We need counter capital

By David Heinemeier Hansson on November 20, 2019

The deal Jason and I made with Bezos back in 2006 is the kind of deal I wish was available to more founders. It put just enough money in our pockets to starve off any temptation to raise and cash out via venture capital, and yet came with no explicit or implicit strings to pursue growth uber alles. It was patient capital that was happy to take a seat on the bus without any opportunity to turn that bus into a rocket ship.

So why is that kind of deal not available to more founders? Why isn’t there a market for selling a minority stake of your profitable tech company to people who’d be happy to be paid back in distributions and dividends, rather than capital gains? It seems like a glaring gap in the market.

At the low end, raising a few hundred thousand dollars to take a business from “a struggling side project” to “profitable, sustainable full-time business”, there are now a bunch of options. Basecamp has put money into Tiny Seed, indie.vc, and Earnest Capital, to support the idea of alternative funding that doesn’t require those damn rocket-ship trajectories to make sense. But those options don’t really do much for a business that’s already become profitable. The whole point of those funds is to get a company to that point.

I know it’s really hard to turn down a really big check when your business is doing fine, but not exactly spewing off the kind of life-changing cash you imagine that a large cut of a huge venture capital check will bring. A pigeon in the hand vs ten on the roof, and all that. That’s what we need another answer in the market to counter.

Because if we had that, if we could save more companies from getting sucked into the venture capital roulette, we’d have a much better chance at changing the fundamental incentives and aspirations of tech companies. More opportunities for more promising companies to simply be content running a great $20m/year business rather than an extractive, deceptive $100m/year one. Companies proud to be zebras without yearning for a horn.

Imagine a Meetup that didn’t need to sell itself to WeWork because turning a basic profit was good enough. Or a Patreon that wouldn’t scoff at taking a 5% cut of hundreds of millions in donations, because it would be enough.

Being a private tech company is of course no guarantee that you’ll run a healthier, less extractive, less myopic shop, but it surely makes it easier. You can simply choose not to grow, if you’re contend with where you are, and you have enough. That’s simply not an option once you’ve taken venture capital or other growth money that needs a certain compounding return to make sense.

There’s got to be a way to make this work. The numbers are bigger than the new class of seed funding, but so much smaller still than these hundreds of millions that are getting injected by VCs. Minority stakes sold for millions, not many tens of millions, let alone hundreds of millions, could really change the dynamics, and make the venture route look all the more unappealing.

What a lovely project this would be for a billionaire to kick off. Jeff, you still there? 😬