A VC’s Wish for 2018: More Efficient Entrepreneurs

Tech companies continued to rake in massive amounts of venture capital last year, while the exit market was underwhelming.

Xconomy reached out to Boston-area investor Eric Paley to put 2017 in perspective and find out what might be in store for the coming year. Paley’s early-stage venture firm, Founder Collective, has backed companies such as Uber, Cruise Automation, The Trade Desk, and Formlabs. Here are the highlights of our e-mail exchange:

Xconomy: What’s your biggest takeaway from last year?

Eric Paley: 2017 was the year where the startup ecosystem began to discover that capital is rarely the constraint for building great startups. A unicorn class with an abundance of capital has been filling the stables since 2013, yet these startups struggled to find exits and the public markets found their performance less than magical.

Contrast this with the much more successful, disciplined IPOs of 2017. Stitch Fix (NASDAQ: SFIX) raised a respectable, if modest, $40 million in VC and currently has a $2 billion-plus market cap, nearly a 50 percent improvement from its IPO. CarGurus (NASDAQ: CARG) raised a scant $5 million in primary VC, is now worth around $3 billion, and has nearly doubled its IPO price. I’ve written a lot about how venture capital isn’t the primary constraint to building a great startup and how the public markets have historically shown that lightly funded startups actually perform better over time, but it’s starting to be more and more clear that raising capital does not drive success.

X: What do you see coming in 2018 for entrepreneurs and investors?

EP: My hope is that in 2018, more founders learn from Wayfair (NYSE: W), SimpliSafe, CarGurus, Stitch Fix, The Trade Desk (NASDAQ: TTD), Formlabs, and other startups that have built massive businesses without raising huge amounts of venture capital by serving their customers better than anyone else and focusing on solving core problems before scaling.

[Editor’s note: This is part of a series of posts sharing thoughts from technology leaders about 2017 trends and 2018 forecasts.]

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