The general conception about startup culture is that it is all about “moving fast and breaking things.” This includes breaking or upending traditional concepts about funding and growing a business.
Conventional wisdom taught us to be wary of monopolies. Startup movements like Blitzscaling actively encourage founders to seek total domination of the market as the end goal. This requires insane amounts of cash, which has made VC funding the cornerstone of Silicon Valley.
Given the many problems associated with VC startup culture – including allegations of discrimination, toxic work cultures, gender bias – criticism is mounting, and alternative movements are already on the rise.
If you are a founder who, like the rest of the 99%, failed to attract VC funding for your business idea, you can take heart from a few of these home truths.
Not every business idea needs VC funding
Unicorns are rare – accounting for just a fraction of the total number of startups that are born each year. For VCs, success equates to finding a future unicorn early and making billions from a successful IPO/exit.
But not every startup is capable of achieving this feat, and in many instances such an aggressive approach may not even be in its best interests. Josh Kopelman, investor at First Round Capital summarises it best when he compared VC funding to jet fuel.
If your startup is not aspiring to build a “jet plane,” you have no use of this “jet fuel.” Worse, you might even get burned, sacrificing organic growth for Blitzscaling. This approach has been equated by its founder Reid Hoffman to throwing yourself off a cliff and trying to build an airplane on your way down!
VCs are “unhealthy” for founders
For founders themselves, accepting VC funding is often like making a deal with the devil. According to Harvard Business Review, around one-fifth of all founders who get VCs on board end up getting replaced by an experienced CEO or management professional.
By the time your company nears its IPO, there is a 60-40 chance that you might not be in charge of your own firm. The HBO series Silicon Valley is spot on in depicting this. Even worse, you might end up holding less than 10% of the firm’s equity by the end, says Jessica Rovello of Arkadium.
Her startup accepted VC-funding after 10 years spent bootstrapping. The investors wanted growth at the expense of profits, which eventually convinced Jessica and her husband to exit the VC scene. They used Arkadium profits to buy out the investors and opt for a more organic growth trajectory.
Alternatives to VC funding are gaining traction
If you are a tech startup founder, the absence of funding sources outside the VC circuit is a harsh reality. Banks need the assurance of collateral before they lend you money. This makes software startups poor candidates for traditional creditors.
But new avenues are opening for founders, with loans based on your company’s revenue or profit. In her NY Times article, Erin Griffith highlights investment firms like Sheeo, Indie.vc, Lighter Capital, and Earnest Capital as the vanguard of this new movement. On the startup side, investor buyouts like those engineered by Arkadium are on the rise.
These trends encourage a healthier form of startup growth – to become eligible for funding, you will first need to demonstrate a positive balance sheet or a profitable product. This is a far cry from Blitzscaling, which encourages sacrificing profit for rapid growth.
As long as you have a good product that delivers value to customers, there is hope for a startup. Focus on profitable growth, work hard, and you will find funding sources easier to come by.