And other unpopular opinions from a year in startups
(This is the first article in a series about what I learned from my year in startups, after transitioning from a 15+ year career in the public sector.)
There’s a new trend among startup accelerators, investors, and Silicon Valley to call what they do “supporting entrepreneurship” and “entrepreneurial development.” I hate this almost as much as I hate them calling themselves “job creators” or talking about their company “culture.”
I’ve been supporting entrepreneurs all my life, and that work is very different from the current venture capital system that supports founders.
Founders and entrepreneurs are not the same thing, really, not in the way that they want you to believe.
To me, a founder is someone building something with (or with their eyes on) someone else’s money. An entrepreneur is building it alone, with no money in sight other than the normal kind you borrow from a bank that doesn’t have any weird-ass terms like ‘raising debt equity’ attached to it, the kind of business that looks at that statement and goes what does that even mean?
If you’ve been involved in VC in any way, you’ll likely have heard the almost derogatory way they speak about “businesses,” and the way they work to define the founders they invest in as different from plain ol’ businesses.
And it’s true: one of the things I was never able to learn or wrap my brain around was the fact that a P&L wasn’t even needed for you to get a giant check from an investor. “We’re investing in people,” they say. “You go build something and we’ll fund it because we believe in you.”
Well, first of all, I’ve seen VCs write million-dollar checks to people I wouldn’t bet on playing pool in a South Carolina dive bar. And I’ve seen all that disappear when that person won’t or can’t deliver. Yet that founder just gets more chances to do it – they’ll invest in them again and again, in the next crazy idea, because once you’ve sunk that much money it’s really hard to stop.
One of the lessons I was never able to learn about working in startups was that it doesn’t matter what the business looks like. After spending decades working with true small businesses, helping them build sustainable financing plans and refining their operations, helping them innovate to stay competitive in a world of instant delivery from Amazon and the endless spread of chain stores & chain restaurants, it’s an insult I can’t get over to see how much money VCs channel into shitty humans in the hope of making it big.
I can’t even find an economic argument for it. If those VCs put that few million dollars into a portfolio of solid, community-based businesses with a strong P&L and deep ties to their community, their workforce, and their customers, I guarantee that over the life of that investment they’ll make more in returns than they would have by crossing their fingers with a bunch of seed rounds. (See some more data on this from Brookings.)
How does it make logical, economic, or financial sense to throw millions at 24-year-old kids with no life experience and no business experience? Why do they argue that it makes even more sense than providing investment and loans that support sustainable businesses that create local jobs, raise wages and working conditions, and improve entire communities?
VCs and startup accelerators are not supporting entrepreneurs. They’re setting our entire economy up to value only the 0.5% of startups that will become unicorns (often by putting hundreds of local businesses out of business – see Doordash for a great example).
Except the problem is that we need businesses, not startups. Long-term economic benefits come not from 1 in 600 startups becoming unicorns but from hundreds of thousands of smaller businesses with profitable, steady, functional business models that support jobs over long periods of time and contribute to community and economic development by supporting related businesses.
The north star, when you are an unabashed capitalist, is always, always, more profit. They’ll invest regardless of whether this founder is outsourcing jobs to other countries or profiting from child labor or building something in crypto that’s making our electricity usage ten times worse for the planet.
But when you’re the owner of a hair salon on Main Street, a coffeeshop in an urban center, a garden center, or a construction business – the north star is sustainable profit. It’s profit you can make while keeping yourself, your family, and your employees safe and well; it’s profit you make by keeping your little downtown community alive, supporting other businesses; it’s donating gift cards to the high school raffle and finding joy in bringing people joy.
For me, as a human, as an ethical being trying to hold on to something solid as I age and the world burns down, I have to believe that there’s a balance between naked self-interest and the kind of world that recognizes that resources are finite and we’re all we’ve got.
I just can’t find it in Silicon Valley. When asked to choose between those two missions, unabashed capitalists will always, always choose profit. I can’t reconcile that, or support it functionally, because capitalism without constraints isn’t real.
True support for entrepreneurs would be more financing that isn’t the interest-so-high-I’ll-send-my-cousin-Joey-to-break-your-legs loan. True support for entrepreneurs would be bringing the tech stacks that fuel the world of white-collar work to people in rural, suburban, and undeveloped places so that they can use it to build better businesses. True entrepreneurship support would invest in, you know, the things capitalism was intended to promote: actual market fit, proof of concept, skilled labor, existing success, a solid P&L that shows you have a true business – much the same way that smaller lenders do now.
I’m not even arguing that we change it, because we all know that Silicon Valley is driven by greed and that won’t ever change. I’m just reminding you not to fall for the hype. If you want to work with real businesses, and support real entrepreneurs, all you have to do is look around you.
Don’t fall for the hype of trying to invest in the next airbnb. All you’re doing is giving your money to people who will never need it so that if they hit it big they get a little bit more in return.
Instead, make your angel investments in your local community. Become part of a friends and family round that supports a pub, a restaurant, a bookstore you love. Invest your seed round money in a business with actual revenue. The more we do this, the better off we all are — and the more free we are from what the very wealthy want us to do.
Photo by Brandon Jean / Unsplash