Thoughts on Technoconservatism

venturecapital
ico
startup
technoconvservatism

#1


via unrelenting

The technology industry is meant to be inventing the future. That requires keeping an open mind: it’s not a given that something new will work - or won’t. Everything is an experiment, and sometimes the technologies and ideas that change the world are half a nudge away from something that didn’t work at all. That means that neuroplasticity, a sense of play, and optimism are all key skills.

Unfortunately, it’s really easy to let them slip, both on the business and the technology side. And the more we let go of this, the more we fall into the trap of thinking that the world is going to stay more or less the same.

On the business side, we’ve been thinking about funding technology in terms of startups for quite some time. Startups can be great: my job is to find and fund mission-driven ventures, and it’s the most rewarding thing I’ve ever done. Of course, startups can also be harmful or deceptive (think Uber or Theranos); they’re a tool that can be used for good or ill. The mechanisms we use to fund them are also tools: equity investment, convertible notes, and SAFE.

It would be easy to think, this is how I need to fund my business, or this is just how it’s done. And it’s certainly true that there’s a lot of funding out there - more than ever before, in fact - that follows these standard models. Each has roughly the same, simple mechanism at its heart: investors make money through an exit event (an acquisition by another company, or, less commonly, an IPO). The literature makes clear that this is the most established route, and it is.

But that doesn’t mean it’s the only route by any means, or that it will remain the dominant route in the future. For all its popularity, there are clear drawbacks in the venture investment model. Exit events are relatively rare, and for investors and founders to make a significant return, there is an implied incentive to grow quickly - sometimes unhealthily so. “Unicorns” - startups that quickly grow to be worth $1B or more - are not always supportive places to work, or beneficial to their surrounding communities.

I’ve seen a lot of interest in revenue sharing investment, as popularized by Indie.vc. Here, investors are paid back through a dividend based on real revenue made by the company, usually with a capped multiple on the original investment. The zebra movement - one of the most exciting things to have happened in startups for decades - advocates for models along these lines, and I strongly agree with a lot of their manifesto. When you dig into the details, there’s a lot that still needs to be worked out in order to make the model truly viable - but I know from first-hand experience that it’s possible to get there.

Another route is crowdfunding investment. The local news site Berkeleyside raised $1M through a Direct Public Offering - a type of crowdfunding that offers shares directly to the public. Matter’s portfolio company RadioPublic has an open crowdfunding campaign right now using something called a crowd safe: an adaptation of a SAFE note that gives equity to a community. (The crowdfunding site Republic lists many such offerings.)

Another is, of course, an ICO. I’ve been personally skeptical of these - over half die within four months of raising money - but there have been significant success stories. Holo raised a little over 30,000 ETH, which at the time was valued at around $20M. The sector is rife with scammers and even more serious criminals, but if you’re building a decentralized platform for the right reasons, it’s possible to raise significant funds quickly.

It seems likely to me that we’ll see more innovation in the space - and that some iteration on crowdfunding or ICOs (or both together) will eventually take off like wildfire. The point is, the investment tools that we commonly use are convention, not hard-set rules, and conventions change. They should change. We should be experimenting, while remembering a core set of guiding principles:

  1. Many (but not all) ventures require investment at multiple, different points in their lives.

  2. Most startups fail, because they are experiments, and they need to be able to do this without recrimination.

  3. Founders should retain control of their ventures, and no investment should put the founders or the venture in jeopardy.

  4. Investors need to see a potential return on their investment in order to have motivation to invest, and usually have financial models that require them to return a multiple on their total investment dollars.

I’d also hazard to add a fifth, newer idea: startups should do no harm.

On the technology side, technoconservatism is rampant, and even easier to see. When you care about a platform enough, as many of us do about the web and the internet as a whole, it’s easy to get trapped in a kind of nostalgia bubble. Rather than seeing the internet as an interconnected set of networks of people, the trap here is to see it as a set of protocols and technologies that must be preserved.

Falling into this trap opens the playing field for exploitation by bad actors - which is something I’ll go into in my next post.