Marty Kausas: Why do you hate VCs so much?
Me: How much time to do you have???
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Marty Kausas (founder of Pylon) is a bushy-tailed young-buck YC-founder with some early traction.
Ed Hallen is the co-founder of Klaviyo, an IPO’d decacorn (who still works there).
Every Marty is hoping to become Ed someday. Ed has reached the endgame of the life the VC/YC path is selling, was worth over $1b on Klaviyo’s IPO, worth minimum $100’s of mm now, and I spoke to him the other week about this.
Ed: “Most VC-backed founders end up failing. That just sucks for Founders.”
He then went on to describe how he wrote an article for the Harvard Business Review with his brother about what he calls the “Mighty Middle”.
He concluded that sub-VC scale, bootstrapped companies in niche markets had far higher probabilities of creating life-changing outcomes for founders than the VC track …
And therefore are better for the Founders!!!
(You have heard me scream this from the rooftops repeatedly)
But that wasn’t the most interesting part of our chat.
When you talk to Ed about why Klaviyo got to where it did, you get the sense that he doesn’t think of himself and his co-founder as any more capable than any of their VC-backed peers.
You get the sense that he deeply believes that Klaviyo is where it is because of a few key breaks that were totally out of their control, and furthermore, things they NEVER could have seen coming. It was REALLY right place/right time stuff.
Like:
1. Inextricably linking themselves with Shopify when it was a $50m valuation, now it’s $150b (a 300x!)
2. Mailchimp got in a fight and killed their integration w/ Shopify in 2018
3. Email is the one positive NRR product in SMB
What would have been the fate of Klaviyo if none of this was true?
We will never know, but my guess is it would be MUCH smaller than the $1.3b run rate (or whatever Klaviyo is now), and they would not be a darling, poster-child of SaaS.
The last point Ed made on our call was my favorite.
“Hundreds of millions of dollars [which is the goal of the VC founder whether they admit it or not] has zero utility beyond a number MUCH smaller than that. Call it 30, 40, 50, whatever”.
His broader point is that most Founders want the freedom to:
1. Build cool shit, and
2. Live the life they want
Strangely, a huge amount of money in the bank, and correspondingly, the huge company that young VC-backed founders think they want, can even sometimes work AGAINST those two simple goals.
But good luck trying to explain that to a 25 year old paying $3k/mo rent in SF. “I’ll find that out for myself”, says the young Founder. Touché.
Last but not least, I always point out that the VC path is dependent on transactions with volatile software valuations for the Founder to realize the fruits of his labor.
A decades-long effort of creating a VERY good business (that just isn’t quite good enough) most of the time ends up in a very low-paying job with a boss (your investors) - whether you choose to acknowledge that fact or not.
Why?
Because if your VC-backed and your business stops growing at any point for any reason, your equity is torched. In most cases, that happens, and as such, most VC-backed founders fail.
Klaviyo was the exception.
Is PYLON?
Only time will tell.
Marty and the YC crew make the mistake of bucketing Ed’s “Mighty Middle” in the “lifestyle business” category and dismissing us as “playing small”.
It’s not about playing small.
It’s about freedom, and making sure that if Marty were to create a great business (and he probably will), the fruits of that labor would accrue to Marty (which is highly unlikely).
So to answer your question, Marty …
Why do I hate VC’s so much?
Because I want you to win. And I want you to be free.
But I think by taking that $50m, you minimized your odds of both.
Adam