Such youth! Such confidence! The 2018 MIT Venture Capital + Innovation Conference brought VC professionals and eager young entrepreneurs together to talk about the myriad ways humans can ask for, and spend, other people’s money.
Most of these entrepreneurs are products of the MIT Sloan School of Management (with a few Harvard graduate students mixed in, looking for strategic partnerships). Venture capital is the fuel for their dreams, but the audience also got a healthy dose of reality about startup pressures, expectations, and culture.
VCs are looking for unicorns, always and forever.
Startups that achieve moderate profitability get a shrug from the VCs who funded them, followed by “what’s next?” High growth, all the time, is the new standard for success.
Many of the VCs who spoke made the same point: securing seed money depends as much on the person pitching as on the idea itself. In some cases maybe more so. Does this individual or team have what it takes to “make it?” Will they be able to hold it together when plans don’t go smoothly? Are they realistic about the market they want to crack?
For instance, is smart bedding for pets really a $50 billion dollar space ripe for disruption?
The truth about failure.
Tracy Chadwell from 1843 Capital spoke truth to all the Baby Zuckerbergs. There are 500,000 businesses started every month, 80% of those have no employees, and less than 1% qualify for venture capital funding. There’s a 90% failure rate for companies between the seed and Series A stages of funding.
She also recommended looking at other sources for funding, like universities/business schools or corporate incubators. “Venture capital is the most expensive money you can get.”
Mango seeds and schnozzberries
Levels of VC funding were sharply delineated 10 years ago, Not any more. VCs concentrated on a certain sector and stage. Entrepreneurs borrowed money from friends and family, got some incubator space, qualified for seed, then up they went through Series A, B, C until hopefully taking over the world.
In 2018 that continuum is different. If capital funds have an opportunity to invest in a company they like a bit sooner (or later) than they’re accustomed to, they bend the rules to make it happen. Why not buy into a good idea even if it doesn’t technically fit into your funding parameters? Thus the proliferation of terms to describe point of entry … pre-seed, mango seed, super angel … it’s tempting to just make up some terms to see if anybody notices. “Just qualified for schnozzberry funding from Veruca Salt Capital, super excited.”
Everybody was talking about Brotopia.
Emily Chang’s just-released book Brotopia: Breaking Up the Boys’ Club of Silicon Valley was the talk of the conference, and for good reason. Here’s a choice quote:
“[The] behavior at these high-end parties is an extension of the progressiveness and open-mindedness — the audacity, if you will — that make founders think they can change the world. And they believe that their entitlement to disrupt doesn’t stop at technology; it extends to society as well.”
You can read a Vanity Fair excerpt here. Speaker Lindiwe Matlali also reminded the audience that in 2017 only 2% of venture funding went to women-owned businesses.
We need to talk about bias in AI.
Integrate.ai’s Kathryn Hume is a legit genius who speaks seven languages AND holds a PhD in comparative literature from Stanford University, as well as a BA in mathematics from the University of Chicago. She gave an illuminating presentation articulating the idea that algorithms are convex mirrors that refract our own biases in society.
Bias invades machine learning when minorities are poorly represented in the data used to train algorithms, or when we think we can solve the bias problem by “removing information like gender or race from the equation.” Read more about it here and check out her thoughts on cultural empathy here.
Lots of Dry Powder.
“Dry powder” is a term a lot of people use freely to describe cash liquidity or reserves, but we didn’t really know the etymology. Back in the civilized days, when battles were fought with mere cannons and guns, it was important to keep gunpowder dry. If it gets wet it’s useless. So, the phrase translated easily as a way to describe marketable securities, “ammunition” that can be used for expansion and acquisition. The more you know!
This also seems to be an era flush with the stuff. Estimates vary, but total VC fund dry powder is somewhere around $120 billion and climbing. That’s a lot of cash sitting around, waiting to be spent.
ICOs are so hot right now.
Cryptocurrency dominated the Future of Blockchain talk, specifically how the whole scene is essentially the Wild West until the Securities Exchange Commission steps in to regulate.
There are about 1,500 different coins to choose from on the market, and maybe 200-300 are real, or as real as this kind of currency gets. As crazy as it is (maybe exactly because it’s so crazy) Initial Coin Offerings (ICOs) hold allure for both the investors and the Baby Zucks.
Interesting note: the way ICOs work is that investors don’t actually buy anything, the fine print for crypto startups explicitly calls the money VCs give them a “donation” or “gift.” The MIT Technology Review explains ICOs perfectly here.
VCs have a conundrum in the Bitcoin era.
The lack of binding legal responsibility, the kind you typically see in ICOs and funding agreements, plus the sheer number of get-rich-quick players entering the crypto market make it all easy to dismiss.
However, cryptocurrency is undeniably a disrupter, a word no tech/finance wannabe god can resist. But confusion reigns. What does equity even mean? Do investors just get a bunch of tokens for the trouble? How does everybody chart growth, and with what metrics?
There’s tentative confidence that tokens will eventually be considered in the same vein as stocks, and there may be thousands of options to choose from that offer stability. There’s also broad support for building metric-gathering tools that will track the health of all the currencies.
It’s interesting … one of the early strengths of a token economy is a refusal to be treated, or regulated, like traditional currencies. In the quest to expand, how will that culture interact with (i.e. get money from) a financial class rooted in the systems and expectations of the past?
Euphemisms for change will never die.
“Fast failure” had its moment among entrepreneurs as the label of choice for things that don’t work. But failure is a tough word to dress up, regardless of the sexy adjective.
“Pivot,” however, has cemented its status as the friendly alternative term for disaster among the startups. This wily veteran has been around for years, and survived the buzzword wars for good reason. It represents acknowledgement of a mistake, sudden restructuring, and breezy confidence, all in two convenient syllables. We heard it once every 20 minutes or so.