Entrepreneurs Now Can Build What Customers Want (Rather than What VCs Want)
In addition to Democratizing the Startup Process, Capital Efficiency drives another important improvement in the startup model: Entrepreneurs are largely freed from the tyranny of building what the VCs want to fund.
In the traditional startup model, step one is for the entrepreneur to raise venture money. Pragmatic Entrepreneurs want to know what the VCs want to fund, because it is much easier to sell a VC on an idea/category/business model that they have already decided they like. This is a significant contributing causal factor for all the reporting and cocktail party chatter around what VCs are interested in/funding now. This echo chamber effect causes some big problems, systemically reducing the chances of startup success through two mechanisms:
(1) The world ends up with multiple copycat companies pursuing essentially the same business idea. These companies engage in infant fratricide, wasting money, time, and market opportunity, in the process.
(2) In an effort to “anoint a winner”, some VC funds will put much more money into the number two or three player in a space on the hopes that they can leapfrog into the number one spot. Most of this “extra” money is spent inefficiently at best; poured down the drain at worst.
But, Capital Efficiency changes this. Since Entrepreneurs don’t need to seek VC money as step one in the process (step one is put product into the market, since it’s so cheap to do), they don’t need to try to read the VC groupthink tea leaves regarding what is hot today. Instead, they can follow their own market knowledge/intuition to build something the world really wants. I humbly submit that we’ll all be much better off with this approach.