Jon Colgan (and many others I know) are frustrated about fundraising in NC. And I know where he’s coming from. I’ve been there. Well, actually, I am there.
But my take on the situation is a little different.
First, let’s face reality:
From what I can tell there are maybe 100 active seed investors in the Triangle, and only a dozen or so of really active tech Angels. Let’s say they average about one deal per year, that’s only around 100 seed opportunities per year to split between thousands of tech entrepreneurs, ideas, and innovations.
I’m not sure what more we can expect. I can’t fathom anything that will convince a significant number of investors in our region to divvy out more cash, more frequently, for more risky ideas. Not a blog post. Not a community event. Not a government incentive. It’s simply not going to happen. Ever.
And while it’s exciting when an NC company gets outside funding, the truth is– we’re competing with the entire country for those funds. Getting outside money is great for individual startups, but it’s never going to be a viable strategy for transforming our region.
So, how do we transform fundraising in NC?
It’s no secret that community organizers, investors, entrepreneurs, and a lot of cool business in North Carolina desperately want to see this region become a center for innovation. My startup benefits immensely from the amazing work already being done in both Raleigh and Durham to bring all the “ingredients” together to foster innovation.
But there’s one really important ingredient that no one ever seems to talk about. And this is strange, because, without it– North Carolina can never become a relevant region for high-growth tech.
The special ingredient is: our first $20B+ IPO based in NC.
When a company has an IPO for tens of billions, it instantly creates a handful of billionaires, a bunch of hundred-millionaires, and hundreds of millionaires. What do all these high-tech, geeked-out rich people do with their millions? They invest in new tech startups. Some become entrepreneurs themselves and start companies. Others become Angels and VCs.
And it’s not just their money that makes them special. It’s who they are. Tech-IPO millionaires who made their money in a company valued in the billions have a very special temperament. They’ve experienced, first-hand, the massive upside that’s possible when investors and entrepreneurs take big risks on big ideas. They’ve participated directly in the successful execution of high-growth strategies. They understand that money is a commodity– it’s just fuel to propel the rocket ship.
Founders, investors, and employees in companies that grew from nothing to billions in just a few years are hungry to create massive value as fast as possible. Marginal returns simply don’t interest them.
Today, in the Triangle, we have a limited number of seed investors making conservative bets on companies that solve front-of-mind problems using proven business models. Investors in our region pride themselves in keeping all their investments in the black.
Are they wrong or inferior or “behind” because they don’t make more frequent investments or take bigger risks?
No, they aren’t wrong. They are who they are. They are making the best decisions they can, with the resources they have, to help foster innovation and economic growth in our region. We can’t (and shouldn’t want to) change this.
Even if we could change the mentality of local fundraising, would our seed investors actually be able change the trajectory of our region?
Not likely. There are simply too few. If all of our Angels starting making more frequent investments and/or riskier bets, the impact would be negligible. The fact that they would be investing outside of their comfort zone could actually result in worse performance in the region.
Okay, so how do we conjure up a $20B IPO?
Obviously I don’t have the answer to to this question. But I do know how to get started:
Step 1: Don’t dismiss it as impossible.
Our region will never produce a company that generates enough value to change the world (and crank out lots of NC tech millionaires) unless we avoid dismissing the very possibility of doing so. Phrases like these are innovation killers:
- That would be amazing if you could do it, but you can’t.
- Everyone who has tried that has failed.
- There’s never going to be another Google or Facebook.
When someone shares an idea with you that sounds too good, too big, too amazing to be true, instead of shutting it down, try phrases like this:
- It would be amazing if you do it, what can I do to help you?
- Everyone who has tried that has failed. Imagine how much experience and data is out there that can help you make it work this time.
- Google and Facebook started out just like you—a couple of people with a big idea.
Step 2: Talk about the possibilities.
Brad explains that, even when you achieve $1M in monthly revenue and even if you’re still growing, you’re basically right where you started because “someone else is gunning for you now that you are the big player in whatever segment you are in”.
We’re constantly brainwashing entrepreneurs to believe that competition is an inescapable part of business that will haunt them and hunt them forever. For the vast majority of businesses, this is true. But it doesn’t have to be. Tech companies that IPO in the tens of billions have proven the ability to escape the crushing gravity of competition. And trust me, they didn’t do it by accident. They did it because, from very early on, they focused their strategy on owning their space.
Not every entrepreneur is cut out to attempt total market domination. But entrepreneurs in our region must be properly educated about the difference between competing for product/market fit (creating value in the market) and creating a truly defensible business (capturing value for their company).
Step 3: Talk about the upside for our region.
My favorite local entrepreneur story is Jesse Lipson and ShareFile. A young entrepreneur bootstraps a company from nothing to millions in revenue, and eventually to a big exit. He was brilliant. He had ambition. He made it happen.
Jesse created ShareFile and ShareFile created a millionaire. And look how much good it has done. Jesse, a guy who knows how to create massive value in a short amount of time, has become the epitome of the tech-geek millionaire I described before. He’s a supporter and founding member of numerous projects that foster local innovation, not the least of which are his participation in HQ Raleigh and entrepreneurship-focused initiatives like the Citrix Innovators Program (full disclosure: my company participated in the inaugural class in that program).
Jesse’s story is amazing. But imagine if, one day in the next few years, someone in New York City rang a bell and instantly created hundreds of Jesse Lipsons right here in the Triangle. Imagine if there were hundreds of experienced, passionate, hungry innovators, ready to pour their time and their capital into the startups in our community.
Sound like a pipe dream? See Step 1 above.
Step 4: Encourage real risk taking.
The big problem with entrepreneurship is that it’s risky. It’s always been this way. But in the last few years, something has started to change. Methodologies like the Lean, Design Thinking and Customer Development are attempting to wage war on startup failure rates.
At first blush, this seems like a good thing. No one likes to fail. But what I’ve seen happening recently is unsettling to me. These methodologies are instilling a trait in entrepreneurs that entrepreneurs shouldn’t have: an aversion to risk.
Traditionally, entrepreneurs have never been scared of failure. At least not scared enough to stop them from risking everything on the unknowable. But today, many entrepreneurs are pivoting away their dreams in a downward spiral towards the lowest common denominator: creating any possible business that can be called successful.
In my view, principles like Lean, Design Thinking and Customer Development can and should be applied to achieving product/market fit in almost any business. The problem is, they’re often taught and received in a way that leads entrepreneurs to turn their focus to the easiest, shortest path to viability.
The shortest path to viability may sound like a good thing. But it’s actually a bad thing if it drives an entrepreneur to pivot away from world-changing possibilities in order to settle for a realistic, proven business model.
I’m not suggesting we stop teaching these principles. I’m suggesting we encourage entrepreneurs to take big risks and do hard things. Teach them to use modern methodologies and thinking to face, and overcome, the most difficult challenges—not to avoid them.
Step 5: Be bold.
Trying to build a business valued in the billions is not for everyone. The chances of success are basically zero, so you have to be pretty crazy to try it. And ideas that can change the world almost always seem ludicrous in the beginning, so that’s another reason for people to think you’re crazy.
To make it happen, you have to have courage. I love the story of 22 year old Mark Zuckerberg turning down Yahoo!’s $1 Billion offer to acquire Facebook. Fellow board member, Peter Thiel, recalled:
“Zuckerberg started the meeting like, ‘This is kind of a formality, just a quick board meeting, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here’.”
Seriously. The only other person I can imagine making that move is Jon Colgan.
Which brings me back to the beginning of this article.
Jon Colgan is frustrated about fundraising in NC.
But guess what? He’s doing something about it.
He’s fighting for something that people say is impossible. He’s passionate about seeing our region be successful. And I know, from personal experience, that he encourages making bold moves.
Jon was one of the first people who took the time to listen when I started sharing my own crazy idea. I know that he knew what I was doing was basically impossible. But his advice was 100% supportive, encouraging, and most importantly—he offered to help in any way he could.
So as frustrated as Jon is with local fundraising, I hope the irony isn’t lost on him that he’s actually doing the only thing that can be done to change the situation: he’s doing the impossible.