Some companies are experiments. It's okay if they fail
There's a reason the term "serial entrepreneur" exists in Silicon Valley. Yes, part of it is because some people just love the hunger and romanticism of a startup, and they want to chase that feeling. Many other times, it's because building a successful startup is just so damn hard. Naval Ravikant thinks the way early companies are funded now is making it harder.
“The odds are against you. You just have to be comfortable with failure,” said Ravikant, the founder of the venture firm AngelList, sitting down with PandoDaily's Sarah Lacy in San Francisco. This goes for both the entreprenuer and the VC. The paradox of it, though, is that it's so much cheaper to seed a company now that it's harder for the companies who have gotten their foot in the door to take the next step.
Ravikant is referring to the "series A crunch," wherein the pool of companies getting a first, small round of funding can't make it to the next level. "There isn’t enough Series A capital, but the reality is that I think that this is going differently. A lot of these companies are experiments, and there’s nothing wrong with that, as long as they’re treated like 'experiments,'” said Ravikant.
Still, the problem is not so much a matter of money, he says. It's more of a perception issue for investors. Backing a company that doesn't take off shouldn't be an embarrassment, and it's okay for a company to go back into an incubator.
But for the companies that actually do break through, the rewards for investors are more than monetary. “Today, that first-check privilege goes to the incubators. Most people don’t go around calling themselves a Sequoia company; rather they are a YC-backed Dropbox," he said.
The bragging rights are good. But the returns aren't so bad either.