Grow Real, Grow Slow
Silicon Valley icon and billionaire Chamath Palihapitiya came out swinging this week when he commented on the state of the startup world.
Palihapitiya’s fund, Social Capital – started with money he made as one of the first executives at Facebook – is in trouble, so it’s no surprise to see him picking a fight with the industry. However, some of the points he raises are valid, especially given the wave of billion-dollar-plus valuations we’re seeing of late.
Palihapitiya didn’t pull any punches. He labelled the cycle of startups seeking funding to find user growth in order to reach the next funding round a Ponzi scheme. He said: “I will not be a part of the charade anymore. I think the charade is dangerous. At some point the whole grow, grow, grow at all costs runs out of juice.”
Of course, Palihapitiya is biased – and in a funk, given the trajectory of his firm – but it’s hard to dismiss the growing sense of unease hanging over our industry.
Our job as entrepreneurs is not to predict macroeconomic cycles. It’s to build businesses that help customers and last for the long term. That being said, given some of the stories we’ve seen of high flying valuations and precipitous falls, we have always chosen to run Origin prudently. We are lucky that we’re not in a consumer-facing business, where there’s a strong temptation to raise and spend money on marketing and other costly activities. But even in the world of capital market fintech, we’ve seen plenty of high profile companies raise a lot of money only to find that product-market fit is still elusive. We don’t want to fall into that trap.
Assessing the wider market, it’s impossible to say whether we’re approaching a peak in terms of valuations. The equity market bull run has had plenty of mini-corrections over the past few years, so the recent wobble is but one data point. It’s also worth noting that today’s environment is different from 2000 (Dot-com) and 2008 (credit crisis).
In 2000, for example, many more companies had gone public, so the fall in valuations was very public news. Today, even profitable companies (Airbnb, Zopa, Transferwise) are private. So while Tesla grabs headlines and gives investors a volatile ride, the fact there isn’t a WeWork or Uber stock price to pontificate on means any downturn could be delayed and/or less vicious.
That being said, we live in an age when any slowdown would be more public than ever. An angel investor recently mused to me that with the rise of social media, even if we don’t see WeWork’s “stock” fall off a cliff in chart form, the images that hit Twitter and Instagram the second WeWork starts cutting back and laying off staff would be just as public, so it could cool the climate anyway.
So far, that day hasn’t come as technology companies have benefited from access to ever-growing piles of private capital. But, while it’s easy to fall into the trap of thinking that it’s due to the virtuous circle of previous successful exits freeing up capital for new investments, unfortunately, the tech world, just as much as everyone else, suffers from a self-serving bias. Celebrating the “success of an ecosystem” is a lot more fun than exploring the connection between interest rate policy, pension fund asset allocation, and VC/PE fund sizes.
But, the interest rate environment is changing, and it’s clear that will have an effect on our industry. Even that technology “lender of last resort”, Softbank, may struggle given recent tensions in Saudi Arabia.
As for Origin, we are still growing as fast as we can. This week, we hit 63 issuers and 16 banks on board, including our first borrower based in the Far East. But I feel we’re different in that we are very prudent with our capital. We certainly don’t assume we can continue to raise funds endlessly. Palihapitiya advises, “grow real, grow slow,” and that is at the core of our strategy.
A part of growing real is being focused on product development. We’re very focused on what new products and features to build, and which ones seem interesting but are best left for later. We’d always rather do one thing well than many things poorly.
Hopefully, this approach will turn out to be the right call and Origin will continue to grow, even if Palihapitiya is right and the rest of the Ponzi-scheme runs out of juice.