MOUNTAIN VIEW, CA – MAY 17: Google I/O 2017 Conference. (Photo by Justin Sullivan/Getty Images)
Last year, after seven years of bootstrapping my startup in Tel Aviv, I packed up my family and moved to New York to open our first U.S. office. I expected a smooth transition. Like New York, Tel Aviv is a high-tech hub with a vibrant startup scene. But unlike New York or Silicon Valley, Israel is a relatively small market. It’s not taken for granted that a startup will raise a million-dollar seed round, or that success looks like ringing the bell at the New York Stock Exchange. In the U.S. I encountered a startup culture driven by abundant venture capital, where founders should be prepared to sell a billion-dollar idea or get out of the game.
Any ecosystem needs diversity to survive. In tech, we need profitable companies that employ talented people outside of Facebook and Google. We need different types of business models that are set up for long-term success. Getting there requires a different approach to funding and growth.
Venture capital is based on betting and diversification, so it will naturally produce a few winners and many losers. According to 2015 stats from 500 Startups, 50–80 percent of venture-backed startups yield no return, and just one percent reach $1 billion valuations. Every founder wants to believe they’ll be the one that makes it. So they beef up their forecasts, promise exponential growth, take the money, and in many cases, burn through it… only to find that their company wasn’t meant to be the one-in-a-hundred case.
This system works for VCs and a tiny minority of companies, but it stifles diversity and destroys otherwise sustainable businesses. Imagine VCs are God, and animals come to pitch existence. An otter says, “I should exist. I’m a great swimmer, and I can dive 300 feet to get food.” God says, “Thanks, but I’ll pass; you’re too small.” The same goes for a falcon that pitches its speed. “Interesting, but you won’t get very big. You’ll be a couple of pounds, max,” God says. The result is a world that consists only of blue whales, giraffes and giant squids. Animals with unique merits aren’t given the chance to contribute, and the next round of creatures learn they must exaggerate their potential if they want a chance to exist.
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