Entrepreneurship should be permissionless. If someone has a sustainable business that’s creating jobs and solving problems, there should be opportunities for the owner to grow their business. Why wouldn’t the best business models be funded, divorced of geography or demographics? That’s a question that the traditional venture capital (VC) model doesn’t have an answer to yet.
Often, founders feel like they are left to do it on their own. For the ones that continue forward, nine out of ten fail due to running out of money, poor co-founder fit, or there is no market for their product. Had they been given expert advice sooner, a more robust network for advice, or access to alternative sources of funding, they might have stayed alive. Craig J. Lewis, Founder of Gig Wage, said in a recent article:
“Entrepreneurship is akin to ideology. If enough people believe in your ideas and follow you, action becomes reality…Throughout the journey, you make sure you are positioned and capitalized enough to last long enough. If you endure, the trend you first noticed hits an inflection point, after which the future presents itself. What you built created the future.”
Venture networks can be closed off networks excluding anyone that doesn’t quite look like them. If you do look like them and a part of their network, then you’re not only more likely to receive funding but also more opportunities to fail. Most don’t even get the chance to fail. There are many reasons the status quo isn’t working for all entrepreneurs. Below are a few of those hindrances to permissionless entrepreneurship:
Pattern Matching
According to Ameen Safir, “Pattern matching is a simple approach used by VCs, who see hundreds of companies a year and naturally evaluate startups and entrepreneurs based on what has worked before.” VC pattern matching overlooks founders from nontraditional backgrounds like military veterans. If you didn’t go to Harvard or climb the same corporate ladder the investor did, then it’s hard to relate.
Dating Analogy Isn’t Relevant Today
There’s an old dating analogy used to describe the VC/Founder relationship. You’re both getting to know each other. Sometimes you decide on the first date you don’t want to see them again, and sometimes it becomes a long committed relationship. However, most of the time, it’s complicated. There’s also one big assumption — that investors are active in your community or, should I say, dating proximity. 75 percent of investment goes to three states: California, New York, and Massachusetts. A majority of startups aren’t based in Silicon Valley and well-connected.
Friends & Family
Many entrepreneurs wouldn’t take money from friends and family who can’t afford to see their investment return zero dollars. On average, it takes $30K to launch a business. I remember the person who answered a funding question with “I didn’t have a ‘friends and family’ round. I send money to my family, not the other way around.”
Changing the social dynamic at the beginning stage of a business’s life or meeting the entrepreneurs where they are on the journey is critical. From verifying that their idea stems from a problem that can be monetized to smartly validating a business model is sustainable or investable. Relying on traditional funding models that you must first get permission to participate in runs counter to why many choose entrepreneurship to begin with — to create their own future.
If you liked this article, check out our comprehensive list of more business tips from Harry Alford in Veteran Startup 101
Feature image: Photo by Magnet.me on Unsplash
Harry,
You’re absolutely right. The VC model is restricting and barriered. The other ‘traditional’ avenue, angel investing, is always an option. While there’s still a hard sell at the beginning, angel investors are not as codified as VC banks/individuals. The angel investor makes their assessment at the personal level and chooses based off of their own parameters instead of an established model.
Also, anytime capital is in the conversation, entrepreneurs need to explore the social media and crowdfunding concepts. Quite a few companies started on Kickstarter or GoFundMe. The lesser used approach is social communities outside of crowdfunding sites. Anecdotally, I have seen a people find investors on Reddit. Off-shoot ideas blossomed into small businesses from someone posting their sketch or thought in their subreddit communities.
What I’m getting at is capital is everywhere. Your last sentence really resonates. Entrepreneurs want to make their own way, why would they want to keep binding themselves to a model that is risk averse and steeped in cronyism?
I really enjoy your articles, man!
-Keith