EIR at Scout Ventures
Consultant to some companies
Founder at Roomorama

@jim_shook

The Other Side of the Series A Crunch and Imminent Startup Failures

Much has been written recently about the Series A crunch. Seed funded startups are finding it difficult to raise a Series A and will have to either find an acquihiror or simply shut down. 

http://pandodaily.com/2012/11/28/the-series-a-crunch-is-hitting-now-have-we-even-noticed/

This is neither “good” nor “bad” in any broad sense, but just a reality of capitalism.

But one thing that I think has been missing from the conversation is how good the explosion of startups in the last few years (which has precipitated this Series A crunch) has been for the average consumer of tech and internet based products.

Part of the reason that many of these companies will have to fail is that they cannot weather the difficult fund-raising environment with revenue. Many have gone the route of scale before revenue, and have just not been able to either sufficiently scale or sufficiently monetize.

These startups are creating tremendous value, and capturing very little. And for that reason, they are not sustainable businesses, and is part of the reason for pretty subpar VC returns in the last 10 years. 

But lets think about what that means for the person consuming these services. Every dollar of value not captured by the business is a dollar of value “captured” by the consumer.

Its an amazing time to be a consumer of web services and tech products. Much of the internet is free or really cheap. Even paid services like Netflix and Spotify are incredibly cheap when you think about the value to a consumer. These companies may struggle financially (along with all of the other smaller startups that are now failing facing the Series A crunch), but they are tremendously value creating for those who consume them.

In the spectrum of value creators vs. value capturers (see Chris Dixons post on Builders vs. Extractors here: http://cdixon.org/2010/06/19/builders-and-extractors/), entrepreneurs are way on the side of creating more value than they capture (Wall St. being substantially more on the other side).

So if you have a friend at a startup thats not going to make it, at least thank them for putting themselves out there for creating something that has, even in a small way, added a whole lot of value to humanity, and required very little back in return.

  1. jimshook posted this