Imagine: You’re at a swanky startup conference, surrounded by a sea of hoodies and MacBooks. The air is thick with the scent of overpriced coffee and desperation. On stage, a fresh-faced founder is pitching their revolutionary AI-powered, blockchain-based, sustainable, gluten-free toothbrush subscription service. Cybersecure ofc. The audience oohs and aahs. VCs salivate. And I’m sitting here, wondering if I’ve accidentally stumbled into a parallel universe where common sense is a rare commodity.
Welcome, my friends, to the wonderful world of the VC rat race, where the cheese is made of hype, and everyone’s trying to build a better mousetrap… even if mice aren’t really a problem anymore.
The Unicorn Obsession
Let’s start with the elephant in the room… or should I say, the unicorn? The startup world has become obsessed with these mythical beasts, companies valued at over a billion dollars. It’s like we’re all playing a giant game of Pokémon GO, but instead of catching Pikachus, we’re chasing astronomical valuations.
Don’t get me wrong, I love a good success story as much as the next entrepreneur. But here’s the thing: when did “unicorn” become synonymous with “success”? Last time I checked, a successful business was one that, you know, actually made money. Crazy concept, I know.
The Problem with the VC Game
Now, let’s talk about the real issue here: the VC game itself. It’s a bit like playing Russian roulette, except instead of a bullet, you’re gambling with millions of dollars and the livelihoods of countless employees.
Here’s how the game typically plays out:
1. Founder has an idea (bonus points if it involves AI, blockchain, or preferably both)
2. Founder creates a fancy pitch deck with hockey stick growth projections
3. VCs throw money at founder faster than you can say “burn rate”
4. Founder uses money to grow as quickly as possible, profitability be damned
5. Repeat steps 3 and 4 until either IPO or spectacular flameout
Sounds fun, right? Well, it is… until it isn’t. This model creates a few fundamental problems:
The Growth-At-All-Costs Mentality
Remember when businesses used to focus on making money? Pepperidge Farm remembers. These days, it’s all about growth. User acquisition, market share, anything but that pesky little thing called profit.
Don’t believe me? Let’s look at some numbers. A study by the National Bureau of Economic Research found that among U.S. startups that went public between 1997 and 2017, the average age at IPO was 9 years, and 76% of them were unprofitable at the time of IPO. That’s right, folks. We’re celebrating companies going public that haven’t figured out how to make money after nearly a decade.
It’s like we’re playing a giant game of hot potato, except the potato is a loss-making company, and everyone’s trying to pass it off to the public markets before it explodes.
The Trend-Chasing Carousel
Another symptom of the VC rat race is the endless chase for the next big trend. One minute, everyone’s talking about NFTs. The next, it’s the metaverse. Then it’s AI. It’s enough to give you whiplash.
Here’s a fun game: take a shot every time you hear a startup pitch that includes the phrases “AI-powered,” “blockchain-enabled,” or “disrupting the [insert industry] space.” On second thought, don’t. I don’t want to be responsible for any alcohol poisoning.
The problem with this trend-chasing is twofold:
1. It often leads to startups shoehorning trendy tech into their products, whether it makes sense or not. (Do we really need a blockchain-based toaster? Probably not.)
2. It distracts from the fundamental question: Does this solve a real problem for real people?
The Neglected Middle
While VCs and founders are chasing unicorns, they’re overlooking a whole herd of very attractive horses. I’m talking about solid, profitable businesses that may not be the next Google, but could provide steady returns and valuable products or services.
These businesses, often dubbed “lifestyle businesses” (as if that’s a bad thing), are frequently ignored by VCs because they don’t promise the astronomical returns needed to make the VC model work.
But here’s the kicker: many of these businesses end up being more successful in the long run than their VC-backed counterparts. They’re built on solid foundations, focused on profitability from day one, and actually solve real problems for their customers.
The Real Cost
Now, you might be thinking, “Alex, what’s the harm? If VCs want to throw money around and founders want to chase unicorns, let them have their fun.”
Well, my friend, there is harm. And it’s not just financial.
1. Human Cost: When startups prioritize growth over sustainability, it’s often the employees who pay the price. Layoffs, burnout, and the stress of constant pivots take a real toll.
2. Innovation Cost: When we’re all chasing the same trends, we miss out on true innovation. How many potential world-changing ideas are being overlooked because they don’t fit the current VC hype cycle?
3. Economic Cost: The boom-and-bust cycle created by this model can have wider economic implications. Just ask anyone who lived through the dot-com bubble.
4. Opportunity Cost: Every dollar invested in the next “Uber for dog walkers” is a dollar not invested in solving real, pressing problems in areas like healthcare, education, or climate change.
A Better Way Forward
Now, I’m not here just to complain. I’m here to suggest a better way. So, put down your AI-powered fidget spinners and listen up.
1. Focus on Real Problems: Instead of chasing trends, let’s focus on solving real problems for real people. Crazy idea, I know.
2. Prioritize Profitability: Growth is great, but not at the expense of a sustainable business model. Let’s bring sexy back to profitability.
3. Embrace the Middle: VCs, there’s a whole world of opportunity between “lifestyle business” and “unicorn.” Let’s give these solid, profitable businesses some love.
4. Long-term Thinking: Instead of optimizing for a quick exit, let’s build businesses that can stand the test of time.
5. Diversify the VC Pool: We need more diverse voices in VC. Different perspectives lead to different investments, which could help break this cycle.
6. Redefine Success: Let’s move beyond valuations as the sole metric of success. What about customer satisfaction? Employee happiness? Positive impact on society?
Case Studies in Sanity
Now, lest you think I’m just a grumpy old entrepreneur yelling at clouds, let me give you some examples of companies that have bucked this trend and found success:
1. Basecamp: These guys have been profitably bootstrapping since day one. They’ve turned down VC money multiple times and have built a sustainable, profitable business that’s been around for over 20 years.
2. Mailchimp: Before its $12 billion acquisition by Intuit, Mailchimp was a bootstrapped success story. They focused on steady growth and profitability, proving you don’t need VC money to build a valuable company.
3. Qualtrics: While they did eventually take VC money, Qualtrics was profitable from its early days. They focused on solving a real problem and building a sustainable business before chasing hypergrowth.
These companies prove that there’s more than one path to success in the startup world. They focused on building real value, solving real problems, and yes, actually making money.
Conclusion
Look, I get it. The allure of becoming the next Zuck or Musk is strong. The potential for life-changing wealth is tempting. But at what cost? And what are the chances?
The VC game, as it stands, often misses the point of what building a business should be about: creating value, solving problems, and yes, making a profit.
So, the next time you’re tempted to pivot your artisanal coffee roasting business into a “blockchain-enabled, AI-powered coffee experience platform” just to chase that sweet VC money, take a step back. Ask yourself: Am I solving a real problem? Can this be a sustainable, profitable business? Am I building something of real value?
Remember, not every business needs to be a unicorn to be valuable. Sometimes, a really good horse is exactly what the world needs.
Now, if you’ll excuse me, I need to go work on my pitch for an AI-powered, blockchain-based newsletter writing platform focused on Cybersecuriry, ofc. I hear VCs are throwing money at those these days.
Just kidding. Or am I?
With 💜 and a healthy dose of skepticism,
P.S. If you’re a VC reading this and feeling a bit called out, don’t worry. Universe still loves you. Just maybe consider investing in my revolutionary new “profitability as a service” startup. I promise it’ll disrupt the entire “making money” space! Projecting $2k Revenue in 2 years after $2M pre-seed. 😈
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