em0sh

This is not meant for hardware founders. I’m writing this for the software founders.

First: I know complaining is an anti-signal. This is because it shows either a lack of agency to change the way things are or an inability to accept reality and move on.

Secondly: I am not talking about just tech, or just SF or just The Valley. I’m directing this at a specific subset of the startup ecosystem that seems to be becoming a majority.

I want to offer insights I’ve picked up to other founders who are looking to build meaningful companies in light of the current state of the decaying capital engine that was once designed to serve them and their visions. I want to give them The Beautiful Path to building their vision as opposed to the increasingly common and sought-after Popular Path.

The Beautiful Path: Founders once built their visions. They saw the future a certain way, and they needed to make it happen. Not want. This was the beauty of VC at that time. It could help them do that. Founders would have a vision, prove it could work, and the VC money would appear to actually help them make their vision real. This is the path I think you should take.

Now we have The Popular Path: Founders see a future of wealth and recognition through playing the role of the prototypical Founder. These people look like and talk like Founders, but they are not. They’re playing the game to get the winnings without the vision or hard work.

These people have great hair. They imitate the mannerisms of the former successful founders. They listen to every podcast available from every large firm to understand what they’re looking for and emulate it.

Before I get into how these people exist today, I want to first explain why they exist today. It’s simple: VC is actually more like Private Equity today. For the rest of this essay, I will call this newer form of VC “VCPE.” It seems to have shifted away from financing discovery and rapid growth to financing optimization and extraction. Doesn’t that sound familiar?

VC: Is this thing the future? Is this the person to build it? Will this company IPO or get acquired? Will they build their vision?

PE: Can we buy this company, improve its profitability, and sell it for more than we paid?

VCPE: Will the next raise be at a much higher valuation? Can I exit through a secondary sale? This is the rise of the sloppy-con.

It isn’t just me who is noticing this, by the way. And yes, I know VC is a subset of PE. But now it isn’t just a category; it’s the same thing.

VCPE (PE-minded Venture Capital) is no longer looking to help you build your company and profit from that. It’s instead focused on getting you to the next funding round at a high enough valuation to exit through a secondary sale. It doesn’t matter if the business is durable, meaningful or yours. Pessimists would say that VC has been like this in the past, but I would disagree and say that it was never the norm--or this widespread.

Gone are the days of building hard things. Instead, you’re supposed to spend too much on a launch video and have a marketing budget larger than your engineering budget. This is required in The Popular Path because you need to lean into creating investor FOMO because this is the actual mechanism by which VCPE makes money today.

I don’t want to use the term Ponzi scheme, because it’s pretty polarizing and it kind of hurts to write. Instead, I will call it valuation-driven speculation profiteering. VCs who invested in earlier rounds are harvesting the FOMO from later rounds and turning that into liquidity through selling their shares in your company once your valuation is right. This is a totally misaligned incentive for real Founders.

And this is why these pretend-founders can exist. They are a part of this valuation-chasing machine.

How these founders exist is simple: treat the VCs as your customers, at the expense of your real customers. Chase valuations, not user sentiment. Chase brands to plaster on your website, not users.

This brings me to the heart of the challenge for real Founders who get caught up in The Popular Path: a good investor exit is now disconnected from the company’s exit. Yes, the Founder can still get rich, but not if their payout was in the realization of their vision.

This is why I am taking The Beautiful Path. I am thankful for the venture ecosystem that has created the many good things that remain today. That ecosystem and its generosity have enabled me to build my company and retain ownership, allowing me to focus on my customers. I wouldn’t have been able to do this without the version of this system that existed ten years ago. To be clear: I know that VCs still do exist, but as a percentage of the whole, they are rarer than VCPEs.

I want to tell you there is another way. The old way. The Beautiful Path. Build something customers love. Do not chase capital. Chase customer happiness. Build frugally. Own your company. Do not fall for the hype machine that is egging you on to dilute your stake and sell your company to private equity, forcing you to answer to a board that will drop you the second the next raise is more lucrative without you there. Be the empathetic yet tyrannical owner the future needs, and remember that VCs are your customer, not the other way around.