The Rich Back Startups: Is It Philanthropy or Capitalism?

A few months ago, something occurred to me that changed the way I view a lot of the world’s more successful people. It all started after I read a couple books…

200px-Steve_Jobs_by_Walter_IsaacsonSteve Jobs, a biography by Walter Issacon

31bQE-GAJCLWithout Their Permission, by Alexis Ohanian.

He and another guy started the internet news site Reddit and then BreadPig, the flight-search website.

delivering_happiness_catalog22Delivering Happiness, by Tony Hsieh.

He started Link Exchange and became CEO is Zappos in the early years.

steve_blank_professor_stanford_universityI also follow a blog by Steve Blank, a silicon valley serial entrepreneur, where is often giving advice to early start ups.

Alexis Ohanian

Alexis Ohanian

After having read those books, one day I read an article by Alexis Ohanian. In it he was talking about giving back by going back to Cambridge, MA (where his start up was founded) and getting involved with early stage start ups there. Steve Blank does the same thing. It struck me that all these guys, except Jobs, talk a lot about helping start-ups. They are writing books and giving lessons to start-up companies about what to do and not to do. They are investing in these early stage companies and they talk about it in a way as though it were philanthropic.

What occurred to me was big. It was important. Not in the way that it would change my day to day life, but it would change the way I view lots of people I liked. What occurred to me is that these guys are asses.

They are just millionaires keeping busy by investing (nothing new) and trying to be part of the next big thing (also nothing new). Steve Jobs is the exception, we’ll get to why I included his book in a minute though. The others, and many like them, always act as though they are being generous by investing in promising start-ups. They’re not. They are capitalists. What makes the situation even worse is that they are often investing in start-ups out of Harvard, Stanford, and MIT. If there are any 22 year olds in the world who don’t need philanthropy, it’s Harvard graduates with a high-growth start-up company.

In the Name of My Big, Philanthropic Heart!!

All of this would be okay if they were doing it in the name of capitalism. But they aren’t. They think they’re being generous or giving. Which is funny because most only take meetings to consult with the most promising companies. My bet would be, most of the companies they meet with will do fine with or without the advice. They’re high-growth start-ups in 2014 where you need less money to start a company and money is easier to come by:

  • You don’t need as much money anymore
    • You can bootstrap  funds together
    • You can kick-start the company
    • If that doesn’t work, then you go to venture capitalists
    • If they don’t give you a good offer, at the worst you take a crappy offer

Plus!!!

  • Lots of advanced software is free
  • Manufacturing is getting easier and cheaper

No start up founded by Ivy League kids is going to fail, with a good idea, because they couldn’t get the money or advice they needed.

These Guys are also Totally Unaware of Why They’re Successful

By putting so much emphasis on giving advice and money, they send the message that they probably owe their own success to a rich venture capitalist (like they grew up to be) who invested in them. They’re wrong. Ohanian, in his book, even spends lots of time giving credit to the venture capitalist who advised him. They just don’t get it. They were all idea guys with programmer friends. Without the programmer friends, they would have never been able to create a product and no company would have been born. They owe their success solely to talented friends who could help turn visions into products.

If these guys want to see more brilliant ideas turned into companies, they should reallocate their time and money into putting idea people into environments where they meet programmers and engineers.

Universities should be doing this too. They should be concentrating on this idea more than the education itself. Link your business majors with programmers, website designers, and engineering majors. Make them dorm together, take history classes together, etc. Provide a legally safe way to share ideas.

When VCs Make a Difference

I think investing and supporting struggling start-up companies is philanthropic when it makes the difference between success or failure. But that’s not what we get out of the current VC model. The current model robs us of the competitive innovation market we need to push us forward, faster. If we want more innovation, we need more start-ups. Innovation is as much about having competitive markets as it is about anything else. More ideas, more perspectives, more visionaries. That all leads to more more revolutionary ideas being tried out and, ultimately, problems being solved.

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