Fast Company

The Elephant in the Room: Money

I've been known before to throw a grenade into the middle of a room I think is dreaming. So it was no surprise to me that I opened my mouth to make a comment at this morning's  AlwaysOn panel on the two-year forecast for IPOs and mergers/acquisitions. On the panel were VCs, bankers, and investment bankers.

They basically said the time horizon for IPOs was about three years, and that companies who go public have to be a lot bigger, which means the VCs have to fund them for a lot longer. So if you take VC money, you should take it from a fund with enough dry powder to power your growth for the next three years.

What's amazing is that this doesn't seem to be a problem for Silicon Valley VCs, most of whom have large funds. But they sre investing larger dollars later, so they are closest to the exit. It's like people who sit on the aisle in the back of the movies in case there's a fire. Protecting themselves and their investors.

But who is going to sit in the front? Who is going to fund the earllier stage companies? Give the $3m to $8m rounds? More and more, that seems like syndicates of angels.

One of the comments from the panel was that there's TOO MUCH MONEY, which leads to "bad behavior" because the VCs are addicted to the feeds they get from managing that money. A startup without a huge war chest, even if it has a great solution for a huge problem, can't survive against a dramatically overfunded company in the same space.

So the audience was pissed, and one guy got up and said there were 1000 small companies in Silicon Valley that would go bankrupt in the next year in this new environment. That led to talking about structural problems in both investment banking and the VC system.

That's when I decided to voice my (probably unwelcome) opinion. As usual, I got up and said, "I am from Arizona and every year I say the same thing. There's a sense of entitlement to money up here. In Arizona we learn that to build a company, you have to go out and get a few customers. And after that, the investment will probably come."

Bootstrapping. Almost unheard of in Silicon Valley. But isn't that the way most companies are built?

A lot of people came up to me aftwards and thanked me for making it real.

 

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