OK, as with nearly all blog posts, the following is an outrageously reductionist simplification. But for all that, it remains a genuine and honestly held point of view that might just change the way you look at things…
Essentially, I believe that the modern financing history of “startups” divides into three overlapping generations or waves:-
- “Startups 1.0” were bank-funded, back in the days when banks had money to lend.
- “Startups 2.0” were angel-funded, back in the days when angels had both wealth and liquidity.
- “Startups 3.0” are self-funded, trying hard to move to customer-funded at high velocity.
Right now, I think that most startups are stuck in a limbo between 2.0 and 3.0 – we’re smart enough to see lots of practical problems with angel funding, but not self-confidently ambitious enough to honestly believe that we can bootstrap what we do from basically nothing all the way to a billion dollar company without angels’ alleged assistance. My advice? Have faith – you can do it, honestly you can. All you need to do is to devise a way of making it happen. Given that you solve every other problem you run into, why not try to solve that one too?
Interestingly, one common reaction to my popular post Lean Startups suck. Here are 10 reasons why… is that I must be some kind of Lean Hater. In fact, the single biggest thing I hate is seeing clever, ingenious and otherwise well-informed people suckered into following a course of action that will suck every last penny out of their pockets (and often out of their friends’ and families’ pockets too).
Unfortunately, I believe that this is what Lean will do to you if you trust it for financing. Angels don’t ‘get’ Lean, simply because Lean startups are encouraged not to make claims or promises that might have value, whereas angels are fundamentally looking for things of value to invest in. So the core issue I have with Lean is simply that we’re living in the decade before angels find a way – a ‘contract of mutual expectation’, if you like – of coping with Lean. In short, we don’t (and indeed we may never) have Lean Angels. That would be “Startups 4.0”, but we’re a long way from there just yet. 😦
Overlaying Lean onto the three startup financing generations described above, my argument would be that Lean conflates the two very different dynamics of Startups 2.0 and Startups 3.0, but ends up with the worst features of both. That is, Lean promotes the emerging incremental self-funded-to-customer-funded mindset (of Startups 3.0) but tied up with the need to expensively surrender control of most of your company to angels in order to scale (of Startups 2.0). It’s not a good mix at all.
But… “what’s so wrong with angels?“, you may ask. The awful truth is that here in 2012 we’re living at the tail end of the angel funding revolution: over the last decade, angels’ thinking has become so polluted by the “10x home-run” nonsense spouted by VCs (who have since moved en masse to far later-stage investments anyway) that angels’ overall level of ambition, expectation and – let’s face it – raw greed have all been inflated beyond the ability of any genuine startup to meet them, except purely on a vapourware or slideware level.
Lean does not fix this: in fact, Lean promotes angel funding at a time when the gap between startups and mainstream angels is widening year on year. I dramatized all that here back in 2010 as the Venn diagrams of death (and the world is still waiting for virtual angels), so it’s not exactly shocking news… but it seems to me that very few entrepreneurs get any of this at all. Don’t mind me, though, please feel free to carry on drinking that angel Koolaid all you like. As I said when I got cut up by a hearse the other day, “whatever, it’s your funeral“.
I know that bookshop shelves are filled with zippily-titled easy ways to start up your company (of which Eric’s book is merely one of many), but the reality is that these simply don’t work any more. In business terms, they’re all as outdated as 18th century encyclopaedias. They promote a gospel of financing harmony and collaborational positivity that simply doesn’t match the East End barrow-boy hustle that actually passes for angel investment.
Ultimately, I believe that the only genuine way that people can deliver the kind of low-risk-yet-hockey-stick-shaped returns angels demand is through armed robbery or Enron-scale fraud. So go ahead, pitch all you like, knock yourselves out: your so-called best case endgame scenario is that you’ll end up grinding out one ridiculous, abusively one-sided offer from a ragtag set of barely-liquid angels who will then be more interested in finding tricky ways of mitigating their downsides at your personal expense than in growing your splendid company together.
Alternatively, you can start small and find ways of getting to customers and growing fast. You know which option I recommend! 😉