A good friend shot me an email asking what was up with my post about not doing VC investment any longer. My friend leads a business. We’ve worked together formally and informally on growing that business. We’ve also discussed starting and jointly owning something new. So of course that email was checking in to make sure I was OK but also to see if our dreams weren’t going to move forward. Here’s my response only lightly edited. Shared with you all because I thought it reveals some additional thinking behind this decision.
Sure, would love to catchup and explain more of the thought behind this and the lessons learned over the last year+. Feel free to give me a call today if you want. Two sick kids. So my Saturday plans changed to just hanging around the house. Or we can talk on Monday, no hurry.
Just a few things to go ahead and mention while I’m thinking about it and to maybe provide some context…
This doesn’t mean I don’t want to help you get something going and being involved in some way. It does mean the ways I think that are best to do it might be different than you and/or I thought 1-3 years ago. I think I mentioned something briefly when I was in [your state] last that maybe we look at buying an existing company in which to inject your ideas, technology, and processes instead of starting from scratch. Though with [your existing company], you in some ways already have that.
It also doesn’t mean that I think all of venture capital is wrong or all those doing it are misguided. I made and still have a lot of good friends in VC (investors and founders). I (and Daryl too) decided it just isn’t a game we wanted to win in the end so why get good at playing it. My general view is that the majority of the companies and the investors doing early stage venture capital are setting out on a path that dooms most of these companies for failure and the investor dollars to vanish. And then this is the crazy part to me. The investors are OK with it. They expect 9 out of 10 to fail. They always say (and I believed) that the 1 that succeeds makes up for all the failures. The problem here is (and this is a moral problem not just a financial one) the VCs put these founders on these paths. The VCs have to do it and the founder signed up for it. Though I don’t think many founders realize it at the time. Our society now elevates founders more than they should. This is especially true at a stage in their company growth when they haven’t done much because now it is so easy to start a company (not easy to grow a company, easy to start).
But even more than elevating founders, society elevates investors even higher in part because the founders are all looking to the investors for how to do things. I start calling myself a VC and all of a sudden without even trying my calendar is full with people wanting advice on how to run their business. It’s because they want the money I manage, so I get it. Some of it is my money but a good chunk of it is not mine. I have a responsibility to manage that well and in align with all of the investors intentions. The founders will go down this crazy path to get the money because by investing in this path I’m implicitly endorsing that path. I just couldn’t in good conscience do it. Because while for me that founder is just 1 out of 10 shot at achieving my objectives, they are taking an all or nothing gamble. And even if they are successful for me, it doesn’t necessarily mean they are going to be successful. There are plenty of horror stories of companies selling for big amounts and the founder gets almost nothing once all investors are paid back.
So with all that rambling, I’m not totally done with business or anything. It just became too costly (more in time than in money even) to find the folks in the startup world who think like me and Daryl. They are out there, I’m sure. I think you’re one of them. I just can’t find them at a scale that makes investing work. So if I bump into them or they find me, then I want to help them in whatever ways I can. It just is not likely with capital directly into their brand new company.
But now I’m really excited about entrepreneurship through acquisition. Small businesses, like DelMar, [Daryl’s previous company], [your current company], etc. are amazing. I’ve always loved working in and with them. It just isn’t “cool.” But I was never the cool kid in school, so I’m fine with not being cool. In fact, maybe I’m getting out because whenever I do something and it becomes cool I start to get worried.
Whenever you find yourself on the side of the majority, it is time to pause and reflect. -Mark Twain
It wasn’t cool to start a tech company in Indiana in 2004 right out of school. Now it is. But right now it’s not cool to buy an old company from a retiring baby boomer in a boring industry. Being not cool isn’t the only reason to do something, but I think it is more of an indicator of my likelihood to be successful. Why intentionally go into a crowded market?
Anyway, this got way long. I’ve probably written what should have been three different blog posts and not an email to you. I’ve already taken up too much of your Saturday if you’ve made it this far. Give me a call sometime. Better to explain that way. Well, best to explain over a beer but until we can get together a call will have to do.