Blitzscaling: Silicon Valley’s Harmful Idea of Success

This post was originally posted here.

I sometimes struggle to figure out the best way to convey something that is important to me to others. That may come as a shock to many of you because of all the articles and blogs I write, and the speaking gigs I have, and the fact that I’m in the business of recommending things to millions of people — but it’s true.

For much of 2014 and 2015, I banged my head against a plane window flying back and forth between Austin and Silicon Valley while trying to raise institutional VC money for Localeur. We had raised a small round of funding in 2013, led by a local angel investor who was a member of Central Texas Angel Network, and used the funds to build our first product (a mobile website) and launch with recommendations from friends of mine in Austin the week before South by Southwest Festival. Almost immediately, people started to dig what we were doing: Digital Trends named Localeur one of their favorite new apps of SXSW 2013 and other press followed. We expanded to Houston, San Francisco, New York, and Los Angeles within months, and we were generally doing all the things and seeing all the things that a startup needed to do and see in order to feel good about VC funding prospects.

Being black while fundraising

The 2013 Joah didn’t realize he was about to run into the buzzsaw that was being black while fundraising in 2014 and 2015, two of the best years for a seed-stage startup to raise funds in Silicon Valley. Fast forward five years and I now feel incredibly relieved, thankful, and lucky to have not raised money from institutional VC firms in Silicon Valley (or the few in Austin that didn’t even seem interested enough to hear my pitch). While competitors like Sosh, a San Francisco based startup, raised $15+ million in its first few years (and later sold to PostMates) and YPlan, a London-based startup, raised $38 million (and later sold to TimeOut Group for less than $3 million), while we raised a little over $1 million in the roughly the same timeframe.

I gained nearly 20 pounds during those two years, in part because of the growing frustration I felt when I would leave yet another meeting with VCs who I felt didn’t genuinely listen to, understand, or value my experience as a black founder and CEO. I never did find a VC to lead a round of funding for Localeur, but two things happened by the end of 2015. First, I wrote a post on Christmas Day 2015 sharing what happened to my startup after we were rejected by YCombinator, the renowned startup incubator in Silicon Valley. Second, I went on to raise roughly $5 million in angel investments from 100 individuals who did listen to, understand, and value my experience as a black founder and CEO. Those were CEOs of public companies and founders or executives of some of the fastest-growing and most successful tech companies in Austin and tech. Those were teachers, accountants, consultants, entrepreneurs, and community leaders. Those were friends and families. They were, and remain, my team.

Recently, there have been a litany of articles that have convinced me of a truth I already knew but never fully articulated: VC funding should not be treated as a requirement for entrepreneurial success.

For those who feel it is required to raise VC to build a successful and large business, there is a failure to acknowledge the potential harms (see: Kalanick, Travis) and, more specific to my experience, the deep-rooted institutional biases that make both fundraising and “blitzscaling” (a word used in Silicon Valley and popularized by LinkedIn founder and early Facebook investor Reid Hoffman to describe the process of using VC money to build teams and scale operations as quickly as possible to dominate emerging markets, as Uber did in ridesharing) virtually impossible.

Do I think VCs can be helpful to some businesses? Certainly. I myself have two investors, Arlan Hamilton of Backstage Capital and Chris Shonk, an angel investor in Localeur but founding partner of ATX Seed Ventures, who are VCs. Are there amazing Silicon Valley VCs out there with whom entrepreneurs should work to partner? Most definitely. I’d likely have a sit-down with people like Bryce Roberts at Indie.vc or Charles Hudson at Precursor Ventures the moment I started a new business that I felt had global potential. But does this mean VC is a necessity? No. And does this mean I’m bashing VCs by pointing this out? Not at all — although there are some sensitive people out there. It’s not my goal to bash anyone. My goal is simply to point out that some of the most prominent myths Silicon Valley and the startup ecosystem have invented to propel the industry to global heights are just that: myths.

The mission of your business be damned.

One of the biggest myths alive and well in startup land, particularly in Silicon Valley and even in Austin’s tech scene, is that money rules all. How much you raised during your last round and how many employees you have are viewed primarily through the lens of how much money is at hand, mission of your business be damned.

There’s a long line of people who subscribe to the myth that money is the final score and money is what dictates happiness, power, and the ability to do whatever one wants, no matter who is in the way or offended. Yet somehow, LeBron James has more influence than any single NBA team owner, Alexandra Ocasio-Cortez defeated an incumbent who outspent her 18 to 1, and I find myself profiled in Inc. Magazine next to connected lifestyle hacker Tim Ferriss as a key figure in this city where zero dollars I’ve raised came from institutional VC firms.

Money — both as an input and as a desired outcome — seems to be the single metric and motivational driver to countless tech VCs and founders today and why so many founders and early employees get burned out with the grind of startups..

Just this week, entrepreneur and investor Tim O’Reilly wrote a powerful piecein which he challenged Hoffman’s blitzscaling strategy, which often encourages companies to grow as fast as possible by raising venture capital to dominate new markets, a strategy leveraged by Uber among other unicorns (i.e. startups with billion-dollar valuations) in recent years. In “The fundamental problem with Silicon Valley’s favorite growth strategy,” O’Reilly states the goal of having monopolistic control of a market has led Silicon Valley astray.

“If LinkedIn co-founder Reid Hoffman and entrepreneur Chris Yeh’s new book, Blitzscaling, is to be believed, the Uber-style race to the top (or the bottom, depending on your point of view) is the secret to success of today’s technology businesses. This premise has become doctrine in Silicon Valley. But is it correct? And is it good for society? I have my doubts.”

O’Reilly added, “The goal for Lyft and Uber — and for all the entrepreneurs being urged to blitzscale — should be to make their companies more sustainable, not just more explosive; more equitable, not more extractive.”

Last month, in a piece for the The New York Times titled “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost,” Erin Griffith wrote about a small but growing segment of the tech entrepreneur community (like my friend Aniyia Williams) that has rejected the institution of venture capital for a more sustainable path.

“Social media is littered with tales of companies that withered under the pressure of hypergrowth, were crushed by so-called ‘toxic V.C.s’ or were forced to raise too much venture capital — something known as the ‘foie gras effect,’” Griffith writes. “Now a counter movement, led by entrepreneurs who are jaded by the traditional playbook, is rejecting that model. While still a small part of the startup-up community, these founders have become more vocal in the last year as they connect venture capitalists’ insatiable appetite for growth to the tech industry’s myriad crises.

Venture capital wasn’t always the default way

“Venture capital wasn’t always the default way to grow a company. But in the last decade, its gospel of technological disruption has infiltrated every corner of the business world…few questioned the Silicon Valley model for creating the next Google, Facebook or Uber. Those who tried to buck the conventional method experienced harsh trade-offs.”

Qualtrics, a company purchased for $8 billion by SAP in late 2018 just days before a planned initial public offering, grew rapidly for a decade before taking in VC funding and is only the latest example of a company that found most of its success without VC firms behind the scenes. Meanwhile, several others, like Vice Media (which has raised more than $1.3 billion since 2013) and BuzzFeed ($480 million since 2012), have faced layoffs largely due to the kind of rampant hiring and spending that happens after raising tens or hundreds of millions in VC dollars. Countless others like Juicero, Jawbone, Quixey, Yik Yak, Beepi, Color, Hello, Shyp, Luxe, Sprig, and, most recently, Munchery are all former Silicon Valley darlings that raised more than $1.5 billion combined in the last decade only to lay off all their employees, with many shutting down almost without notice and leading Dallas Mavericks owner and Shark Tank judge Mark Cuban to tweet, “Raising money isn’t an accomplishment, it’s an obligation.”

Other headlines paint a picture of why VC funding and the tech lifestyle may be a narrower path than movies like The Social Network or HBO’s Silicon Valley would have you believe: “81% of VC firms don’t have a single black investor” (TechCrunch, Nov. 8, 2018); “Female founders have brought in just 2.2% of US VC dollars this year (yes, again)” (TechCrunch, Nov. 4, 2018); “Women-Led Startups Aren’t Getting Funded, and There’s a Very Simple Reason Why” (Inc. Magazine, June 15, 2018); “For Many Black Entrepreneurs, VC Funding Remains an Uphill Battle” (American Inno, June 4, 2018); “Founders and Venture Capital: Racism is Costing Us Billions” (Forbes, Feb. 15, 2018).

All of this is very personal

All of this is very personal to me because my experience of both being unable to raise VC funding and of being able to build a startup that survives having not raised VC funding is what has, in part, given over 105,000 people reason to follow me on platforms like LinkedIn. I am not holding myself up as a success story, but as a cautionary tale of why believing the myth that Silicon Valley tells to anyone with a Facebook account or @gmail.com address can be especially dangerous to some of the most ambitious and optimistic among us, a myth with a particular ability to kill the most spirited attempts at creating businesses by black, brown, and female founders.

A little under three years ago, a writer for Financial Times reached out to me about an interview. I thought maybe it was going to be a story about fundraising or my startup, but ultimately it was a story about when tech founders should decide when to give up and quit; they titled it, “Start-ups and the founder’s dilemma.” At first, I was excited about the interview because Financial Times is a great outlet for potential investors. Then, I was nervous about the implication that I was one of the founders who was waffling between quitting or not quitting my startup. Now, I’m so thankful to have a published moment in time when I was as a founder and CEO three years into my startup journey with Localeur. I now realize why the writer reached out to me.

Up to that point, my story was one of a founder unable to raise VC funding, which in essence made my story one of failure to find success. One hundred cities, partnerships with brands like JetBlue and Match.com, and dozens of milestones later, and it’s clear I didn’t quit and should not have. A year after the Financial Times article, I was interviewed by an editor for Inc. Magazine for a different kind of article. The title: “Tech Companies Are Thriving in Austin — The Hard Way.” That’s my new narrative, and I’m sticking to it.

“Talk of the tech industry conjures images of world-eaters like Facebook and Amazon or scrappy 20-somethings in hoodies who raise scads of venture capital in pursuit of the next unicorn…In the rest of the country, VC money is scarcer and more scattered. Consequently, a large majority of tech entrepreneurs lead lives very different from the denizens of HBO’s Silicon Valley, who ride a roller coaster of feast and famine,” wrote Tom Foster, editor-at-large for Inc.

In a Medium piece this week by Gumroad founder Sahil Lavingia titled “Reflecting on My Failure to Build a Billion-Dollar Company,” I found in his words a kindred spirit who shared deep feelings and personal experiences about being a founder and CEO through trial, tribulation, and personal triumph. The only difference between my story and Lavingia’s is that he isn’t a black man in America and VC came to him quickly, as he raised more than $8 million before he turned 20 years old after quitting as employee #2 at Pinterest. But the VC money became a trap that he spent half a decade pulling himself out of painstakingly only to find a new definition of success that feels more personal to him.

Sahil writes: “I am now more focused on creating value than capturing it. I still want to have as large an impact as possible, but I don’t need to create it directly, or capture it in the form of our revenue or our valuation.”

He concluded with these heartfelt words: “I consider myself ‘successful’ now. Not exactly in the way I intended, though I think it counts. Where did my binary focus on building a billion-dollar company come from in the first place? I think I inherited it from a society that worships wealth…Since I can remember, I equated ‘successful’ solely with net worth. If I heard someone say, ‘That person’s really successful,’ I didn’t assume they were improving the well-being of the people around them, but that they had found a way to make a lot of money. Wealth can be a measure of success…but it’s not the only way to measure success, nor is it the best one. There is nothing wrong with trying to build the next Microsoft. I personally don’t think billionaires are evil. And there’s a part of me that wishes I was still on that path. But for better or worse, I’m on this one now. This has been my path to not building a billion-dollar company. There are many like it, but this is mine.”

Not worth $1 billion

I can relate. Localeur is not worth $1 billion. May never be. But, as I wrote in a 2015 piece on LinkedIn about getting rejected by YCombinator, “A lot of people have helped us get to this point, but the key ingredient to our growth hasn’t been one investor or one product discovery or one press hit or getting accepted to the Harvard of startup accelerators. Instead, it’s been one key attribute I always knew Localeur had in spades even when we were low on funds: grit.” So I consider myself fortunate to have gritted through the VC-less years and I think many of my investors consider themselves fortunate to have a founder-CEO with this important attribute more so than a roster of VCs controlling their interest.

Entrepreneurs and investors who measure the success of a startup solely by the young company’s ability to raise institutional venture capital, hire dozens or hundreds of employees, and “blitzscale” are not focused on solving human problems or measuring meaningful success. They’re simply trying to keep up with the Joneses of Silicon Valley. And at what cost? Are founders and investors positioning themselves to be Thanos in The Avengers movie series? Tony Stark and Black Panther are rich and powerful men, but still realize the importance of a diverse team with the likes of Captain America, Hulk, Thor, and a teenaged Spider-Man to accomplish their missions of keeping the world safe. Meanwhile, Thanos seeks power and wealth exemplified by a gold armband laden with precious stones. Are VCs positioning founders to be allies in a hero’s journey or accomplices in a villain’s aim to extract talent, resources, and values out of a society that is desperately in need of those things?

Tim O’Reilly ended his essay countering the “raise at all costs” blitzscaling strategy by saying, “As an industry and as a society, we still have many lessons to learn, and, apologies to Hoffman and Yeh, I fear that how to get better at runaway growth is far from the most important one.”

As a black man, as a tech founder and CEO, and as an American watching our society struggle to embrace human decency, fairness, and goodness I agree with Tim 100 percent on this issue, billion-dollar ambitions be damned.


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Michael Berhane, Founder of POCIT
Joah Spearman
Joah Spearman

Joah Spearman is the co-founder and CEO of Localeur, a community of locals who share recommendations on their favorite local places.

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