Contrary to popular belief, the number of founders is not ‘declining dramatically’

In response to TechCrunch’s Equity Podcast: The Iron Rule of Founder Compensation is Dead.

During a recent drive around Austin, I couldn’t help but feel amused while listening to a recent episode of the Equity Podcast by TechCrunch titled The Iron Rule of Founder Compensation is Dead.

There seems to be a popular belief that the Venture Capital (VC) community is suffering from a lack of founders. The hosts also discussed a “huge theme of scared folks, due to the pandemic.”

As a VC in Texas, my world is dramatically different, and I wholeheartedly disagree.

Although COVID-19 has caused a lot of uncertainty and economic downfall, this is the reality of the entrepreneurial journey founders regularly face.

The supposed fact that there is “no deal flow” is completely nonsensical because people are still starting companies. They just don’t happen to be in the Valley.

Even as COVID rages, there are many more companies knocking on my door to choose from.

In Silicon Valley, founders usually have a strong plan B. If their startup fails, they’ll get hired by the tech company next door.

On the contrary, Texas founders are absolutely set on mission impossible. I don’t invest if the founder does not believe in their vision enough to quit their full-time job. I support and help them, but if the founder is not all in, why should I be?

Geographical boundaries have dropped. Founders now have access to VCs in their backyards, but also to those in New York City.

Normally, VCs do not want to travel far for early-stage investments, but now that the world is working remotely, what does it matter? The question is, is it a good time to explore outside of Sand Hill Road? I believe so.

My ask for the hosts of the Equity Podcast and the rest of the VC community is to look beyond the 94027 zip code. Texas houses talented, brilliant founders with world-changing startups. 

I see plenty of good ones that make our decision process pleasantly difficult.

And it is a great problem to have. As VCs, we are in it for the long haul. We invest with an eye for an exit 8 to 10 years out. Would it be possible for you to assume that a portion of unicorns will emerge not from the saturated Silicon Valley, but from the hungry, determined Texans and Mid-Westerners? 

A little reminder: some of the best companies started during recessions; notable examples include Google, Facebook, and Uber. In fact, starting a company right now is a recipe for the most motivated and gritty founders. 

A recession has hidden benefits, one of which is the impetus to be very clear about who you are. It is also a ripe market for talent.

Startups have two options: strengthen their value propositions or die. Under most circumstances, a simple marketing campaign would find the first few fans, but today, clients in both enterprise and consumer-focused companies are demanding better and less expensive solutions.

At Sputnik, we strongly believe in consumer surplus: the idea that the difference between what you are willing to pay for something, and what you actually pay for it is a benefit to startups and their customers. Companies with a huge consumer surplus can certainly launch through crises. To learn more, read this article by my partner, Joe Merrill.

Have you thought about the world outside of the valley? It is emerging. It is dying for attention, and if you find that your pipeline is not good enough, come visit us in Austin post-COVID. We’d love to take you out for local, famous BBQ and introduce you to some great startups.