Maslow’s Hammer, Faust’s Bargain and Blood Sucking VCs

“If you only have a hammer”, the saying goes, “you treat everything as if it were a nail”.

My own hammer of late has been So, it’s no coincidence that I’ve seen a number of nails popping up these days.

The sudden shuttering of GigaOm earlier this week has seemed to put a face to the challenges we’ve been trying to articulate and address with the experiment. I have no insider information on the last days of GigaOm, but many in the media have latched on to the accelerated timelines and outsized return expectations that come with traditional VC funding as one potential culprit for its demise. 

Of course, blaming blood sucking, moneybag VCs is always an easy answer. The winding down of any business if far more nuanced. The good actors and villains are many.

With that clearly stated up front, hammer meet nail.

From Mathew Ingram, a former Senior Writer at GigaOm:

Gigaom has been VC-financed from the beginning. And when you take venture capital money they’re golden handcuffs, in a way. It’s a Faustian bargain. You make certain promises about your growth, and if that growth doesn’t materialize then VCs lose interest and your company fails.

Venture capital investment as a deal with the devil seems a bit extreme, but Mathew’s point is a valid one. VC isn’t right for everyone. And there are very real expectations around growth and timelines for returns that put stress on founders and their businesses. Some thrive in this VC backed environment, but the vast majority, do not.

How do you know which you are? 

It depends.

From Jonah Peretti, CEO of Buzzfeed (as quoted from this Danny Sullivan piece):

If you want to own 100 percent of a company and build it over twenty years, then it’d be great to do it without VCs. If you want to build a business that generates $10 million a year in revenue and $2 million a year that goes to you and your partner, and that’s what you’re interested in, then you should figure out how to bootstrap. A lot of agency businesses are that way. When you look around New York, there’s a lot of really successful fifty-person boutique agencies, where the people who started them are making a lot of money and no VC would ever touch them.

If you read the tech blogs, they converge into this idea that the only way to build a good company is a venture-backed company and it probably should be in Silicon Valley, but maybe it could be in New York or a couple other places, and no other company matters. That is clearly false. If a budding entrepreneur who wants to start a business, depending on the idea and depending on your temperament, it might be great for you to take VC money, or it might be terrible for you to take VC money. It just depends.

Bootstrapping v. VC has historically been a religious battle. Go big v. Go home. Winners v. Losers. Unicorns v. Donkeys, er, Rockstars v. Ninjas? 

But it really does depend. 

It depends on what you want to build. How you want to build it. With whom you want to build it. And how you want to measure its success. 

GigaOm is only one sample. But the conversation that has kicked up is a healthy one that seems to be in the air.

Regardless of where goes from here, I hope that for this moment we can make a small contribution to the conversation. There are certainly many more nail heads for us to try and hammer down.