. But I very quickly triage down to a handful of truly special people. 

    Most people are not cut out to build a run a successful, fast-growing, venture-scale company. And that’s ok…

  3. First meeting, happy to talk to anyone. It is when they don’t listen, they don’t adjust, they don’t adapt to the feedback they are receiving. 

    And it’s even worse when then think they want to be the founder of a technical company, but they aren’t technical. They can’t truly recruit technical people. They have an idea. But have no way to de-risk technology, de-risk product, de-risk timing, etc., etc., etc.

    We need to break the culture that produces these cranks.

  4. What’s really sad is the salary level of VC’s using other people’s money for a 97% failure rate. Imagine if your surgeon was only barely successful 3% of the time…a lot of dead people. The whole VC Entrepreneur relationship should be looked at and new and truly innovative ways that can help start-ups succeed is the answer in my humble opinion. VC’s blaming Entrepreneurs..and vice versa does nothing to discover the root problem…and there is obviously a problem.

  5. I’ll chime in hoping many new entrepreneurs read these posts and a shift in mindset, as David suggests, starts occurring in the industry. I started writing my comment below and it turned into a full on blog post. So here is a quick summary to spare you a long text. Please see post for the full thought.

    A large percentage of entrepreneurs I come across are what I call the “ROOT” entrepreneur. (Really Out Of Touch) These are young folks, they have talent, sure, they are smart, the majority are technical, and they have some ambition. But they have no corporate experience, no management experience, and certainly no sales & marketing experience and their relationship building skills are worrisome. Now, what they do have more than anything else is a sense of absurd reality in which they believe they will be bought out, merged with or invested in at top Silicon Valley based valuations simply because, get this, “we spent thousands of hours building this product/feature.” They are developers and designers who believe that just because they spent time developing something, that it automatically has value. Developing something does not make you an entrepreneur or even make you have a business. They truly believe that Google, Microsoft, Rogers, Torstar, amazon, etc will buy them or customers will be lining up to buy their product (feature), or investors will be amazed and give them money. I am as fascinated by their illusion of grandeur as I am dismayed by their lack of business maturity and realism. Finding the right founder to bet on is not easy. There are way too many entrepreneurs who have simply designed or coded a product or feature and hardly have revenues or potential for growth and expect million dollar paydays simply because they “invested their time”. As intelligent as today’s entrepreneur is, the lack of fundamental business savvy, sales and marketing ability, creativity and business development ability is frustrating. Over the years, the entire industry has created a system and a process of building “lean” startups, of turning the act of starting a business into a paint by numbers methodology. That is fine and works very well in certain circumstances. What I also see is that creativity, business development and good old fashioned business smarts have been processed out. Strong businesses do not take months to incubate. They take years. However, our entire entrepreneurial culture no longer has patience for years.

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