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We’ve Gotta Stop Using “Lifestyle Business” as a Pejorative
- pcarolan 6y agoI think people that believe in and run lifestyle businesses like the fact that it’s a bit counter-culture. Not sure we need to do anything about that and if we do, will it lead to ruining what’s great about it by popularizing it?
- brudgers 6y agoThe term is pejorative in the world of venture capital and means little outside of it. It's pejorative because in the world of VC investing, a lifestyle business is not win-win. The founders get something good and the VC's get "nothing:" unsustainable returns and no recycling of founders into a new business. At it's core, the VC model of investment tries to align investor and founder interests by using equity value growth as the vehicle for returns. The downside of lifestyle businesses is that investments are made on the basis of cashflows. And these are inherently adversarial. Returns for the investors come at the expense of founders and vice versa. This means there is always the potential to struggle for control. Investors in lifestyle businesses are not inclined to write off an investment. They are likely to seek control when payment isn't made. Investments in lifestyle businesses follow ordinary investment logic. The advantage of VC is that it does not. None of which is to say that one is better than the other as a matter of general principle. Only to observe that ordinary investment strategies tend to be adversarial at their core.