What's X Gotta Be?
A history lesson, capped off with a plea
I believe most people would prefer to work for themsleves. Many may not think starting a business is possible, but deep down, I truly believe every person has problems they want to solve in the world, and solve in their own way. That's just a REALLY hard path for some, and impossible for most.
With that said, I would argue is was HARDER to start an internet company 20 years ago than it is today. Costs for infrastructure were up, startups were less culturally adopted, and there wasn’t YC to write the playbook on how to start a startup. So although startups are hard, they used to be harder.
And if we use logic, I bet that starting a startup will be easier in 20 years than it is today. No-code will be 100% adopted, AI will do the annoying stuff, and things will be present that we can't even imagine. But starting up will get easier. Just like it’s been getting easier for the last 20 years.
One way to look at this is on a 21 year spectrum from 2000 to 2021. In 2000, everything was expensive, founders were losers, and the seed round arguably didn’t exist. Few people even wanted to subject themselves to the “shit show” that was starting a startup.
One consistent element of this time frame was that people thought startups were in the same category of business, so people with prestigious backgrounds with MBAs got funded. These were business nerds anyway, so they just saw startups as a business opportunity, not an innovation one.
Because getting an MBA was expensive and unattainable for most people, they never got a shot to get funded. At this point, if didn't matter if you could ship code or innovate or change the world. If you couldn’t make a P&L with projections, you weren't founder material.
So let's look at this from a birds eye view. Starting a startup was ,not looked at as sexy, required an MBA for funding, and there was no playbook on how to actually do it well Due to these friction points, we can assume the "good founder pool" is very small at this point.
In 2004/2005, a key innovation occurred. The seed round was founded. Half joking, but this is when Y Combinator, First Round, and a few other firms were funded. YC specifically had the thesis of funding hackers. This thesis turned out to be exceptionally correct.
So fast forward from 2004 to 2008. Most average people haven' heard of YC, people are still waiting to figure out if its legit, and the iPhone just came out. Brand new platform to build on top of. And YC knew that hackers could take more advantage of it more than MBAs.
Unlike in 2000, there was SOME appetite for investing in hackers, yet not much. There are new firms willing to invest earlier. And there is a new computer that just launched (iPhone). I'd argue entrepreneurship was close to a cultural tipping point here.
What sent everything over the edge was in 2010, when "The Social Network" came out. I don 't think any other piece of media did what that movie did to evangelize startup culture. It was the gateway drug. It was mine. It was probably yours too.
After that movie, starting a startup became cool. Like, it was COOL to be like Zuck in 2010. So what happened? People started tinkering. And because Paul Graham and co are so smart, the good founders probably found their way to the YC website one way or another. Or Brad Feld's blog.
In 2012-2015, most VCs are thinking "wow PG was right, how can I start funding hackers too?”. Why? There were more curious, and educated, founders than ever before. The founder pool? Growing…and thanks to content marketing growing, these founders were catching onto how to start a startup.
Smart founders consumed all the content they could. They were beneficiaries of all the VCs competing with eachother. And the ones who could code? They all got funded! (Not really, but a founder who could code was hot sauce at this point)
VCs aimed to to fund the educated founders who could code. This is fair. But because the founder pool was growing at such a fast clip, it was harder for VCs to filter all if the inbound.
So instead of doing their own filtering on founders, they outsource the filtering to other sources. Networks, college degree, previous jobs, etc. If the founder did (enter somewhat hard thing), then they must be educated. They can code too?! Funded!!!
So it's 2015, YC just published their first "how to start a startup" class, industry wide inbound marketing is in content is up, and everyone seems to be writing about how great starting a startup is. The issue is, rightfully so, people like me could only dream of starting a real startup. We knew how to start one, but couldn’t get funded because we weren’t technical.
The reason being is that the culture YC stamped onto the world was that hackers/builders start startups, not business people. And if you couldn't code, either find a tech cofounder or you're out of luck. This was a huge barrier for most potential founders to break in and raise capital. 90% off potential founders can’t code.
I do want to note, this is the 100% correct take. Business people alone can't grow startups. There needs to be tech, and there needs to be speed. Doing the tech yourself is key in order to check those two boxes. So this is not a critique. This is how it should be.
But something pretty big happened from 2016 - 2020…,I think it's bigger than any event that has happened so far in this post, including the founding of YC. What happened is that no code started to mature. The tools were getting better, as was the support for using them.
With Airtable, Zapier, Bubble, Adalo, Paragon, Retool, and hundreds of other products being developed simply to make building product easier, there are people who saw this opportunity to educated and harnessed. The first of whom being Ben Tossel, of Makerpad.
The ethos of this time frame was "Can't find a CTO? Build it yourself". And its taken a long time to get the culture to believe that you can ship a real full stack product without using code. but its 100% true. And many business people are figuring this out.
So it's 2019. Anyone with some smarts and a little ambition can consume from YC content or read some VC blogs, and they start to build their idea out without any other help, and they can get better with companies like Makerpad. Founder pool? Exploding.
In 2019 anyone can understand the basics of startup culture, learn a no code process or set of tools, use the internet to meet people, and be motivated being by cool (Being a founder is cool now).
At this point, there are probably 100M people working on something, to various degrees. They are in SF. And Phoenix. Cape Cod. Israel. Denver. Great Britain. New Zealand. Spain. Toronto. They are all over. But to raise capital from tier 1 firms, being somewhere else was impossible. You needed to be in the Bay. Why? Well, it's because Venture Capital Isn' Built for Outsiders.
Do not get me wrong, the founder pool is HUGE!!!! But if you're a founder not in the Bay Area inner circle, don’t even try fundraising. It's nearly impossible. Even if these founders can build product, grow revenue, and have a strong mission… Location was a deal breaker
Note, at this point, YC has a whole library of content. And every startup source in the world has content. SF may not want to admit, but the startup knowledge base was already democratized for starting up (scaling is still a secret). But the secret was out.
Still, 80% of VCs were holding on this idea that Bay Area needed to be where the action was taking place. Or in other words, "if I don't already know you, I cant fund you." Well, the next year, COVID-19 happened and EVERYTHING CHANGED.
What changed is that the wall that Bay Area VCs put up to justify funding bay area founders quickly deteriorated. It took as long as the world took to adopt facemasks (generally) as it took to change the startup funding culture. In months, location didn't matter anymore for pre-seed startup funding.
With people like Keith Rabois, Lucy Guo, and others moving to Miami, the shield broke and many VCs fled SF, or at least fled their belief that a founder needed to be there to raise. This all happened in months. Like 3 months. And word got out to the global founder pool.
The global founder pool was told that everyone has a chance to get funded because location didn’t matter anymore. All of these founders with $10K+ in revenue with a product they built finally get their chance to raise money from the best in the game. Right?
Wrong. Because for every amazing founder based somewhere in the world, there are 100 less developed ones. And they are all vying for the VCs attention. Now that the VCs takes calls over zoom, anyone is fair game to meet. So what's happening? VC inbound is flying through the roof.
Hell, when Domm, Harry Hurst, or even Jason asks who's raising on Twitter, they get a WAVE of startups. Sometimes thousands. There is absolutely no system to filter these properly. No one knows anything but the vanity tweets founders share when trying to win an investment.
Due to this absolute extreme explosion in the founder pool and access pool, many VCs have in many way retreated to doing warm intros only once again. And I don’t blame them. When 1000 founders are begging for an investment via email a day, i'd refer on network too.
It's because network is proven. Network is based on trust. Network is what has worked for 70 years, and in a world where no one knows what the hell is happening, relying on what is proven to work is the responsible thing for VCs to do for their LPs.
With that said, we have an issue. If VCs use old tricks for a new pony, will the new funding ecosystem just be the same as the old ecosystem? When it’s all network based, will mainly white men getting the benefits of that? Yes.
If 1,000 founders reach out to you a day, you don’t know who’s a woman or a man. You don't know who's black or white. It’s just a ton of emails that you don’t know how to filter. And due to this, you just rely on people you trust to vouch for a few of them who "sound interesting".
This sounds familiar, I know. It's because this has been our world for 70 years. A world where our gut drives our decisions, informed by a trust network. We are scared as an industry to make proactive change, so we only do it reactively.
Hackers cant be CEOs --> YC is founded ---> Hackers can be CEOs
CEOS can’t be fired ---> a16z is founded --> CEOs shouldnt be fired
Venture backable founders only come from network --> X --> Venture backable founders are located all around the world, and I want to fund them.
What's X gotta be to be to change your mind about how startups should be funded? What’s X gotta be to help you understand that funding black or women led startups is a better investment than funding white male led ones? What’s X gotta be to help you understand that early stage investing is more luck than it is gut?
Because what’s currently happening ain't working. And we have a beautiful chance to start this whole system over, but we're going back to our old ways.
So I ask you, What’s X gotta be?