Yesterday, a founder tweeted me something to the effect of “if you don’t raise money to do big things, you’re not a startup, you’re a lifestyle business”. I promptly pulled out a knitting needle and stabbed myself in the eye to relieve the pain.
Yes, we’ve created an incredibly unhealthy mythology in Startupland — the idea that raising money equals validation, credibility, and is a precursor to success. This is just not true; funded businesses fail at about the same rate as unfunded ones, and 6 out of 10 of the INC5000 fastest growing US businesses were bootstrapped.
But it really isn’t in the best interest of venture capital bloggers and speakers to disabuse you of this belief. In the last 7 years they’ve accomplished an impressive feat of inbound marketing, dominating the conversation about all things startup. Now, virtually every first-time founder believes that raising venture money…well that’s just something that good startups do.
Don’t get me wrong. I’ve got lots of VC friends who will openly testify that venture dollars are not for everyone, and that very few companies will pass through the eye of the needle. But…why give up the podium? In this moment, startup lingo is venture capital lingo. The angel market has lined up. The accelerators have become rung zero of the venture ladder. The business press, and now mass market TV is amplifying the message. It really is an unintentional master stroke.
Hell, no. You wouldn’t be long for the conference circuit, running 70 person workshops. Plus, how would the best audience, the founders you want, know how to find you in Outer Hall 17b Mezzanine Level?
And thus, the venture capital industry has found itself in the fortunate position of playing Master of Ceremonies in the startup circus, panning for gold amongst the global explosion of startups.
Here’s the problem. These assumptions about what startups “should” do are seeping into the cultural ground water. The message turns up in surprising places, like economic development strategies for comeback cities, university research advancement plans, entrepreneurial diversity initiatives, and accelerator competitiveness rankings. I see nationally-known personalities taking the language of Silicon Valley on tour to Columbus, Ohio, Providence, Rhode Island and Nashville, Tennessee.
Look, we need a thriving venture capital ecosystem, and I want every great company that has the potential to be a home run to get venture funded. But, by creating a single storyline, we are funneling founders and startup supporters into a Goldilocks fairy tale where nobody gets the comfy bed or the just-right porridge.
The majority of founders that create something awesome will do it without venture capital, by bootstrapping or taking some angel dollars, friends and family money, or (gasp) a loan. Yes, many of these will be lifestyle businesses — which apparently is a curse word that means “I didn’t make any money off of you”. A significant number, more than 90% of the INC5000, will create scalable businesses that make $Millions, employ dozens or hundreds of people, and are around for a long time in your hometown.
These folks are too busy working to “become thought leaders” or “own the narrative”, and no investor writes blog posts about the startups that didn’t take their money. As happens with silent majorities, they struggle to tell their story, and are often ignored or mis-understood.
But if we are going to truly extend the power and impact of startups beyond the top metros, investors and founders have to start getting honest that VC isn’t for every startup, and that it is possible to build great companies without venture capital. Then we can start to create complimentary investment approaches that widen the lanes for founders and investors, regardless of geography, business type, or exit path.