I read three different but very interesting articles/posts about the philosophy of investors this past week. Each sheds some light on the ongoing debate around the lingering challenges of raising capital in this area.
That debate often boils down to two categories of issues: structural (e.g. not enough local VCs, no critical mass or areas of expertise, etc.) or cultural (e.g. entrepreneurs are too comfortable with current lifestyle or aren't driven to build big, disruptive innovation companies, or early investors are too risk adverse, etc.) Here's a quick recap of each article's argument:
*Allison Wood of LCMS+ sent me an interesting blog post the other day by Matt Greenfield of the New York-based edtech venture capital firm Rethink Education. While the core premise is the need for industry standards for edtech companies, he cited his experience trying to invest in RTP-based telephony companies back in the 1980s. From his perspective, the entrepreneurs back then simply did not have the ethos to build huge, disruptive technology companies (like those often found in Silicon Valley). It is Matt's assertion that culturally, our entrepreneurs just didn't have the chops. Sure, there is an entirely new generation of entrepreneurs in this region, but that perception may still linger especially in the minds of investors from outside the region.
*The second article came from Christopher Mims of the Wall Street Journal. Chris posits that the approach of current Silicon Valley investors is out-of-whack strategically. With some great perspective from the VC partners at Artiman Venures, Chris suggests that real long-term investors should be looking at innovation "that transforms lives, in fields such as energy, medicine or food safety" rather than pouring VC dollars into mobile/social apps. His business case centers on the fact that many of these applications are monetized via advertising.
He writes: "The entire market for advertising is around $100 billion a year in the U.S. (Globally, it's close to $500 billion.) Yet the nation's gross domestic product is more than $16 trillion. That means every venture-backed startup chasing advertising revenue is going after just 0.6% of the economy."
Unfortunately, too much media attention and hype around 'bedazzled' exits like Instagram's $1 billion sale or WhatsApp's $19 billion deal, cloud the thinking and divert the energy of many otherwise smart and talented people.
*Raleigh entrepreneur and angel investor Bill Spruill picked up on the WSJ story as well and blogged his perspective. I'm paraphrasing here, but Bill's basic challenge to the RTP community (investors and business builders) is to stop trying to copy what is happening elsewhere and instead, "play to our strengths in material science, agritech, computer visualization, nanotech and hospitality." He acknowledges it may be harder and will require a longer-term investment horizon, but suggests the alternative is not sustainable.
I agree with Bill's assertion and think all of us can do a better job to play to our strengths. That said, I see several structural and cultural hurdles we still need to overcome.
On the structural side, one of the biggest challenges is a lack of collaboration and collision across the region. We take the good ideas and good people and all-too-often divide by five (Raleigh, Durham, Chapel Hill, Morrisville, etc.) instead of bringing them together and getting the benefit of multiplying by five.
On the cultural side, I'm not sure we've developed the art of 'tough love' yet. I see too many entrepreneurs who are encouraged to pursue their passion/idea, but lack a more worldly view. Too often, they're wasting energy on something that is already invented or in market elsewhere. And unfortunately, they're not hearing from the real experts to scrap that idea and look for a real business problem that needs solving.
We have many very experienced people in this ecosystem who are knowledgeable on just about every topic, and it's really, really easy to make connections. So take advantage of this open network, seek out real experience and ask them for the truth.
Structural or cultural, we have funding issues. But if there's a time for the Triangle area to solve them, it's now as the national conversation turns from frivolous technology to the important, research-heavy, problem-solving kind. Because that's what we do best.
Would love to hear your thoughts on any of the above.