It got me thinking about how a new breed of entrepreneurs have emerged feeding off the real entrepreneurs. The market is now flooded with wanna be Venture Caps that have capitalized on startups seeking funds. Venture Caps are merely opportunist taking advantage of the real entrepreneur. Having been in the startup industry for awhile myself, it is an unhealthy trend that would probably destroy the spirit of the real entrepreneur.
Who is the real entrepreneur; when the realization of a service or product, has the possibility to make life a little better or cheaper or efficient, therein lies a business proposition to create a sustainable venture. Taking one step at a time, the entrepreneur builds a team and raises funds to realise the business potential. In doing so, the entrepreneur is challenged with several problems. The team cost money and without a team there is no service or product. The product better have a value to the customer. The value has to be very apparent to the customer so that there is a will to pay for the product or service. This value has to be converted to a monetary gain that is able to reap a profit (hopefully within 3 years). Based on this intent, entrepreneurs begin their day to search for either funds or the dream team.
It's very imperative that money is required to make money. In today’s world the promise of starting a business with no money and then seeking funds from investors has become a possibility. However since VC’s have jump the bandwagon, this industry is now driven by greed beyond the point of any rational comprehension. Let’s take 2 companies for example that started almost 20 years apart. The trends have changed, the valuations have gone wild and cost of running startups has gone through the roof. I am referring to Google Inc. 20 years ago and Uber Inc. today.
Google started as a search engine service provider for Yahoo. This meant a lot, Google gained the recognition and respect because it rode on the success of already existing giant on the internet “Yahoo”. When Google went out on its own, everyone knew Google. But in the case of Uber, it's burning a billion dollars of investor money every year. Venture caps have decided to fund Uber because of the potential market cap of 50 billion dollars. Yes, Uber is the operator of the largest fleet of taxis in the world but Uber is not used by any Taxi conglomerates anywhere in the world. Except for, The London Taxi which was bought out by Uber but all other countries have not adopted Uber as their standard.
The stark difference in my view is; Google took the right approach and gained confidence of the end user to trust their search engine. Uber on the other hand is taking the harder approach to confront Taxi providers all over the world. The risk here is that the entire business is depended on converting regular people into Uber drivers. Uber does not cater for Taxi drivers to be Uber drivers. Uber is cutting out the middle party. Although this utopian idea may seem ideal, mainly because of the venture caps have come in and strong holding Uber to take this path. To proof my point further, Uber has been investing in self-driving Taxis, this proves that their direction is to ultimate cut out the driver and transfer the jobs to urban drivers. All over the world, Uber is the case and example of a successful Venture Capital investment. These VC’s are so big that they tend to say whatever statements it takes to save their own investments. It has become a parody of bad jokes that VCs all over the world are propagating.
The mantra that these Venture caps preach, is to have an unlimited market potential with a minimal viable product (MVP). Point in case is Uber. The backers of Uber believe that there are enough new drivers out there to sustain the Uber business forever. Uber to most part is a temporary solution for wages earners between jobs. They choose to drive for a short while before the land a secured position. However, the Uber service has to include existing Taxi drivers to be part of the Uber system at some point. This however, may take too long for the service to be a reliable to bring value to the customer’s customer (the Taxis Companies). This money cannot last for ever, the gestation period is taking long and it has taken too many dollars to get this far. Burning investor money will come at a very high price especially when there are no assets.
What VC’s don’t tell you is that their money has got an expiry date too. VC’s are fronts for investors who pool their money and get larger stakes and eventually profits out of your business. The unreasonable profits they are looking at the end, has to feed an army of managers and investors. We have many new entrants like Sir Tony Fernandez and the likes who have launched their own VC’s funds. All this is to get access to great ideas and free labor. The number of high worth individuals who started their own private funding under the guise of nation building is questionable.
My advice to real entrepreneurs is to focus on your revenue. Make sure your cashflow is tight and spend only when you need to. Giving too much too early will dissipate your entrepreneurship in no time. VC’s don't care about your business they way you do. They want returns any which way possible.
No comments:
Post a Comment