Published in the San Diego Union-Tribune, June 6, 2022
by Neil Senturia
A few weeks ago, I wrote about having a sense that the financial world was changing. I am not an economist and don’t play one on television, but I would like to go out on a limb and share some data points.
I talked to some real estate brokers. Yes, I know that houses are selling like hotcakes at offers that are always over asking — at least that is what they would like you to believe, except that the data does not support that. In fact, the housing market, which is always slow to react, has flattened, and in several instances, has declined.
Redfin says that “one in five home sellers have dropped their prices over the past four weeks.” Factor in the declining stock market, increased mortgage rates and a general emotional sense that the world has hit a speed bump, and it seems rational to push pause.
The world of tech. A company called Bolt. Lots of hype, a fancy algorithm, venture-backed, raising money recently at an $11 billion valuation, the founder, a 27-year-old, charismatic fellow in a yoga pose on the front of the New York Times. But Ken Smythe, CEO, of Next Round Capital, said that he was looking for buyers at an $8 billion valuation. No takers. Needle, haystack and running for the hills, don’t trip on the guy right in front of you.
Silicon Valley used to love to back entrepreneurs who had a previous failure. Not so much anymore. I asked a friend of mine how his company, which has lots of users who do not pay anything, is going to make money, and I was dismissed with a wave, why, advertising of course. What is the listing price on that bridge?
But the passion to be your own boss remains stronger than ever. While there has been a great resignation from corporate America, there has also been an increase in self-employment.
So, let’s assume for a moment that in fact, storm clouds are approaching. What should the entrepreneur do? One answer is clear, if not necessarily simple — work for yourself, and start a company that does not require multiple millions of investor capital.
A recent paper by Harvard professor William Kerr lays out the puzzle. He says the percentage of self-employed since 1970 has shifted significantly to businesses that do not require much capital. But with that personal independence comes an equal expectation of “lower returns than those that normally accrue to ventures that require significant startup capital.”
That is a personal conundrum for sure. I have a young friend who works for a big company, venture-backed with millions, and he makes a large salary, and his wife makes six figures also. But over lunch, he explains that real freedom for him will be when he can start his own company and not have to raise venture financing. He acknowledges that he will earn less money, but that is a trade-off he wants to make. But that dream also assumes that he hasn’t built a lifestyle that requires the same income they earn today.
How are young people thinking about saving money? They aren’t. The New York Times has a large article that essentially says, young people are living for the now, saving less. It is hard to think about funding a Roth IRA, which you can’t tap for another 25 years when you can take a few weeks in Italy or simply get a bigger apartment.
The dream of being an entrepreneur does not die easily. But it does morph. And it often leads to a decision to start and run a “small company,” one that is quickly cash-flow positive. When I was younger, I wanted to do big deals. I was wired and driven in that direction. But I admire those mom-and-pop, smaller entrepreneurs.
The grass always looks greener, but they have the same problems with people, marketing, margin, revenue, staffing, etc. — the same as my friend’s company with a $2.5 billion valuation.
The summer is upon us and maybe I have become misty-eyed, dreaming of an earlier and simpler time. Mayberry. The foolish wistfulness of an older man. I applaud the “little guy,” and every once in a while, I look in the mirror and hope to see him.
Senturia is a serial entrepreneur who invests in early-stage technology companies. [email protected]
Rule No. 716:
Tempus fugit. Carpe diem.