Rebalancing venture capital’s hyperfocus on tech
Tech bros financing tech bros has been a foregone conclusion for years in the venture capital ecosystem. Undoubtedly why VC generates a 98% failure rate. However, the pandemic has upended this formulaic approach by shining a giant spotlight on the staggering amount of money wasted on unicorns like WeWork, Juul, Jawbone, Theranos, Evernote and so many more. This list of the 202 biggest and most expensive failures range from hysterical to rage-inducing. I dare you to read the descriptions of a few of these startups and not ruefully laugh. Insert your own joke about tech’s beloved ‘fail fast’ motto.
The pandemic has highlighted the unsustainability of a funding model where about 96% of the money invested could be lit on fire and produce identical results. Predictably, venture capital funding has slowed down dramatically across the board, while equity crowdfunding has ramped up exponentially, smashing records and showing no signs of slowing down. This industry reshuffle has given non-tech startups a realistic shot at securing funding and a fighting chance without PPP or other governmental intervention.
Finally funding *capable* founders
It’s common for people to assume that their reality is universal, but the venture capital industry has become an echo chamber of conformity. Homogeneous founders are fueled by interchangeable risk-averse investors who share the communal assumption that their lived experiences and perspectives are the status quo. This lazy, stereotypical thinking has produced massive blind spots and continues to prevent true innovation. Companies that are going to change the world don’t stem from founders who think the same, look the same and hail from nearly identical backgrounds. Diversity of thought is the crux of revolutionary innovation, and that can’t be achieved with a bunch of (often stunningly ungrateful) white guys with social capital who fail to chase the best ideas, simply because they can’t see them.
Considering informal networks of social capital are estimated to be responsible for 85% of job placements and funding for a whopping 75% of startups and new businesses, it’s no surprise that there’s been a strong shift to the equity crowdfunding environment since the pandemic hit. Since we already know where 96-ish% of all VC money goes, it’s nice that equity crowdfunding offers founders who are left to duke it out for the slim chance at the remaining 2% of venture capital money, an alternative path to success.
Equity unreliant on homeownership
Our culture is beholden to the notion that owning a home is the preferred, and to some degree, the only way to build generational wealth, or pass down substantial inheritances. That myth was unbelievably true until the JOBS Act came into effect several years ago, as most Americans are unaccredited investors, and therefore shut out of Wall Street opportunities. For many folks who live in New York City or San Francisco for example, owning a home is a pipe dream. Equity crowdfunding offers opportunities to invest in your community and own equity in a company while it’s still young and affordable. Accessing funding and securing equity in young companies are powerful methods of building generational wealth and establishing a solid financial foundation. Homeownership isn’t the de facto route to equity anymore, and thanks to the JOBS Act, more entrepreneurs and local investors have a solid chance at financial empowerment.