A New Way to Do Business

A New Hope?

In a 45-minute-long video, Vinay Gupta explained his rationale for starting a new VC fund. He has two main ideas: sustainability and peers.

These two ideas seem to fit naturally with Gupta’s previous work, especially his work with Ethereum.

Sustainability

Sustainability means avoiding externalizing costs. Traditional VC funds view money as a scarce resource and entrepreneurs as a plentiful and short-term resource. VCs don’t know what will succeed, so they invest in many ideas, flog them all hard, and hope one will get off the ground.

In the process, VCs externalize the psychological costs. The entrepreneurs burn out, become depresed or alienated, and go to work for someone else.

Instead, we should view the entrepreneurs as the scarce resource. Working on a project that will fail to be a unicorn is extremely taxing. Only a few people have the complex mix of market analysis, technical competence, and team building skills necessary to build a company. Instead of flogging the company, shut it down and support the team while they decide whether and how to transition to a new project. In the long run, on their next few projects, a healthy team is far more likely to pay off.

Interlude: Not All VCs

The best in Silicon Valley have fully embraced the concept of multiple projects, moving lightly from one to one, following and developing the individuals most likely to make it. But it’s far too rare.

In particular, YC embodies Gupta’s advice.

“VC’s increasingly begin to look like something between investment banking and loan sharking. At the very high end, things like Y Combinator, you have things which are essentially finishing schools for entrepreneurs, with an intense cultural transmission and tuition. YC is essentially the American equivalent of Eton.”

A Network of Peers

Peers are the next brick in this edifice. Entrepreneurs drive themselve far too hard, because they fear only having one shot. A network of peers investing in each other’s companies, a bootstrapped VC fund if you will, could provide more flexibility and support than currently available.

A network of peer-to-peer support could then inspire and enable far riskier endeavours, which is what we need to have any hope of making real innovation happen.

But Will It Fly?

Only the future will tell if the idea is sound and if Gupta can pull it off. They’ll be open for business in early 2017.