11 1 / 2018
Personal update: on building a meritocracy in our startup ecosystem
Happy New Year! I am so excited and hopeful for 2018.
I grew up here in the Silicon Valley during the dot com boom. It was an exciting time. My childhood very much had a strong influence on my career choices. My parents were not in the tech industry. I went into engineering simply because of where I grew up and the mentors who surrounded me. Had I grown up anywhere else, I seriously doubt I would have even thought about starting a company.
When most people think of the dot com era, they immediately think about all the money that was made (and lost). They think about bubbles. Or speculation. But to me, the dot com era was about changing billions of lives in a fast and impactful way. For example, this era made information immensely accessible. Today, if we want to learn things, we go online, and we search for information. We no longer go to the library and look in books. This has made information accessible to not only those with means but also accessible to everyone worldwide who can get online. The dot com era also made commerce pervasive and convenient. If we want to buy something, we no longer need to go to the store during business hours. We just buy them online at anytime from just about anywhere in the world. The dot com era made the world a smaller and more equitable place. It democratized access. It was a big step in the right direction for building a better society and a better world.
But our work is not done.
It is entrepreneurs who do all the hard work of building companies. But one of the things I’ve noticed through investing in seed startups these past few years is that early stage funding is incredibly skewed towards certain types of founders or ideas. How you look. Where you went to school. Where you worked. How you talk. All of these things matter tremendously in your ability as an entrepreneur to raise money. And it is investors who have influence on what problems in the world are solved.
At 500 Startups, I had the honor of seeing 20k+ startup pitches. I championed, signed-off on, and/or coached ~200 companies. And through seeing more companies than most VCs will see in a lifetime, I was able to do my own pattern matching, which didn’t align with what most of the industry looks for. Namely, the best founders can come from anywhere. Where you went to school or worked, what you look like, and how well you talk are all things that actually don’t matter in your ability to build a successful company. Other traits or skills that do matter include things like the ability to learn new skills quickly. And having tenacity and grit. Teamwork. Recruiting. Building a product or service that your users / customers love. And my favorite, the one trait that all the best founders have is the ability execute with speed. These traits are what matter in founders.
And so, there’s a huge disconnect in how we fund founders today at the earliest stages. And over the last couple of years, that began to frustrate me. I saw founders who were really awesome, as defined by fast executors with great VC-sized opportunities ahead of them, who just struggle to raise money. This is because these founders didn’t fit what most early stage investors were looking for. Silicon Valley purports itself as being a meritocracy – the “best ideas” and “best people” win. But, it’s not.
(Listen to my conversation with Harry Stebbings about this. Thank you Harry!)
And, there are huge implications for all of this. There are big world problems that are neglected because the right founders who understand these problems are not funded to solve them. And this is because their demographics do not fit the pattern that many investors are looking for. Beyond the loss of innovation, there are also additional implications. Last summer, for example, we saw a lot of breaking news come out of our industry. We saw news of sexual harassment and sexual assault. Beyond this, we have all seen investors treat founders whose businesses they are not interested in rudely or with disrespect. I will never forget how I was treated as an entrepreneur by some investors in this industry. And, now I see some of these same people act 180 degrees differently around me, because we are now peers. Many founders will not be able to raise money successfully, but everyone deserves respect and professionalism regardless of what he/she is building. And much of this inappropriateness, I think, in large part, stems from some of the power dynamics and demographic imbalances that exist in this industry.
So, when I turned 35 over a year ago, I had a bit of an existential crisis – what was I doing with my life? Through this blog, talks, and through 500 Startups, I’d coached so many founders on how to play this early stage fundraising game. What to say. What not to say. How to sell yourself so that you look and sound good. How to fit into the mold that investors are looking for as best as you can. This didn’t fully sit right with me. On one hand, I was helping a lot of founders raise money. But on the other hand, I was just helping people navigate our current broken fundraising system and not actually changing it to make it better.
Through some soul searching, I realized that what I wanted to do for the next 30 years or so is to make our startup ecosystem (more of) a meritocracy. The lack of a meritocracy in our startup ecosystem is hampering world progress. If you are a great founder, you should be able to access resources. And you should not have to put up with weird bullsh*t to do so. Period.
This work will take a long time. There are actually a lot of reasons for why our industry is so antiquated and why progress has been slow to date. One reason is that as a smaller investor, I am beholden to what other investors out there are interested in backing, otherwise my companies will just die due to lack of downstream capital or co-investors. So, as a microfund or an angel, you can have some conviction that goes against the grain but not a lot. That’s just one of many reasons why it has been difficult to effect change quickly. So in the beginning, I will continue to coach my founders on how to best navigate our current fundraising channels. But over time, this will change.
I’ve never had so much hope for our startup ecosystem as now. 2018 is the start of groundbreaking change in our industry. We now have new micro VCs cropping up left and right who are spiritually aligned on the fact that great founders can come from anywhere. And I am also seeing interesting new fundraising mechanisms crop up really quickly – crowdfunding and ICOs. Both of these fundraising channels don’t require you to go to a conference room on Sand Hill – you raise money online from people who may never have met you in person. I think we will look back on 2018 and say that was the year that everything really started to change.
There’s a lot of work ahead, and I’ll talk more about what I’m investing in and the groundwork I’m trying to lay in future blog posts. I will also spend more time in 2018 resuming my blog posts on tactical fundraising tips as the fundraising landscape for early stage startups evolves.
But I am so excited to roll up my sleeves and get started on this 30 year mission. Oprah said it best this week, “A new day is on the horizon.” Let’s go level the playing field for entrepreneurs!
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