The case for fewer entrepreneurs

By Francisco Dao , written on February 12, 2013

From The News Desk

With an almost blind devotion, the technology sector loves to champion entrepreneurship as a universally good thing, but is it possible we’ve taken it too far? After all, if everyone is an entrepreneur we would end up in a classic “all chiefs, no Indians” situation. In many ways we’re already there, or at least close enough for it to be a legitimate problem. At the risk of saying something blasphemous, I think there’s a strong case to be made that the ecosystem as a whole would be much better off if we started discouraging a few people from pursuing entrepreneurship.

When the Y-Combinator Start Fund launched, most people celebrated it as a great development and a victory for the entrepreneurial ecosystem. But was it? Pre-Start Fund a typical YC class would have some winners and some losers. Obviously it would vary per class, but let’s say it was 30 percent strong, 70 percent weak. The weaker 70 percent would die fairly quickly providing a rich source of talent to the surviving members of the class.

Now since every YC graduate gets $80,000 (originally $150,000), the 70 percent that previously would have died get to ride it out on hope for another year, virtually ensuring that the strong companies go starving for, or at least in search of, quality talent. Is this actually good for the ecosystem? Wouldn’t it make more sense to let the weak startups die quickly so the talent can be deployed to the stronger YC graduates that are actually going somewhere?

Another benefit we would see from having fewer entrepreneurs, is investors would likely take a more considered approach to the companies they fund. Instead of 100 investments for $50,000 each, let’s say they make 10 investments for $500,000 each. With more money on the line per company, investors would naturally be much more committed to helping those companies thrive. It’s pretty easy to write off $50,000 when you have 99 other $50,000 investments out there, but when you only have a handful of big bets on the line you’re going to care a lot more about making them pay off. For the companies that do get funded, the additional investor support would be a significant benefit.

In an ecosystem where larger funding dollars flowed to fewer, but more talented teams, as opposed to small dollars being spread across a wide range of thin talent, the lucky few entrepreneurs who do get funding would, like the investor, have a greater commitment to success versus the churn and burn mentality we see today.

Taken together, the three factors of less talent dilution, greater commitment from investors, and greater commitment from entrepreneurs, should result in startups that would be more likely to generate long term value as well as provide foundational technology for future generations. One might argue that people will always chase the easy flip, but I believe more money, put into teams with greater talent, lead by more committed founders, has a higher chance of producing the next Google than two guys who took a weekend course on growth hacking. Ultimately, the creation of foundational, value creating companies is a huge benefit for the Silicon Valley ecosystem as a whole.

As I thought through all the benefits of fewer entrepreneurs, something began to trouble me. It all seemed too simple. If my arguments are reasonable then why don’t things work that way? I believe the underlying problem is investors have no confidence in their ability to pick winners. Let’s go back to my argument about the Y-Combinator Start Fund. Instead of blindly spreading the money across the board, wouldn’t it make more sense to concentrate the money on the 30 percent of companies that are strong, in the same way it makes sense to concentrate the engineering talent on those same 30 percent? If investors had confidence in their ability to pick winners, absolutely it would, but clearly that’s not what happens.

Unfortunately, my argument for fewer entrepreneurs is reliant on the fundamental belief that investors can do a reasonably good job of predicting which startups will be successful and invest their money accordingly. Instead, investors have taken a shotgun approach, choosing to throw a little bit at everything. As long as this practice of spreading the money thin and wide continues, we’ll continue to have too many people trying to be chiefs in an ecosystem that would be better off with a few more Indians.

[Illustration by Hallie Bateman]