Is Silicon Valley Failing Entrepreneurs?
If you’re an entrepreneur or thinking about starting a company Silicon Valley seems to be the place to be. Not only is there a large talent pool in the area, the infrastructure to build and scales companies is perhaps the best in the world. Despite the perceived friendliness of the region towards startups, 99% of entrepreneurs are not able to get funding. While some may assume that investors are simply removing the ‘would be failure entrepreneurs’ out of the scene, this couldn’t be farther from the truth; in fact, many of these companies would likely be profitable. So the question is, why would so many potentially profitable companies be rejected?
“They get rejected because they don’t fit the requirement of the venture capital model,” says Sramana Mitra, founder of One Million by One Million. Sramana’s company is an accelerator helping entrepreneurs succeed without financing. She says what VCs look for is “hyper fast growth and hyper large market opportunity. Very few companies fit that model.”
After interviewing dozens of entrepreneurs, over the years it’s become apparent to me that successful businesses are rarely started with the sole objective to make money. Entrepreneurs identify problems and bring solutions to the table- that is their mission. Many “would be” companies certainly aren’t modeled to grow to $50 million in revenue within the first several years of operation, but that’s ok. These founders are setting out to solve problems and accomplish their dreams, not build the next Wall Street juggernaut. The question I pose is, how does the current infrastructure in the valley meet their needs?
While the valley has dozens of accelerators for entrepreneurs to choose from, they don’t always have the interests of founders in mind. Why? Accelerators admit entrepreneurs into their program in exchange for an equity stake in the company. With that said, of course, they are going to groom their “portfolio” and escort them to venture capitalists where there are vast amounts of financial and human capital available. If their companies are given the green light to receive VC funding, the accelerators would see their ROI would greatly improve.
Each round of funding the founders accept, relinquishes their control of the company. It’s not uncommon for the founder to be out voted or even ousted from their own company after disagreements with their board. Steve Jobs was fired from Apple, Jerry Yang was forced to step down from Yahoo, and Martin Eberhard, co-founder and previous CEO of Tesla was asked to transition out. If these entrepreneurs had maintained ownership of their company, they wouldn’t have been kicked out by investors wanting to maximize company profits.
The concept that entrepreneurs need to receive financing to be labeled successful is a huge misconception. I was thrilled when I met Sramana and that she was fighting against this notion. When I sat down with her for an interview, she explained that her company, One Million By One Million, is the “first and only global virtual business accelerator”. Her mission is to help one million entrepreneurs reach one million in revenue- not push external financing or take an equity stake. Her philosophy is that many companies can be successful by bootstrapping- yes, even unicorns. While her business model is not traditional of other accelerators, it allows entrepreneurs to maintain ownership of their companies. Boot strapping off a paycheck can allow a company to be profitable from day one. She says, “our definition of success in entrepreneurship is customers, revenues and profits. Financing is optional, exit is optional, that’s the philosophy of the program”