thoughts 💭

2020: The Great Venture Refresh

2020-06-01 permalink

 

Across every industry the Coronavirus has radically altered the status quo, causing rife dislocation with great expedience. The disease will leave lasting impacts difficult to discern but ever-present for a global generation. Worldwide co-ordination of unprecedented scale will fade to memories of isolation, loneliness, fear and humanity’s fragility.


The venture industry is no exception. Long term in focus and structure, it is somewhat immune from an immediacy of impact, but no doubt, Covid will be the impetus for a refresh. For those able to look beyond our never-ending predilections for news, updates and forecasts, 2021 will be better than 2019. You’ll see. 

 

As Bill Gurley famously remarked in 2000, at the peak of the dot-com crash, “The year 2000 will be remembered as the year that everyone caught a disease known as sanity”. And 20 years later, we will surely look back on history repeating itself and the last few years as out of touch with normalcy. 

 

In recent times an insatiable appetite for growth has emerged. Monikers of triple, triple, triple, double, double are (unhealthily) bandied around as sound strategic advice. Board rooms negate their responsibilities for both prudent business management but also for their communities. For some of the companies I’ve observed directly, growth has become an all encompassing and domineering concept; a goal in of itself. Growth has certainly become a meme. Simply to grow is important. Without thought of an outcome nor direction. Just move!

 

And on a global scale we have seen the idiosyncratic emergence of Softbank and their never-ending pools of money. Willing to fund anything that moves up and to the right. Creating investor presentations with literal arrows pointing to the sky as a justification for their endeavours. It strikes me as interesting that venture funds such as indie.vc have been able to rise to prominence with GIFs of burning unicorn heads and a rhetoric of profitability and real revenue. For what else is thy venture brethren been thus striving henceforth for!

 

The most obvious indication of a startup ecosystem out of kilter would be the endless glorification of capital raising – in this crime both investors and founders are not without blame. As if giving away a portion of your life’s work (equity) is something to be celebrated. Funding rounds should be a last resort! Only to be embarked on if other avenues to build shareholder value are completely exhausted. 

 

2020 will provide a great shakeout towards profit from revenue. In truth this trend had long been billowing with the tailwinds fanned by the spectacular trapeze artistry of WeWork and Grubhub (amongst others) – well before the Coronavirus. For the easiest business model to grow is the one where I give you $2 and you give me $1 back. And this is surely the most common “business” model we have seen through the EVP offices in recent times. Total addiction to paid advertising, unwavering belief in concepts of lifetime value, no understanding of return. But this pandemic will be the impetus to refocus on sustainability over growth.

The Internet-led get rich quick schemes of the 2000s have been replaced with the capital raising bonanza that developed. That founders with no relevant industry experience, no customers, no product and certainly no profit could spend 20 hours building a narrative and a Google Sheets presentation and have a combined paper wealth of $10m (and in some circumstances far more) gives off an uncomfortable odour. These imposters filled the community with a drowning noise of promotion and vanity. Little substance or interrogative inquiry. 


So surely 2021 will see a new paradigm where said promoters are driven out by a more cautious and deliberate investor community. Willing to fund earned knowledge or real value creation, but not future promises, this should lead to a bifurcation between those genuinely providing a solution to an important problem and those slaving to the drumbeat of growth. 2021 will be the year of the “true” entrepreneur. Returning to our community’s roots of innovation and improvement for society. Turning away from inflated private companies with unlimited rivers of capital. A great catharsis long overdue.