Fundamentally F***ed.
Was sitting with a friend today chatting about some business ventures when he declared to me that the VC model as-is is “fundamentally f*cked” - literally, inherently flawed. To give you a little background on this guy, he has started 9 companies, successfully selling 4 of them, one of which was sold a few years ago (actual sales price was not disclosed but believed to be for between $50-100 million). Needless to say, he is a successful and serial entrepreneur. According to him, the VC model that so many entrepreneurs live by, is just plain broken.
He believes in a straight rev-share model for owners, and employees. Here is his personal build model:
- Start a company with private funds thereby preserving equity
- Hire motivated, ambitious, and driven employees
- Empower them with ownership (ie. rev-share)
- Do NOT offer them a salary
- Instead, empower them with equity
- Create, design, build, tweak, go to market with a product
- Monetize it, sell it, MAKE MONEY
- Split the profits amongst employees/owners
- Get rich :)
Basically, he believes (as many do) that people who are motivated by a salary or other corporate perks are not going to be AS motivated, driven, and likely to exceed goals/expectations (both personally and with regards to company’s bottom-line) as those employees who literally eat what they kill. The idea is that for the employee, there is so much more upside when you can be an owner of a company, and if you recognize this opportunity, you will work much harder to achieve and exceed even the loftiest of goals and expectations. According to my friend, when you empower someone with a lofty title, or stake of equity, you are setting them up to not only be more motivated to achieve certain goals, but to actually exceed those goals and successfully build a business.
The problem with the VC model is that it is all cookie-cutter. Go out, raise $250K, give away half the company, hire 2 employees. Get an office, generate a bit of revenue, get a decent valuation, raise another $2M, give away some more of the company. Hire more people, generate more revenue. Sell the company (if you’re lucky) and walk away with your 5% take (if you’re even luckier) on the company you yourself started …
I don’t know about you but that definitely sounds awfully flawed to me.
