Thread by @Codie_Sanchez

Everyone talks about the same companies every day.

Uber. Google. Facebook. Tesla.

It's corrupting our youth.

Here’s how Silicon Valley misled an entire generation about startups and wealth (and what you can do about it):

Remember Bird?

Slick e-scooter company that was the fastest company to reach unicorn status.

They raised close to a billion dollars and went public - before filing for bankruptcy earlier this year.

But this isn't a unique phenomenon…

In 2023, 3200 startups shut down - nearly double the amount in 2022.

You've probably heard of the biggest failures:

• WeWork
• Convoy
• Zume

What's going on?

Let's start at the very start.

Usually, good companies start by identifying a problem people have.

Only then do they build the solution to that problem, knowing people will want it.

Michael Seibel, founder of Twitch, explains this well:

So say you've identified a problem & found some traction. With some outside cash, your company could grow faster.

This makes sense.

But media outlets report as if the funding rounds ARE the end goal.. As a founder, you've "made it" if your company hits a 8-10 figure valuation.

This completely alters incentives.

Now, young founders are glorifying fundraising and a phenomenon Paul Graham calls "playing house."

Rather than solving a problem and turning a profit, founders just "go through the motions" of doing a startup:

The main problem with raising VC money?

VCs want companies they invest in to potentially 100x in valuation within 10 years.

For most companies, that's an INSANE amount of growth that turns founders upside down.

Most companies shouldn't raise VC:

But it gets even worse.

A cycle emerges whereby:

• Startup raises money
• VC wants startup to grow fast
• Money is invested into (unprofitable) growth
• Startup can only survive by raising more
• Other VCs continue to invest because the startup is growing

Chamath explains here how the interconnected Silicon Valley ecosystem enables this Ponzi situation:

That's what leads to these huge failures.

Remember Fast?

The company raised $120 million - including from Stripe - but generated only $600 THOUSAND before shutting down.

They kept burning millions for the sake of growth until it caught up to them:

There are going to be many, many startups left in this graveyard.

Our VC fund @CTVentureCap invested in a startup winddown company (@sunsethqdotcom) largely for this reason.

@CTVentureCap @sunsethqdotcom But you know who ends up suffering most?

The founders.

The young people who WANT to be in business, but have been sold this Silicon Valley nightmare.

They're looking for a new way...

@CTVentureCap @sunsethqdotcom If you're reading this and thinking of building a company, you've been warned.

Raising money is a tool. Not the end goal.

And with it comes expectations of growth you might not be comfortable with.

The good news?

@CTVentureCap @sunsethqdotcom Venture-backed tech firms “changing the world” have held the spotlight for decades.

But tides shift, and we’re shifting them now.

Builders are waking up to the SV trap and choosing sustainable over skyrocket...

@CTVentureCap @sunsethqdotcom Just have a look at these headlines:

@CTVentureCap @sunsethqdotcom It goes even further - here’s what we’ve started to see TONS of recently:

• New podcasts on all kinds of biz-buying subjects
• Business owners posting tricks of the trade on TikTok
• SMB lawyers/brokers building 100k+ influencer-like followings

@CTVentureCap @sunsethqdotcom When I started Contrarian Thinking several years ago, few talked about this.

It was - actually - a contrarian idea to BUY your profits rather than build them.

Now, it's borderline mainstream.

Why's this happening?

@CTVentureCap @sunsethqdotcom Two words:

Cash Flow.

Unlike VC-backed startups that might not profit for years (if ever), Main Street businesses provide returns from day 1.

It gets even better:

@CTVentureCap @sunsethqdotcom When you start a startup, you do EVERYTHING from scratch.

Find an idea. Build a product. Get your first customers. Make marketing collateral.

Going from zero to one is the hardest part - but when you buy a biz, that work is done for you.

@CTVentureCap @sunsethqdotcom Your job is maintaining the success - not manufacturing it.

Plus, once something's succeeded for a while, it's more likely to continue succeeding...

@CTVentureCap @sunsethqdotcom Now you're thinking, "Great Codie, you scare me out of a VC raise then tell me to pull out my wallet to fund an acquisition."

But there are pretty nifty funding options:

@CTVentureCap @sunsethqdotcom • Seller financing: the owner lets you pay them over time with the biz's cash flows
• SBA loans: gov-backed loans with low interest, long terms and minimal money down
• Investors: many folks eager to fund solid deals

The last one's my least favorite (I'm selfish...)

@CTVentureCap @sunsethqdotcom Listen, if you're truly hell bent on starting the next SpaceX and changing the world, I tip my hat to you.

But, if like the rest of us, you want to build a biz with as few headaches as possible?

Don't fall into the Silicon Valley trap.

Look at a small biz instead.

@CTVentureCap @sunsethqdotcom What do you think?

Would love to hear anyone's experience with Silicon Valley the past few years.

You can follow me @Codie_Sanchez for more & share here for others to read this:

https://twitter.com/Codie_Sanchez/status/1776604277617709176