The following piece was written by Hunter Walk of San Francisco VC firm Homebrew, and I reproduced it here because I thoroughly agree with Hunter and I feel that we don’t have to focus on the massive scalable startups, small and lifestyle startups are just as cool, just as fulfilling, and just as important. Read on.
Venture capital isn’t the only way to fund your business and for many at the earliest stages of their startup, it’s one of the worst choices. Whoa, but as a VC, shouldn’t I be telling you that we’re the only game in town for real entrepreneurs? Nope. In fact one of the best surprises my last 10 months investing has been the number of real companies I see entrepreneurs building. Ones which bring the efficiency of software into traditionally unsexy verticals via a new mobile app. Ones where a small team can get to profitability within a few months of launch by addressing a very reason need their customers are willing to pay to solve. Ones that are likely to get wide adoption within a smaller professional niche. These are all wonderful businesses that may create great value for their founders, perhaps even turn them into millionaires. But the majority of these are not venture-backed enterprises because their scale levels off prior to the return multiple a traditional multistage VC seeks.
There are other good blog posts about the economics of a venture fund, why we fetishize billion dollar “unicorns” (even if I think that’s a silly question to ask at seed stage). What I want to focus on instead is our proclivity as an industry to demean these smaller companies as “lifestyle businesses,” which suggests an easy path, a coasting team, the four hour work week. Bullshit. These companies represent the majority of entrepreneurs across the US and should be celebrated. The profitable seventeen person company with an enterprise value of $20 million, 90% owned by its founder? That’s awesome even if you’ll never read about them in TechCrunch.
The lower cost of getting a startup off the ground isn’t just resulting in more small teams going after big ideas, but more teams addressing tangible, practical needs. To date there’s been a funding gap for these entities since they fall between your typical small business bank loan and larger venture financing, but the increased participation of angels, search funds, crowdfunding and new institutional lending models is quickly filling the void.
So RIP calling anything not venture-backed a “lifestyle business.” Go build your business the way you want.
About Hunter Walk: Current: Partner @Homebrew. Seed stage venture fund serving founders who enable individuals and small biz to think big. Brewed in SF. Enjoyed nationwide. Find us atHomebrew.co. Previously: Led consumer product management at YouTube, delivering billions of playbacks a day across computers, phones, tablets and TVs. Joined Google in 2003 managing product and sales efforts for Google’s contextual advertising business. Founding member of the product and marketing team at Linden Lab, the creators of online virtual world Second Life. Earlier, a management consultant and also spent a year at Late Night with Conan O’ Brien, broadcasting to an audience of insomniacs, truckers and college students. Grinded a BA in History from Vassar and an MBA from Stanford University. Got a wife, a daughter and a house in San Francisco. Life is good.