Want to help startups? Just give them money

http://www.rookieoven.com/2013/04/04/help-startups-give-them-money/

by plantedd • 13 years ago

23 29 13 years ago

oceanician• 13 years ago

Is there no equivalent of the NW Fund in Scotland? http://www.thenorthwestfund.co.uk/

plantedd4• 13 years ago

We've got things like the West of Scotland Loan Fund and similar schemes. The equity or loan funding support is better, but there's still essentially a large degree of inefficiency and a lack of effectiveness in the process because you've got teams making decisions on who to pick without the benefit of any randomised evaluation, so you're not gathering any objective data on what's actually effective.

nthj4• 13 years ago

This feels like a One More Level of Indirection solution. [1] The problem, I think most everyone agrees, is that the government isn't the greatest at growing businesses. The obvious, delete-all-the-code approach would be to leave more money in the hands of the businesses by lowering taxes.

Or, as the article suggests, we could pile on another layer of indirection: encourage the government to keep taking my money, hope they're halfway decent at identifying smart startups (which I'm sure they would be, the government is awesome at everything else they do right?), and, wonder of wonders, they identify the next Facebook 9 times out of 10, we still have to lose a significant percentage of the wealth to paperwork, inefficiencies, and bureaucracy.

> I’d be confident that I could do more for my startup, Plantedd, with whatever equivalent amount spent by government organisations to pay consultants to help us with marketing or IT or training.

Dude, I'd love that. Plantedd looks stellar. I think we want the same things. I also think it's far more straightforward to lobby for more tax breaks for startups and call it a day.

[1] http://c2.com/cgi/wiki?OneMoreLevelOfIndirection

plantedd4• 13 years ago

(The One Direction solution??)

I agree that more tax breaks for startups would help and it would be a more straightforward thing to achieve. The two things don't have to be mutually exclusive though, so I'd say we need both. For early-stage startups though, sometimes the challenge is more in actually reaching the stage where there's anything to tax - which is why I still think actually giving them the money in their pockets is vital.

Thanks for the compliment about Plantedd!

nthj4• 13 years ago

> For early-stage startups though, sometimes the challenge is more in actually reaching the stage where there's anything to tax

Sure, I get that. I live in the startup world too. I just disagree that it's the government's job to take my money and give it to you — and, of course, vice versa: I won't ask the government to take your money and give it to me.

We already have a solution for the problem you bring up. It's called investing. You exchange a percentage of your company for the capital you need to get going. If a startup has trouble convincing an angel investor to part with his money, he may need to revisit his business idea or iterate a bit further. That's a good thing, it helps improve the startup.

But "government money" is really my money, and you're proposing that the government force me to fund startups that have been unable to secure angel investment. To be blunt, this seems really lame. I'd rather keep my money that I've worked hard for and invest it into my own ventures.

[I should also note this is a debate of principles for me: I'm not saying "oh in my opinion startups aren't worth my tax dollars", so much as "government is inefficient at everything, and $PROPOSAL is a subset of everything, therefore, government shouldn't be $PROPOSAL when another solution already exists.", where $PROPOSAL = 'funding startups' in this instance.]

michaelochurch3• 13 years ago

The obvious, delete-all-the-code approach would be to leave more money in the hands of the businesses by lowering taxes.

I'm a left-libertarian, so what I want to see is a basic income and low levels of regulation. Taxes can be high. I'm fine with that as long as it's spent on useful things (more cancer research, less war). The tax rate we pay in the US is about right. What we get for our taxes is disappointing. We should have universal healthcare, for example. The current system is expensive and doesn't work.

You can tear out a lot of regulations if you have basic income in place. For example, you no longer have to support so many farmers with price floors. If market value for their produce declines, they're still OK; you don't get the cascading effect of rural poverty (1920s) that eventually impoverishes the whole society (1930s).

I also support a flat tax. Morally, I'm okay with the concept of progressive taxation; but if we get our house in order with a basic income and a certain basket of always-provided goods (food, education, housing, and healthcare at affordable prices) then it really doesn't matter that a billionaire is playing 40% instead 70%. He'll, I'd be happy just to see the billionaires pay the percentage that I do!

For example, I hate the concept of minimum wage. Before you conclude that I'm an asshole, hear me out. Without basic income, we absolutely need one. But what is a minimum wage? It's a clumsy basic income that's financed by low-end employers. How do they respond? They cut jobs.

The good of a minimum wage (which, again, is essential if you don't have basic income) is that employers have an incentive to automate the lowest of the low in menial processes. However, you'd still have that incentive with basic income because people just wouldn't do low-yield, unpleasant work for next-to-nothing. Right now, poor people can't get a fair wage because they are fucked if they are jobless, giving employers all the leverage. Basic income allows the market to find a fair value for work.

nthj4• 13 years ago

> Before you conclude that I'm an asshole, hear me out. Without basic income, we absolutely need one. But what is a minimum wage? It's a clumsy basic income that's financed by low-end employers. How do they respond? They cut jobs.

I haven't thought through a basic income well enough to render an opinion, but basic arithmetic skills are all you need to realize that minimum wage doesn't help unemployment numbers. We're definitely on the same page there.

[As an aside, my immediate gut-reaction to basic income is that I know a half-dozen people off the top of my head who would gladly just play video games 80 hours a week instead of delivering pizzas, so I am tempted to wonder who would be left to handle lower-end jobs if we had basic income? Not everyone is a workaholic like me.]

tomwalker• 13 years ago

Good article.

I must say that a unique benefit about Scotland for entrepreneurs is that higher education is free. This reduces the debt burden of a new graduate significantly that helps with any new venture.

I do agree that the money spent on bureaucracy by government bodies that are meant to boost enterprise is wasteful, although the new gov.uk web project suggests that sometimes projects can be done well at a decent price.

I echo nthj's comments in saying that tax breaks are the easiest way to benefit all small enterprises, from tech start ups, to new retail shops, plumbers starting their first business etc.

michaelochurch3• 13 years ago

There's good and bad here.

The good: right now, the funding racket for startups (unless they can get clients, and under-35's tend not to have those kinds of relationships yet) is unfair and, due to the illegal comparing-of-notes whereby a VC can turn off interest in supposed competitors, probably extortionate. It sucks. A lot of good businesses are shut out. Here's some writing I did on how to fix that: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... .

The bad: this means that startups are funded based on their ability to attract attention and raise money (tip-jar model) when they really should be funded according to provision of value. These will probably converge over time, so you get eventual consistency.

On the whole, I think the good outweighs the bad. It's just that you couldn't use a tip-jar model to fund, say, a new GPU-aware C compiler. There's a lot of infrastructural technology that can't easily be funded by "dumb money" of the populace nor by the "I-think-I'm-smart money" of meddlesome VCs and executives.

There are a lot of hard financial problems to solve, but ideas like this are bringing us in the right direction.

mindcrime3• 13 years ago

I'm really intrigued by the possibilities that crowdfunding may offer, once the SEC fully implements the JOBS ACT stuff. I'm not sure I see the rosy picture that this guy paints:

http://radar.oreilly.com/2013/03/how-crowdfunding-and-the-jo...

But I think he makes some interesting points. I don't think this just relevant to Open Source companies either, although they may be uniquely positioned to really tap into this mode of funding (or not... I need to spend a lot more time thinking about this, especially since I run an Open Source startup).

I'd be curious to hear your thoughts on crowdfunding, michaelochurch.

michaelochurch3• 13 years ago

I think crowdfunding is an excellent idea but it's too early to see how it plays out. It could fail; it could be The New Thing. Too early to tell.

One idea I've had, which I think has major steam, is passive payment. Given that my consulting rate is high (full rate I don't disclose but it's well over $200/h; however, I give lower rates, sometimes zero, for businesses I believe in and non-profits) it really isn't a major cost to pay $2/hour for websurfing. That's a rounding error. I have no problem paying $0.25 for the time it took to write this post because the value of the time itself is an order of magnitude greater.

People would need to have the ability to calibrate their passive payment, obviously. For me, $2/hour is nothing; for the developed world, it's far too much.

Right now, advertising is the only passive payment system we have and it's extraordinarily inefficient.

Passive payment would make living by blogging much easier. For example, I get about 1700 hits per day (2.5 minutes each) on my blog. If we assume the average web user sets his passive payment level to $1.00 per hour (median would be lower; mean might be around that) then I'd be making $70 per day. Not enough to live on (in New York) but it would almost cover my too-damn-high rent.

Passive payment would also be great for time-tracking. I probably wouldn't waste as much time if I realized "holy shit, I wasted $0.73 reading that garbage!"

Finally, it would obsolete those damn paywalls. I don't mind paying 95 cents to read a good NYT article (again, the time is much a greater expense) but bringing out my credit card is a hassle.

nemesisj• 13 years ago

In context this is a really strange article. The government bodies listed in this article do give money to startups, and the bar is extremely low. In addition, private investors (angels and angel syndicates) get matching funds "for free" where the public money matches private money. I'm not sure why this isn't exactly what's being described in the article.

5l2• 13 years ago

The point is rather than these bodies acting as gatekeepers deciding what they think will work or not, funds should be distributed via a lottery subject to some basic criteria.

In fact, that is rather the point of the matching funds you mentioned - they let the private sector decide the winners and come in on the same times. That said, there's still a checklist of what sectors they will and won't fund - and it so happens that some startups get unreasonably pigeonholed.

PeterisP• 13 years ago

If you make it a lottery subject to criteria X, then it will be a profitable "financial startup" business to cheaply make thousands of fresh companies matching criteria X, extracting the "free money" out of the startup ecosystem.

I've seen it many times for various subsidy programs - where a few "entrepreneurs" who learn how to game the system aren't just 'a few bad apples' but actually obtain the majority or even 100% of such programs.

swombat2• 13 years ago

As someone who is running a business whose main occupation is to help the government give money to tech companies and startups, I actually disagree with this.

I think most startups don't need money (and they typically don't get any, because most government funding is match funding, and so you have to spend to get, and very early startups don't spend anything). Or rather, they need money, but probably not from investors, and certainly not from the government. They need money from customers.

My thoughts on why money is toxic to most entrepreneurs are pretty well summarised in this article: http://swombat.com/2011/12/8/investment-cushion-springboard

Growing companies that have figured out how to make their own money already do need money, but the reason they can make good use of it is also the reason why they don't need it as much as the cash-starved early startups.

To a functioning company, money is lifeblood, and more money can help make the company a bigger success than it already is (or make it more competitive against other companies in the same space).

To an early startup, money is a toxic sludge that will slow it down, cause weird and unpredictable mutations, and possibly kill it when it might have lived.

Disclaimer: I'm talking about startups operating outside of the Magical Land of Silicon Bubbles, who have to actually create a viable business rather than just build something popular that makes no money and then sell it for a billion dollars.

mindcrime3• 13 years ago

Ehhh, I don't know. I mean, yeah, I agree with the general gist of your blog post there, but... For some startups, especially early-stage startups, they do need money...not necessarily big money, but enough money to actually start at all. Or, let me put it a different way, even for the very early stage startups, capital can be very important - in at least some cases.

I'm thinking of the bootstrapper scenario, where the founders don't have the kind of cash reserves just lying around, to enable them to quit and work on the startup fulltime right away. So they're forced to keep dayjobs and work on the project nights and weekends. Now, you can get a lot done, especially from a product standpoint, working nights and weekends. But when you need to go out and meet people (potential customers, partners, distributors, investors, whatever)... well, those people usually expect to do business during "business hours". If you have a potential customer on the table, but you can't meet with them because you're at work at your 9-5 all day, or because you can't afford to fly to $EAST_BUMFUCK, or whatever, it really puts a crimp in things.

Of course, I'm not saying it can't be done... In fact, I'm in the middle of doing this myself, and we find workarounds: I meet people over lunch, or come in early and leave early at the $DAYJOB so I can meet early afternoon (or flip it around for a breakfast meeting), and I use Skype, chat, etc. to do remote meetings. And we solve the travel expense problem by focusing on customers who are geographically close to us. And for us, the advantages of bootstrapping justify doing this for now. But I can see where many startups would really need - at a bare minimum - enough money for the founders to be able to work on the project fulltime, and maybe some money to cover incidental expenses from going through Customer Development.

swombat2• 13 years ago

There are many things that a person can do to liberate their time so they have the flexibility to spend good chunks of flexible time on their startup. Those things (e.g. moving to a more consulting/self-employed type role, not an employee role) also teach that person how to run a profitable business, deal with taxes, cash flow, sales, etc. Having someone else's money in your bank account teaches none of that.

I agree that it is far better to be in a position to work full-time on your startup, but I think it is not so valuable that it is worth taking the downside of raising funds just for that. "Relentlessly resourceful" (to use pg's words) people find the time to make it happen somehow.

Similarly, relentlessly resourceful people make it happen without having to fly to east bumfuck. Shit, in today's world, with all the remote communications available, and the fact that most companies (at least the SMEs) are perfectly happy to do business remotely. And if your business requires you to go to east bumfuck to make sales in person, and you don't have the resources to do so, then you're just doing the wrong business. Pivot to one where you can do the sales remotely, or there are enough clients nearby to sell to.

5l2• 13 years ago

So the question is: what is the biggest killer of startups? Practicalities (I can't go to this meeting because I can't afford the coffee) or psychology (the funding killed my sense of urgency?)

While I have sympathy for your point of view, as a founder hitting the practical issues every day the idea that all financial support is toxic just doesn't wash with me.

saosebastiao• 13 years ago

I know of a few VCs who just can't help themselves...not just giving them money, but telling them how to spend it too. And for some reason, they all seem to want them to spend it on a hotshot HBS-trained former big consulting general partner that will suck up all their cash and equity and give them a failed business in return.

They like to claim that there is some value-add with having their experience as "part of the team"...but for 90% of the VCs out there, it is bullshit. It is just a ploy to get better deals.

fmsf• 13 years ago

How come your plantedd doesn't sell shrubberys? You are from the UK, you need to add a special search result for when the users search "shrubbery" http://www.plantedd.com/t/categories?keywords=shrubbery

mdhayes• 13 years ago

Also for folk using the search term 'Ni'.

plantedd4• 13 years ago

We have a category just for shrubs here http://www.plantedd.com/t/categories/plants/shrubs, but yeh, our search isn't clever enough at the moment.

Want to help startups? Just give them money

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