24. April 2013–
Caught between venture capital and a hard place? Founders trying to get companies off the ground may see only two options: bootstrap – work in a garden shed, build desks out of scrap wood – or jump on a treadmill of equity-sucking financing rounds.
Not so, says O’Reilly AlphaTech Ventures co-founder Bryce Roberts. Speaking at tech industry conference NEXT Berlin yesterday, he called for a “third way” of raising financing and a “declaration of independents” to support it.
What are we talking about? It’s not crowdfunding, though that might sometimes be part of the solution. It doesn’t necessarily mean pushing for more revenue faster, either
It’s a reinterpretation of what funding should mean for a company – supported by a set of principles for how to treat equity, employees and growth. Reading between the lines, it sounds a bit like B Corporation Certification – a voluntary code for companies committed to social and environmental accountability – but for VC deals and with a focus on “independence” (more on that in a moment).
The third way: “A more sustainable way to grow companies”
Right now, according to Roberts (an investor in Foursquare, Codecademy and other familiar names), there’s a tendency for founders to either scorn venture capital altogether or close multiple traditional funding rounds with mixed results.
And the third way? “It’s a more sustainable way to grow companies that doesn’t polarise VCs and entrepreneurs as much as the current construct does”, he explains.
“I think there’s a middle ground that focuses less on the IPO or the big acquisition and more on building sustainable companies that require less capital – that aren’t less ambitious, but they either have a longer time horizon or just a more humane way of building companies than we do right now.”
There’s a dark side of venture capital – investors who push entrepreneurs to raise every-larger rounds at ever-higher valuations, chasing a quick exit for their own reasons.
Sometimes that works brilliantly. Somtimes it doesn’t. Founders and employees may end up owning very little of the company they helped build. Growing too quickly or rushing to an IPO – as some critics suggest Groupon did – creates its own problems.
Finding a middle ground between bootstrapping and that brand of venture capital could encourage a broader range of people to start companies, Roberts says:
“When you look at those two, you say, ‘bootstrapping – I have a family, I can’t do that, I can’t afford to do that’. Or venture, ‘I’m not going to give up the next ten years of my life to own a very small piece of something, for some sort of outcome that we’re supposed to not care about’. I mean, we’re not supposed to talk about the financial outcome…”
Put that all together and there’s room for something that helps founders self-identify as an independent company as they seek funding – a set of principles all parties could accept.
“An entrepreneur would understand what that means, a venture capitalist would understand what that means and say, OK, these guys aren’t going to take the first offer that comes along. They aren’t going to try to be a public company in the next three to five years.”
Further details aren’t there yet. Right now, Roberts says, it’s just something he’s discussing with entrepreneurs and investors. He does have examples of companies who could become role models: Etsy, already a certified B Corporation, and Kickstarter – “They’ve raised outside money but they have a very clear sense of what kind of company they’re trying to build.”
The crucial question: Will investors settle for lower returns – or lower short-term returns, at least – in exchange for letting founders grow at their own pace? Will founders have the luxury of being able to pick and choose only investors who sign up?
We’ll wait to see the details. For now, it’s a provocative and worthwhile idea, in a fast-growing industry that could do with a few more options to get companies off the ground.
Image credit: via NEXT Berlin
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