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He's not saying venture capital is starting to do more harm, he's addressing where and how venture capital is being expended. He actually has a good point rega

He's not saying venture capital is starting to do more harm, he's addressing where and how venture capital is being expended. He actually has a good point regarding funding of small to medium sized business with strong business models that emphasize being cash flow positive. Venture capital cannot do harm, most people don't know this but small businesses need the protection via social connections that a venture capital provides. If you don't believe that try running an independent small business and see how exhausting it is when you run into problems and don't have the backing of a VC. I grew up with people who did this and they get burned out when they don't have a larger investor who is connected enough to solve what seem like small problems. Everyone thinks they are better off being completely independent as a small business, that is always a bad idea. There are certain types of businesses that are difficult to grow due to either legal hurdles or local protectionist tactics, I've seen this growing up in different states. If you start a business in the wrong place and don't have the right connections your business is never going to succeed, it doesn't matter what your business model is. In certain states they simply do not want large multi-national corporations, interstate corporations or franchises. If you succeed on a small scale and decide to expand you're going to run into all kinds of problems because people are going to come out of the woodwork trying to slow down your expansion (yes, this is a real thing it caught me off guard when I first found out there are people who do this). There are also some types of businesses (particularly in the financial industry) that when implemented on a large scale are a nightmare to understand because there are so many rules and regulations. No one has a clue what is happening and it is easier to have hundreds of medium sized businesses with narrow focus that anyone can understand easily. Funding these types of businesses because everyone wants some sort of large IPO just makes the problem worse.

lmeyerov 6y ago
Most VC backed businesses fail, and less obvious, changing an operational model (= company dna) into a VC-optimized one instead of a sustainable revenue optimized one puts a company on that failure path. It is not the capital, but the associated changes for the pursuit of the next round, and dangers of not hitting it. He is pushing back against the hits based business that burns out otherwise good companies, and Bryce is focusing on alternative funding strategies for companies so they can succeed without mega-succeeding. It's pretty non-obvious. Eg, a founder yesterday in my area cited a ~$50M exit as a success example for what he is doing. Except to O'Reillys point, it may only be a success for a couple of investors, and possibly an income loss for most of the team. They looked good -- raised $2M, $10M, $23M, grew to 50-100 employees, sold for $50M after 5-9yr, helped Global 2000s and govs tackle some hard problems, probably had revenue around $5M+yr, and are now a reasonable part of BigCo's product portfolio for much more $. AND YET... if either the $10M or $23M have a 2x participation, only the VCs really made money (and less than their model needs, so a miss!), and only 0-$5M left to split with the 50+ employees who took years of reduced salary. That's the financial instrument stuff going on. On the leadership side, the hiring was fueled by funding, always more then operating revenue (otherwise no VC needed), so needed the next round or otherwise layoffs and a death spiral. (Only a few % of funded startups can choose to slow growth and switch to sustainable revenue.) There are reasons to do today's model, but a lot of nuance, and from a creator's / equitibilty perspective, fundamental room for improvement. Glossing over that is no good.
- fancyfish 6y ago
  This will be a growing model in the next decade and is imo much more sustainable for founders because the core business model isn’t torn apart and it’s easier to sell to $MED_CO or $BIG_CO as the exit. Build a small team, grow to $20-75m valuation then ditch to a bigger co. Easier to pitch this to some of the less unicorn-y VCs like Arrowbridge, etc. I like to call it the bluebird strategy.

lmeyerov 6y ago

Most VC backed businesses fail, and less obvious, changing an operational model (= company dna) into a VC-optimized one instead of a sustainable revenue optimized one puts a company on that failure path. It is not the capital, but the associated changes for the pursuit of the next round, and dangers of not hitting it. He is pushing back against the hits based business that burns out otherwise good companies, and Bryce is focusing on alternative funding strategies for companies so they can succeed without mega-succeeding. It's pretty non-obvious. Eg, a founder yesterday in my area cited a ~$50M exit as a success example for what he is doing. Except to O'Reillys point, it may only be a success for a couple of investors, and possibly an income loss for most of the team. They looked good -- raised $2M, $10M, $23M, grew to 50-100 employees, sold for $50M after 5-9yr, helped Global 2000s and govs tackle some hard problems, probably had revenue around $5M+yr, and are now a reasonable part of BigCo's product portfolio for much more $. AND YET... if either the $10M or $23M have a 2x participation, only the VCs really made money (and less than their model needs, so a miss!), and only 0-$5M left to split with the 50+ employees who took years of reduced salary. That's the financial instrument stuff going on. On the leadership side, the hiring was fueled by funding, always more then operating revenue (otherwise no VC needed), so needed the next round or otherwise layoffs and a death spiral. (Only a few % of funded startups can choose to slow growth and switch to sustainable revenue.) There are reasons to do today's model, but a lot of nuance, and from a creator's / equitibilty perspective, fundamental room for improvement. Glossing over that is no good.

fancyfish 6y ago
This will be a growing model in the next decade and is imo much more sustainable for founders because the core business model isn’t torn apart and it’s easier to sell to $MED_CO or $BIG_CO as the exit. Build a small team, grow to $20-75m valuation then ditch to a bigger co. Easier to pitch this to some of the less unicorn-y VCs like Arrowbridge, etc. I like to call it the bluebird strategy.