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Look, VCs, we get it.
Talking about an imminent implosion of the bubble is a great way to scare off unsophisticated investors and inexperienced founders. It means less competition and lower valuations, if you can convince them, plus great PR and personal branding for yourself.
You may even end up conditioning the market and/or being right. Which means you’ll be remembered for the next 25 years as the one who predicted it.
I was chatting with a few investors over Twitter recently, and their keywords were concerned, fear, and worried. Another investor decided not to invest in my company a month ago, saying, “I’m concerned that valuations overall are high and are likely to decline in the coming year.” Not my company’s valuation, valuations in general. All this while asking for the same valuation of a year ago when we were pre-revenue and before 10x year-over-year growth. Lots of respect, but no can do. When I asked a few days ago, “Are you factoring in market expansions and more efficient go-to-market?” the answer was: “The amount of cash currently flowing to the venture is not tied to market expansion/go-to-market.”
Is it not?
Oh, and of course lots of smart successful guys like Fred Wilson, Bill Gurley, Mike Moritz, and Chris Sacca spoke about a market correction on the horizon, blood on the streets, and all that jazz.
Now, I’m just a random founder with his relatively young company and no unicorn-status in sight (yet) and around 20+ angel investments done in the last year … so feel free to ignore and/or disregard what follows, but here’s how I see it:
1. On fear, concern and worry. Welcome to the club. Founders experience that all the time, all day long. We fear different things at different points in time, but I have yet to meet a founder who wasn’t scared of something. That’s just the nature of what we do. We learn to live with that, to separate fear from danger, to rationalize fear and act to prevent danger, to minimize downsides and maximize upsides. Isn’t that what investors should also do? Sure enough, founders and investors do that in different ways; but I think I missed the note that said investors are not venture capital anymore. Venture. As in “uncertain.” Still, it seems you want to de-risk your portfolio without paying high valuations. I learned from my grandma that you cannot have it all, but maybe that was before this thing called the Internet.
2. On market expansion. This is frankly the most surprising thing to me. I learned from you guys that the best companies are the ones that create the market, or the ones that catch an early wave and as a result end up shaping the market and accelerating it in the process.
Why so much concern? Every analyst worth their salt will tell you that today there are 40x people online compared to 10 years ago and another 2 billion are coming online in the next 5–10 years — all with mobile phones and buying power. How many times did you share on Facebook the Henry Ford quote, “If I’d asked people what they wanted, they would have said faster horses”? Isn’t that what the most successful companies are doing right now? You can be sure that when they go public they’ll end up with earth-shattering IPOs, 10x and eventually 100x the average of a decade ago.
3. On efficient go-to-market. The even more exciting thing that goes in the mix here is that not only are the markets the biggest ever, but they’re also the most accessible they have ever been. Examples are everywhere, if you look close enough.
Exploding kittens raised $8.7 million on Kickstarter in a few weeks, making it the most-backed project of all time, just to be surpassed a few weeks after by Pebble, which ended up at $20 million.
Facebook hit 1 billion video views per day in less than nine months, while YouTube needed 10 years to do the same. More impressive than absolute numbers is the speed at which they become obsolete.
More examples? Slack added $1 million ARR every 11 days in less than a year, or Meerkat. No wonder you guys are obsessed with them, but here’s the thing: They’re not exceptions, they are precursors in leveraging hyper-efficient distribution channels.
4. On conditioning the market. I know, conditioning is a strong word. But you are the best and brightest, every word you say is taken by the press and repeated a thousand times. We look at you with respect and see everything you say as pure gold. I mean it.
You earned this and you deserve it in full, but that also means you have a responsibility toward it. You can use it to help us elevate ourselves and to be an example for the whole world or to kick us in the butt and throw us down the cliff. Maybe there will be a correction in the market, maybe not. One thing I can tell for sure: Shitty companies will die regardless, and awesome companies will thrive regardless. You can choose what you want to be remembered for. Simple as that. And I’m sure you can fully appreciate how powerful a compelling storytelling can be.
Fact is, if venture capital is essentially a two-sided marketplace putting together LPs’ money and entrepreneurs, every time you say “OMG there’s too much capital flowing in the market, it’s not sustainable,” we understand “holy sh*t, the model we’ve been relying upon until now is not working anymore,” and it’s easy to understand why: More capital on one side, more startups on the other; companies grow faster but in a more competitive environment; more data is available, but there’s a smaller investment window; more VCs are competing, but they have higher return requests.
How does trying to fit all these new things in the old “bubble talk” help you do a better job for yourself, for your LPs, and for us founders? If you ask me, it doesn’t; not really. Instead, you sound a lot like those horses trying to go faster when the cars were fast approaching behind them.
Sure, it can work for some time, but for how long? Also because in a world where building technology is relatively cheap, there are lots of other sources of capital. I’m sure you’ve heard of Indiegogo or Angel.co, or *gasp* customers! So the main risk is in the higher chance that you’ll end up missing the most successful companies with the potential to return the fund. Not to mention the new emerging breed of investors, young data-driven hungry people who are out to make a name for themselves like you were 10–20 years ago. Some of them have already emerged, pretty powerfully — you know who they are. And net-to-net, at the end of the day, you’re the one who’s going to lose if you’re not able to keep up the pace and reduce the friction. Smart companies will find the capital they need anyway.
Oh, in case you’re still concerned and worried and scared, read this from Michael Arrington. It’s dated April 2011. Back to the future, Doc! How many of the red-hot deals would you have missed if you’d stopped investing then? Yeah, exactly. All of them.
We need you; enough with the doom and gloom!
Armando Biondi is cofounder and COO of AdEspresso, a Saas Solution for Facebook Ads Optimization. He previously cofounded five other tech and non-tech companies. He’s also an angel investor in Mattermark and 20 more companies. He’s also part of the 500 Startups network, a former radio speaker, and an occasional mentor.
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