Greed consumes VCs at all times, which is understandable given the nature of their business. And, of course, they are numerically obsessed. When everyone starts to think they’re all “great,” they lose sight of what it takes to build real businesses, which require much more than just numbers to function. When you look back, you’ll notice that it wasn’t the hundreds of millions of dollars raised in their “seed” rounds that truly made Google, Facebook, and Microsoft what they are today. It was founded on “discipline” instilled by venture capitalists in order to aid in the creation of growth through “profitability.”
If these are the companies that are concerned right now, they should do more soul searching about what they want to be when they graduate from the VC dollar into the real world, where dollars are finite.
But, as you can see, that’s what happens when times are good and the money printer keeps printing. Everyone thinks they’re the next Golden Touch, but are they really just Gordon Gekko? I’ve seen some of the ventures that have received “seed” and “Series A” funding in the last two years. Some of these companies raised more money than the $300 million purchase price of my second company. What’s more, these businesses are not profitable and have no plans to become profitable in the near future. How did the smartest guys in the room become fools? So, you see, it’s times like these when the greater fool theory shines brightest.
There are also the Founders. First and foremost, I am passionate about entrepreneurship and strive to help entrepreneurs in any way I can. However, in this wave, I’ve noticed a distinct “breed” of entrepreneurs. Because of the excess capital raised, their businesses were built and driven on “ego-driven” vanity metrics rather than metrics about “substance” and “shareholder value.”
Now for the journalists, who I’m sure will troll me. “You either die a hero or live long enough to see yourself become the villain,” as the famous Batman quote goes. The problem is that these “tech journalists” are only concerned with “clicks.” They are ineffective when it comes to vetting the actual product, determining who the customers are, or asking difficult questions. You see, if you tell them the amount raised, the venture capitalist’s name, and your favorite buzzword, you don’t even have to pick up the phone because the story is already written. I’m astounded by how low journalism has sunk, because even these journalists now crave clicks just to grow their own following rather than “informing” the public. The majority of these companies should not have gotten the attention they have. Even these journalists recognize that failing to conduct proper due diligence is acceptable because the way their industry operates serves them best. When there is a setback, all they have to do is switch the narrative and character from hero to villain.
I doubt many of these models will survive the upcoming 22′ down cycle based on the deals I’ve seen in the last two years. As a result, rather than having a favorite VC buzzword, I’ve always preferred “high growth,” “boring,” and always “profitable” businesses.
If you’ve been in the dot-com business as long as I have (nearly 24 years), you’ll know that we’ve entered the post-2000 crash period.
So buckle up and concentrate on how to become profitable while keeping costs under control, rather than on phony vanity metrics that you may have used to impress investors. Focus solely on three things. Your product, your customers, and your bottom line.
Finally, I’ll offer some advice that has always been beneficial to me. However, I’ve noticed that many businesses ignore this. Remember to always treat your “customer” as if they are God.
The economy will experience ups and downs in the future. But perhaps the sooner we recognize that all three of these players contributed to their demise, and that if they do not return to their “true” roles, the majority of them will remain fools.
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