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Blogosphere on Bootstrapping: Taylor Davidson

Posted on Monday, Jan 25th 2010

We continue our journey through the blogosphere, collecting thoughts on bootstrapping. Today, I want to introduce you to Taylor Davidson who raises a very good question: Do we need a new funding model for starting businesses?

What happens if people want to create lifestyle, cash-flow built businesses but venture capitalists wants to invest in scalable, big hit and big exit businesses?

It’ll be tough for the two to work together. Entrepreneurs always have the option of bank debt to fund a new company by getting business loans from a bank. While that model still works in a physical asset business, it just doesn’t fit the needs of the bank or the entrepreneur in the digital asset / knowledge / communication industry. And banks have a serious skillset mismatch in funding non-physical asset based businesses.

Taylor elaborates further in Venture Capital for the Long Tail:

Venture capital, for one, has yet to deliver a scalable, viable funding and economic model to fit this new model of economic organization. The traditional high-risk, high-reward, high-touch operational and cultural model simply does not fit the micro-business economy, an economy of “lifestyle” businesses based on smaller interactions and smaller bits of value exchange, created out of the need to build lives, not necessarily a business to sell.

Just as everyone is a photographer, everyone can be an entrepreneur.

How can venture capital adjust?

Well Taylor, Venture Capital cannot adjust. It’s a fundamentally different model, and only bootstrapping works in this mode. But I am sure you have already reached that conclusion yourself. Potentially, though, corporations can fund strategic plays that encourage entrepreneurs to build businesses leveraging their platforms. Examples: eBayand Amazon could micro-finance online retailers; Google could micro-finance content ventures; SunPower could micro-finance solar installers; could micro-finance SaaS plays on the platform. You get the idea …

And if I were President Obama, I would sit down with the CEOs of each of these companies and work out an incentive plan to encourage them to do so.

This segment is a part in the series : Blogosphere on Bootstrapping

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Thought provoking piece. Would love to see President Obama incent the Fortune 500 to invest in startups.

Would work really well if the administration also figured out a way to incent angel investors or angel groups. For example, retirement accounts have tax privileged mechanics but can really only be applied to buying public companies’ shares. No way exists to do this on scale for small private startups.

How do we create new angel investors?

Allan Monday, January 25, 2010 at 5:16 PM PT

Allan, Here’s the way to just that: Stimulus Package For Entrepreneurs. Sramana

Sramana Mitra Monday, January 25, 2010 at 7:22 PM PT

As usual, Taylor always puts things into perspective. As an American living and working in the European start up scene I have to say that he is right on so many levels that the VC model isn’t really built to be kindler and gentler. However that being said, I do see a lot of VC’s and angel investors here in Europe go for the long tail of investing so putting in incremental funds as the start up moves along and reaches goals/objectives which they achieve via bootstrapping. But there are kindler gentler models out there – YCombinator, Microsoft Biz Spark (you get funds and the technology to leverage your business) and the Seedcamp series here in Europe give both funds, technology and mentoring to start ups – and hopefully that will give them the skill set to nurture and grow their start up. I think there is a balance between both worlds but we are starting to see a shift in the VC model and over time as the start ups change their mindset (self sufficiency over massive funding) the model will too. I like the idea of Christopher Colombus going to the Queen and asking for that extra ship, she knew it was probably a bad investment but did it anyway, she could see that the potential outweighed the risk. Thanks Taylor for always bringing such good perspective to the table.

jennifer hicks Tuesday, January 26, 2010 at 6:42 AM PT

[…] Mitra’s response, Blogosphere on Bootstrapping: Taylor Davidson: Well Taylor, Venture Capital cannot adjust. It’s a fundamentally different model, and only […]

Actually, venture capital *is* adapting. | Taylor Davidson (@tdavidson) Wednesday, February 24, 2010 at 8:22 AM PT