Why Boring Is Sometimes Good
It’s an exciting time to be a technology company.
London is teeming with startups addressing big problems and attacking lucrative opportunities. A wall of investment capital seeking a home and fintech is de rigeur. Valuations are high and the best founders have the luxury of being able to shop around for the perfect mixture of capital and expertise.
As I explained last week, we’ve learned much by exposing ourselves to this world. By applying innovative processes to traditional problems, we’ve accelerated our growth. We are hugely positive about technology and its potential to improve the world in which we live and work in. But, at the same time, we’re conscious of the hype that surrounds the industry. Venture capital is a big part of that.
A recent article in Pitchbook describes 2018 as a “golden age for venture capital and the startup ecosystem”. It reveals that $57.5 billion has been invested in American VC-backed companies this year alone, on target to surpass $100 billion in deal value for the first time since the dot-com bubble. The article’s author, Anthony Mirhaydari, goes on to speculate:
“Instead of spending millions, or billions, in the pursuit of unicorns that could emulate the “winner-takes-all” technology platform near-monopolies of Apple and Facebook and the massive capital gains that resulted, VC investors and their LP backers could instead be buying a bunch of fat Cheshire cats. Bloated by overvaluation, and likely to disappear, leaving just a smile and big losses, since many software-focused tech startups have no tangible assets.”
He has a point.
So many startups bet the firm on their ability to raise equity funding indefinitely, often justifying bad economics by parroting the words and tactics of established businesses. “Spend money to make money” sounds great when access to liquidity is good and the startup scene is booming, but things can change quickly. That’s not pessimism – it’s realism. More often than not, boring is good.
Mr. Mirhaydari is just articulating what a lot of people are thinking. Namely, that an over-exuberant VC industry is fueling a tech bubble, propping up naive (and sometimes nefarious) startups that are focusing on vanity metrics over profitability. The disconnect with public markets is stark. Listed companies have to answer to shareholders via earnings calls every three months, whereas private companies can go on for years without being held to account, funded by cheap liquidity and wishful thinking. Founder intentions might be pure, but that bears no relation to commercial outcomes.
Of course, not every private company is riding the wave. Many startups and scaleups are brilliantly run and well positioned to deliver returns for customers and stakeholders over the long run. And fintech is culturally distinct from the wider technology sphere, since it enjoys deep crossover with traditional finance. Hence the preference for collaboration over disruption.
Since founding Origin, we’ve worked hard on our model, seeking to build a sustainable business that can weather all cycles and trends. There will, no doubt, come a time when it’s difficult for us to raise money, but we have planned for that eventuality from day one, rather than deluding ourselves with wishful thinking.
Fintech is exciting. It promises the earth, and could deliver it, too. But technology can still learn much from finance, especially when it comes to attitudes around cost management and focusing on the bottom line rather than vanity metrics. Success as a business comes, not from how we spend money but from how we make it.
I admit, all this sounds rather dull, but we’d rather be boring than extinct. Prudence forces us to focus on what’s essential, eliminating superfluous ideas. It means eschewing trends like blockchain and AI, which don’t move the needle when it comes to serving our core clients. Origin might not have the sex appeal (and a funding war chest) of a Telegram or a Tezos, but we believe that by keeping things simple and focusing on serving our clients, we’ll prosper in the long run.
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This article was created in association with Origin Markets, directly connecting dealers and issuers in the primary marketplace for the first time.