The Angry Businessman – “Raising Money”

I wrote this piece five years ago, questioning the sustainability of the tech startup boom. Looking back now, I wonder—has anything really changed? I'm curious to know how accurate I was then. Are startups still chasing valuations without a path to profitability?What’s your take on the state of the tech world today?

Being a child of the 80s, I should have a good understanding of tech – sadly, I have little and have subsequently become a technophobe. I had a Nokia 6310 until just 18 months ago before I finally succumbed to the iPhone, and I remember the looks I got, which defined the generational divide on either side of my age group. To those aged 35 and over, I always got the reaction, “That was the best phone I ever had – the battery life went on for days!” For those under 35, I often received a strange look, with more than a few people venturing to ask me if I was a drug dealer.

With more lifestyles and jobs shifting towards a reliance on tech, I have been forced to face “tech” in my business dealings. This is where I have seen the business world go bonkers. My parents’ generation would find a job, learn the skill, save money, and sometimes start a business doing much the same thing with these savings, quite often going on to become successful. They would make what many millennials/leftists would say is a dirty word – PROFIT. You see, I learned that business is about two things: PROFITS and ETHICS and doing your best to combine both. We have all heard the old adage that “turnover is vanity – profit is sanity,” and it's true – as a business owner, the most important thing is to make as much PROFIT as possible and to do this as ethically as possible. Don’t screw people over and try to ensure everyone makes money from a deal (but it's okay if you make a little more).

In the last 10-20 years, we have seen the rise of huge tech players – we all know their names. I’m going to use them to post this. We have seen a dozen or so of these companies grow to become household names, and we use them every day to communicate and search. Every year or so, a few more break through, and therein lies the first problem for business. Every “tech entrepreneur” thinks they will be the next Facebook, Airbnb, Uber, or Deliveroo. They then set themselves on a mission to build a team with other people's money before their “burn rate” becomes too high, and then they need another “series or round” of investment. You see, many of these startups haven’t actually got a clue what they are doing. Many cannot and never will be able to monetize their idea. Their idea is basically to raise money (which is often invested at extremely beneficial tax rates).

I have had 10 years of meeting these “entrepreneurs,” and I have been burned a few times. Being burned is not my gripe – I’m a big boy. Any losses made by me are mine alone. But when those “entrepreneurs” start their next venture and start their whole fundraising process all over again, or just raise more money to pay out the angry initial investors, the whole thing starts to stink. One common thing I hear from these entrepreneurs is that their rivals aren’t as good (even though these rivals are often huge, profitable companies) – their tech either isn’t up to scratch, or consumers are moving away from them and want a different experience. They basically belittle everyone else’s idea but theirs, as they continue on their conquest of raising money so they can pay the salaries around them and sit in shared offices in expensive capital cities, drink organic coffee, and continue their mini Ponzi schemes.

The problem is, these people are trying to win the lottery, and almost all of them will not do it. They aren’t entrepreneurs. Entrepreneurs take risks. These people are not risking anything—they are using other people's/institutions' money to pay their own salaries while their entire business model is simply not sustainable. They are losing focus on what makes a business tick. A business is a very simple thing – you sell something for more money than it costs you to produce it, whether it’s a product or a service. These people hope that “their exit” will be by floating or selling some shares in their next round of funding. It's a Ponzi scheme – there is no fundamental business basis to this model. In the next 5–10 years, as our economy stagnates due to macro factors such as Brexit, overpriced homes, etc., and as the cycle of investments follows through to compound losses, I’m convinced we will see a lack of liquidity towards these “startups.” At this point, three-quarters of these entrepreneurs will be out of their current roles as their businesses are simply not sustainable without the external investment propping them up.

Here is an idea. Go and get a job. Learn the idea. Copy it. Start on your own and do it better than anyone else. Sleep on your parents' living room floor. Don’t drink ￡5 coffees. F***g starve just like my parents’ generation and those before them did. Learn what it’s like to be hungry and poor, and then start on your own and build a PROFITABLE company.

I understand that certain business models require capital injections and cannot be monetized until a much later date (for example, one of the autonomous driving firms), and I have no problem with these, especially if the founders have prior experience. My issue lies with a “founder” who comes up with an idea (often an APP) and has no real clue what they are doing—besides being able to present well, talk a great game, and raise money.

One of the worst traps that the business world has fallen into is the valuation of these companies, which have been grossly overstated. I’m convinced this will only last for a certain period of time, and when the next recession comes, the valuations of many of these companies will no longer be derived from bullshit and confidence in the next big thing but will be formed from the asset value of the business and its genuine potential to make a profit. I understand I am generalizing and that many will differ with my point of view, but the business world needs to take a good, hard, long look at itself and the worship of “tech,” and when the arc of a decent-length business cycle is complete, we will see who truly is left standing. As Warren Buffet says, “It’s only when the tide goes out that we see who has been swimming naked.”