Internet, Startups

Time to Say Goodbye to the Serial Entrepreneur

One of the most over-rated terms in the Silicon Valley lexicon is “Serial Entrepreneur.”

For the uninitiated just visiting Epigonic, the term refers to those entrepreneurs who form, then flip, startup after startup. They are worshipped, especially, by Silicon Valley denizens; seen as safe hands who can produce a steady stream of singles, doubles, and the occasional triple.

But they don’t, generally speaking, create lasting, durable companies. Hewlett, Packard, Moore, Groves, Gates, Jobs, Ellison, Brin and Page — these were not serial entrepreneurs (yes, Jobs did found Next and helped create Pixar, but only because he was forced out of his beloved Apple for a decade).

And if we’re to get out of this crisis, we need more entrepreneurs like that. Ones who can create jobs, at lasting and durable companies. Most startups that get flipped might enrich its founders and investors, but otherwise add little to society.  Name me the start up launched by a serial entrepreneur that still has value, relevance, and strength?

I can only think of one — PayPal. Jury is still out on Skype. I think YouTube will still likely be very, very large and important and relevant in 5-10 years, perhaps it will get added to the list.

Let’s be honest, most startup acquisitions end up being utter failures for everyone but the founders and the investors. The founders, newly enriched, quickly lose their focus and zeal, and the once innovative startup just becomes another cog in the bureaucratic machine. Employees at the acquirer are often resentful of these newly enriched founders, and go out of their way not to cooperate in making the acquisition a success. The supposed catalytic effects to be brought by the startup often fail to appear, having typically been oversold by the startup to the acquiring company.

Sound familiar? I could think of a hundred other examples.

Fetishizing of serial entrepreneurs in the Valley has occurred in part because it’s been impossible for nine years now to make any money from tech startups in the public markets (Google, Salesforce, and a few others excepted). The only reliable way to make money has been to fund, flip, repeat.

To illustrate just how ingrained this mentality is, let me tell a personal story. Two years ago,  7-8 months in to starting Vodpod (and only 3-4 months after the service launched), we got a very nice, very good, very real acquisition offer. I polled a wide array of folks for advice, and almost to a person I heard this: “Sell, take the money, stay at the acquirer for a year or two, and then start over.”

That mentality has to change. With the economic crisis, it probably will be forced change — the fund, flip, repeat model is no longer operative.

But if it’s impossible to have an IPO in the current public markets, or to sell your startup to an acquirer, what are the options?  We need to find a way for mid-size companies to go public again. Reid Hoffman suggested three ways in which the government could help fuel startups the other day; I’d add a fourth  —  enact securities laws and regulatory reforms that would enable a new public market for mid-tier companies. Specifically, something like the AIM in London, targeted at companies with market caps between, say, $100M and $1B, with reporting and legal requirements appropriately tailored to the size of the company.

That might allow more entrepreneurs to focus on building durable, long-term companies, while still satisfying the needs of investors and employees for some liqiduity in the short- to mid-term. Growing companies with $30-50M per year in revenues and some profits could have a path to go public, without the current and very onerous requirements designed for Enron-like multi-billion dollar conglomerates. Some of those companies might thrive, and move on to the big boards. Some might wither. Either way, seems like a better prospect than selling out and withering away. Or doing this so much more inefficiently through an opaque and entirely unregulated secondary market.

If we had this type of market, perhaps that would have been the path taken by Flickr and they might remain a viable, independent, innovative company. If we build such a system, it could be the path taken by current thriving startups like Automattic (WordPress), Digg, or Twitter.

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