Note: I initially posted this article to LinkedIn on February 29, 2016. Given the sturm and drang leading up to and following the U.S. presidential election, I thought it might be a good time to revisit it. While this piece focuses specifically on tech startups, I think (and hope!) that the conclusion that I drew applies more broadly. We’re going to be okay. In fact, I think we’ll be better than okay.
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Talk about a downer to end the weekend. On Sunday, TechCrunch published a piece called “After the Gold Rush” which begins with the line, “The startup gold rush of the last ten years is over.” Lest you think that this is simply a way to draw you into the article, the author tells you that it’s (maybe) not. Despite being just two months into my second startup, I’m compelled to consider existential questions about the state of my as yet unnamed business. How are we to write a corporate obituary when we don’t even have a name?
Sarcasm aside, there is a world of difference between recognizing that Silicon Valley has been living in a valuation bubble and declaring that material changes in the operating ethea of large companies have rigged the game against startups. The truth is that the game has always been rigged. Large organizations have massive structural advantages. This is not new. It’s really, really hard to start something new and effectively compete against the establishment.
Despite the recent Hollywoodization of startup culture, entrepreneurs know that there are few jobs less sexy than starting a business. It’s a confounding slog, one where the founders have to convince others — and themselves — that they have some magic that no one else has. Creating a new market? The entrepreneur is seeing something that no one else sees. I don’t know if this meets the clinical definition of psychotic, but you can probably confer with the DSM to find out. Entering into a crowded market with expectations that you’re going to win? That takes more than a healthy ego; it requires a degree of self-delusion.
When businesses and entrepreneurs succeed, delusion is rightfully recast as prescience and/or insightfulness. Getting to that point takes time so perhaps it makes sense that founders and funders are on the same metaphorical acid trip. Liquidation preferences aside, venture funds are highly aligned with their portfolio companies. It doesn’t matter, on some level, if valuations make sense. What matters is that when they soar, everyone feels validated. And when the bubble bursts, everyone feels the punch in the gut.
The author goes on to write “I’m sure occasional startups will still emerge from left field to conquer the world. But for the foreseeable future, as the odds against them get longer, and the competition fiercer, it will happen less and less.”
I remember the “dotcom crash” at the turn of the century. New York City’s tech scene, which in its frothy heyday had branded itself as “Silicon Alley”, was a barren wasteland. I started a business on the ashes of the dotcom boom. It took 2.5 years for me to raise dollar one. But I built the business (which I ultimately sold) and the city’s tech community came roaring back. In Q4 2015, NYC companies raised $903 million dollars in venture funding and that constituted a steep dropoff from a few quarters prior.
Startups aren’t dead. They will continue to innovate, create jobs, and reimagine the world. So I encourage everyone to take a deep breath. That sound is the bursting of a bubble. It’s not the end of startups.
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