The entrepreneurs, the founders, and the tourists5th December 2018
There are three types of VC-backed startup founders: (1) The entrepreneurs, (2) The founders, and (3) The tourists.
When three of them fundraise for seed money, it’s difficult to tell the difference. Their profiles, tractions, and plan can look similar.
VCs can tell only after they write the checks:
(1) are risk-averse. They take the seed money, hope to achieve small-scale controlled growth, and are happy to stop there.
(2) are the epitome of what VCs actually mean when they say “think big”. This group tends to fundraise often early on. Outsiders think they burn too much cash. But they know why, when, and how to spend. They make mistakes. Yet they have crystal-clear vision that gives them the sense of comfort — the future plan to stop the fire.
(3) are in the game for the scenery. They speculate and make people think they are (2) early on, but soon learn the hard way during their next fundraising. They burn cash without knowing how to stop the fire. When they decide to resort to backup plan by turning into (1), it’s too late.
- (1) should reconsider fundraising from VCs.
- (2) lead winners and unicorns.
- (3) should reconsider fundraising from anyone.
(1) can become very successful, though they define their successes differently than (2). Many B2B SaaS targeting global markets (e.g. Buffer, Zopim, Atlassian) and western e-commerce or DNVB startups are led by (1). They achieve strong profitability without VC money [*] and having to be unicorns.
In some emerging markets, many (1) struggle when trying to pull off the same moves. The truth is some markets are not as ripe due to their more nascent ecosystem; it’s harder to acquire pilot users, inbound marketing talents, etc. Hence, VC money are needed to bridge the gap — wishful thinking; I saw many (including myself) not making it to default alive.
The tourists (3) are generally more interested in doing similar things to The founders (2). Some jumped in in (1) bandwagon as well. Those in camp (3) are at the highest risk of suffering from the fatal pinch.
In hindsight, there might have been a wisdom in “thinking big”. I certainly didn’t think big enough. Earning entrepreneurial passion is easy, execution is hard. Even those in camp (2) had to struggle. Only when they were in deep trouble, they could scale down to default alive. These are winners too. I believe that when you have VC money, you already lose the game by either not taking risks or speculating:
- (1) take no risks,
- (3) take too much risks,
- (2) take the right risks.
If you feel you’re in camp (3), be honest to yourself, take a step back, and think further whether you want to be in camp (1) or (2). Being an entrepreneur (1) is very different from being a startup founder (2), but it’s not a wrong pursuit. Think of starting a VC-backed startup if you’re in camp (2). This would save your, your co-founders’, and your investors’ time.
Don’t underestimate time. To quote Michael J Skok:
“VCs invest money, they can get that back. But founders invest years of their life, they wouldn’t get those back” [**].
When you’re clearly set on taking the startup route, try hard — there is no right or wrong decision in life. Don’t regret failures. Regret not having tried.
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[*] Atlassian raised $60 Million in series B round. But they never needed the money. They took it for a different reason.
[**] Michael is a Partner at Underscore VC and mentor at Harvard Innovation Lab. I remember the quote from one of his on-campus events.
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