Blog of Rob Galanakis (@robgalanakis)

Let’s not fix venture capital. Let’s replace it.

There’s a lot of talk in Portland and other secondary markets about how difficult it is to raise early money compared to places like San Francisco and Seattle.

I believe this is true. But I don’t think it really comes down to anything except, there are a lot of people with a lot of money in those places, and even more people with enough money to do some angel investing. In other words, I would be surprised to find out the behavior of investors is fundamentally different, versus those markets having orders of magnitude more capital and people with capital.

This is important because, after having worked with venture capital for several years, I think it’s capable of being one of the most destructive forces on our lives. Venture capital can be very important for businesses that require large upfront investment or particularly long timelines, where the fundamental value a company produces must be deferred to some significantly later date.

But venture capital is now spent in two areas at the type of companies I care about (pre-seed to like a Series C or something): growth sales/marketing, and salaries.

For the former, there are now solutions like Clearbanc, which give short term loans paid back through revenue sharing, specifically for growth capital. This is fantastic — it’s non-dilutive, and relatively algorithmic. They can deploy capital in 24 hours! The first time I spoke to Clearbanc, it was eye opening. This is a fundamentally different approach that avoids most of the negative effects of venture capital. It encourages businesses to borrow capital they can pay back, and subsidizes behaviors that are known to produce results. It’s worth learning more about Clearbanc if you are an executive at a startup or interested in this stuff at all.

But how can businesses work around the second big spend- salaries? The basic pattern SaaS companies follow — and more later about why we’re all SaaS companies — is to spend big on product staff salaries up front to build the product, then sales and marketing to sell it, then revenues catch up, and they start making money or sell or whatever.

So here’s a problem — if you need programmers to build a tech or SaaS company, and programmers are used to making 150k, you really can’t get to where you need to be without venture capital. Your “social network for t-shirt fans” is on a similar timeline towards sustainability as a company building the next generation of computer chips.

Here’s another problem — programmers earning 150k don’t have many real problems, but they’re now the ones with the capital and skills to start businesses to solve problems.

What I want to do is solve this “salary capital” problem like Clearbanc solves the “growth capital” problem. I don’t know what it looks like yet, it’s what I’ll be exploring in the weeks to come.

2 thoughts on “Let’s not fix venture capital. Let’s replace it.

  1. Deb says:

    Interesting problem to solve!

    1. Thanks Deb. Can I ask how you found this? It’d always interesting when folks from outside of my network stumble here.

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