A startup ecosystem needs that first wave of determined founders.
It’s rare that tech founders pay the slightest attention to the history of the ecosystem they belong to. By definition, entrepreneurs are so focused on the ‘here and now’ that it’s only a distraction to think about what brought the ecosystem to its current state.
However, those who dig deeper into history are likely to discover a common characteristic: a major contributor to the initial growth of the ecosystem was a first wave of founders who took lots of blows, but managed to survive and thrive anyway, eventually passing the baton to the next generation.
Those often lethal blows to that historical first wave typically fall into three categories.
Lack of venture capital
This usually leads founders to turn to corporate investors—as was the case for Robert Noyce and Gordon Moore back when they founded Fairchild Semiconductor in Silicon Valley 60 years ago.
Raising capital from an established corporation is a blow because such money usually comes with particular strings attached that make it impossible for the venture to thrive. Noyce and Moore concluded as much, and decided to quit in 1969 in order to found their next venture, Intel—this time raising money from proper venture capitalists.
Bad practices
In other early ecosystems, there are such things as angel investors and venture capitalists, but they tend to have bad practices: they demand too much equity in exchange for small checks; they are too intrusive in the day-to-day governance of the business; they refuse to be diluted by further rounds of investment or allocating equity to employees; they take their time signing documents and agreeing to strategic decisions, thus endangering the small and still frail venture at every turn.
As Alex Danco recently wrote in a great piece about the (lagging) entrepreneurial ecosystem in Canada,
You know what’s even worse than no angel investors? Having bad angel investors…
Good Angels are playing an infinite game. They are contributing to a community; not in order to win something definite, but to earn the right to keep participating in the scene. They play the infinite game of growing their status within a growing community, which is a very good thing. And they often make a ton of money, leading to the perplexing advice for outsiders: “the way to make money angel investing is to not set out trying to make money.”
Bad Angels are playing a finite game. They are trying to win something.
Missing resources
The third category of blow is the lack of non-financial resources: competent professionals in fields such as law and accounting, highly skilled employees who know what they’re doing, available real estate for scaling up operations, etc.
What happens to the first wave of companies confronted with such an adverse environment? Three outcomes:
Sadly, most simply die—the venture fails, the entrepreneurs quit and move on to another career.
Others survive the beating, but end up so traumatized that they effectively pass the toxicity down to the next generation. Former founders who suffered with bad angel investors in turn become terrible angel investors that replicate the same bad practices with their own portfolio. We have plenty of those in European ecosystems!
A very small minority act like Noyce and Moore. They survive, manage to generate some upside for their financial backers (but not much for themselves), and decide to keep pushing anyway. As such, they can act as a cushion between the toxic ecosystem of the past and the better, healthier ecosystem that they think the next generation needs if it wants to succeed.
We’re all blessed by those survivors of the first wave who decide to break with the toxicity rather than perpetuating it. And at The Family we’re always pleased to see the arrival of those happy few in our startups’ cap tables. So for all of you out there (and yes, you know who you are), thanks 🤗
If you feel you’re part of that first wave in your ecosystem, apply to The Family, because we definitely can help. And if that first wave came before you, apply anyway—you’ll always need strong backers like us to push against residual toxicity!