Geraldine and I have a pretty good financial situation going. We’re in our late thirties (which, according to this ridiculous TV graphic, means we’re in a non-existent generation). We’re somewhere between the 80th-90th percentile in savings for American families (source). And we have several sources of income — our books, my startup, Geraldine’s writing+blog content licensing, some investments, speaking, and consulting. Last week, we made the decision to take a substantial portion of that (~10%) and invest in TinySeed.
We very rarely do stuff like this. We’re only “accredited investors” (allowed by US law to invest in startups and funds like this) because of our holdings in my previous company. We’ve made two previous investments — also in funds, but of much smaller amounts — Techstars Seattle, and Backstage Capital.
So… What’s driving this decision?
In 2017, Geraldine gave an 11-minute talk at Hubspot’s INBOUND conference about failure (and Keanu Reeves) during which, she said:
“When you change the criteria for success, you change who gets to be successful.”– The love of my life
In the tech startup world, the criteria for “success,” is infuriatingly narrow. The influential, wealthy, powerful voices in our field (with few exceptions) rail against the “lifestyle business,” a pejorative they use to describe anyone who isn’t trying to build a sector-dominating monopoly. They scoff at those individuals and companies that aren’t growing at double or triple digits. They mock founders who build useful, wonderful businesses that employs dozens or hundreds of people and create a product people love as “small-minded.”
The reasons are simple. Venture capital as an asset class and most angel investing (because it follows the same model) demands that in any group of companies or markets, there are only a handful of winners. If you’re a venture investor, you only have time to sit on a few boards and help a few companies. More importantly, the history of your business has been to invest in ~100 companies per fund (depending on the size of your funds and the number of partners). From those, you aim for 2-3 exits (sales or IPOs) that make back the fund and more, a handful of exits that have decent (3-5X) returns, and 90% that don’t do much for you, their founders, or their teams.
Many investors I’ve spoken to and most who write about the field believe this is the only way early-stage startup investing can work. They’re convinced that new companies always have high failure rates, and so to beat the market’s returns, you have to invest in a lot of them, and find the few that turn into monopolies or near-monopolies.
I think that’s bullshit.
Too much work goes into finding billion dollar unicorns. Not enough goes into raising the odds of reaching profitability and survivability. That’s what TinySeed, the Zebras>Unicorns model, founders like Joel from Buffer and Chris from Wistia, and investors like Bryce at Indie.vc hope to change. I’m with them.
I’m with them because I don’t like the mono-maniacal focus on VC that’s dominated the tech startup world for the last twenty-five years. That culture:
- Pushes founders to believe that growth rate > burn rate, raising money > making money, and impressing investors > impressing customers
- Creates a media/cultural narrative that venture financing is the signal of trustworthiness, quality, and social status, while bootstrapping a lifestyle business is a cute, sideshow that doesn’t deserve much attention (the occasional counter-VC-culture thinkpiece notwithstanding)
- Idealizes and works to create more multi-billion dollar public companies that dodge taxes, snuff out competition, hoard wealth, and abuse laws
And, I’m with them because I see the possibility of a world with a different kind of tech startup culture. One that:
- Favors building many companies with a higher likelihood for surviving their early years, and becoming profitable, sustainable endeavors
- Seeks profitability over raw growth rate — meaning we could build toward a more diverse economy with more small and mid-size companies vs. just a few winners-who-take-all
- Asks founders and leadership teams to focus on the survival of their startups, rather than nudging them to “go big or go home” (aka “grow fast or die trying”)
- Enables investors and founders to win at the same time, on the same terms — TinySeed (and SparkToro) do this by allowing founders to pay dividends to both themselves and their investors, while capping raw salaries (for founders).
I don’t fault anyone for investing in the stock market, nor do I fault you if you want to take venture capital or become a venture capital investor. I think a healthy startup ecosystem includes venture capital as an asset class… But it shouldn’t be the ONLY one, nor the one that sucks all the oxygen out of the startup room.
My passion isn’t finding unicorn needles in startup haystacks and grooming them into big, sector-dominant behemoths. Frankly, I find that model professionally uninteresting, and antithetical to my values.
When I get coffee, I try never to go to a chain, because I love small, independent shops. When I buy online, I do my best to find the non-Amazon, indie e-commerce shop. When I go out to eat, I follow Portland, Oregon’s unwritten law of dining out “if there’s more than three locations, we’re not going.”
So, of course, when I invest, it’s not gonna be in the stock market or in classic venture-path companies. I want to find alternatives. And I have both hope and conviction that those alternatives, precisely because they’re so under-invested, can produce outsized returns. Even if they don’t, I’m backing a vision of the world I want to live in. That’s a win-win.
Here’s TinySeed’s structure:
You can, hopefully, see why I’m so excited. And how I convinced my lovely, risk-averse partner to join me in this brazen, defiant approach to startup investing. This is a new model, and in that, there’s a lot of risk. It’s up to those first cohorts of companies, and of course, Casey, myself, and SparkToro, to show that we’re onto something. Thankfully, there’s nothing I love more than proving conventional wisdom wrong 🙂
Huge thank you to Rob and Einar from Tinyseed, and of course to Geraldine, for her inspiration and relentless support of my crazy missions.