In Episode 27 of his podcast All-In, world-leading angel investor, Jason Calacanis, had this to say about startups:
“…the average quality of a deal has gone up. But, the average quality of a startup has gone down.”
This seems contradictory. So, what is going on here?
The simple answer is this: the supply and demand ratio of founders has changed.
Let’s look into this and what it means for founders.
The founder supply situation
The supply of founders worldwide is increasing.
There are more founders building startups than ever before.
In fact, Jason reported having 3 to 4 times more startups to choose from to invest in.
This increased supply of founders seems logical when you look at global trends.
Technology is improving more quickly than ever.
What “improving” really means is the “price per unit of performance” of technology is improving.
Put another way, the cost of “performance” itself is declining.
Think cheap high-quality video (YouTube), and cheap small screens (Apple Watch).
This declining cost of performance unlocks the ability to build new businesses that were previously uneconomical.
This means as technology continues improving, the number of new businesses that can be built keeps increasing.
This same trend is also fuelling reduced costs for founders to be founders.
Innovative online services are one obvious example that’s making it dramatically easier and cheaper for founders.
Examples include SaaS services, logistics services, payment services, video distribution services, financial services.
The list is growing. There are more founders, with more opportunities, that are easier to pursue than ever.
This is the reason why the average quality of a startup is going down.
There are just more people doing it.
More beginners, to be precise – more people learning.
This is a good thing, in fact it’s a great thing.
The only way to solve global problems is through innovation – and companies that can scale innovation need more founders.
There has simply never been a better time to be a founder.
The founder demand situation
The demand for founders – from investors looking to invest in startups – is increasing too, but as Jason mentions, not nearly as fast.
That is making the relatively fixed supply of high-quality startup support (think the Y-Combinator accelerator, the Boulder Startup Community or Andreessen Horowitz) harder and harder to access by any given founder.
This is why the average quality of a startup that gets funded is going up.
There are more startups to choose from, and investors are only choosing the best.
What does this mean for founders?
Firstly, if you can get into a tier-one startup support option like Y-Combinator, or get funded by Andreessen Horowitz, your future looks very bright indeed.
Grab the opportunity with both hands and change the world – because the data shows that is the likely outcome for you.
Secondly, if you can’t get into a tier-one startup support option, you’re going to need your wits about you.
The classic Venture Capital supported startup path is unlikely to be a smooth one.
You’ll need to be content with less experienced investors (and accelerator programs) that are popping up to fill demand and you’ll likely need more rounds of capital due to that inexperience.
Leading investor, Vinod Khosla, has been quoted as saying that “90% of investors add no value to startups. 70% of investors add negative value.”
This means less productive capital, more time to exit, and more dilution.
However, this is far from the end of the story because the classic Venture Capital supported startup path and accelerator programs aren’t the only options anymore.
There are more options than ever to help you reach success as a founder – but the chances of you reaching that success are filled with greater twists and turns.
In summary, be wary of the advice – or money – you are offered as a founder. Be choosy.
Ask specific questions of your advisors. These may include:
- How many startups have they worked at or founded?
- Have they raised >$1m capital as a startup founder?
- Have they worked in a publicly listed technology firm?
- Have they provided advice that has been adopted by >100 startups with revenue?
At LeapSheep we believe it’s vital to professionalise innovation mentoring.
Founders need a community of experts to spend time with in order to grow and improve.
Our Startup Building Advisers are professionally trained mentors, supported by expert systems that are data driven and based on world-class best practice.
If you’re a founder and you’d like to share your situation with us, fill out this short questionnaire and we’ll get in touch to help you with your next steps.
Whenever you’re ready, here’s how we can help you.
If you’ve got a startup idea, or you’ve already embarked on your journey – you might be facing one or both of these situations.
- You’re struggling while going it alone. Worse, you’re wading in the muddy waters of some not-so-great advice.
- Perhaps you’re trying to raise capital for your startup and you’re hitting a dead end. Raising capital is a notoriously difficult thing to do. Globally, only 0.74% of startups manage to raise capital at Seed stage. Despite this, 16% of startups we’ve worked with were able to raise capital at Seed stage.
If you’re ready to step up and get the help you need, our Startup Builder™ program was created especially for you.
The Startup Builder™ process is specifically designed to take you all the way from idea to global success – in a way that’s simple, sustainable, and scalable.
If you’re ready to grow your revenue, profit, and social impact faster without wasting time and money on the wrong things at the wrong time, click here to request your Startup Builder™ Strategy Session.
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