We don’t need more startups. We need more businesses.

The wheel at the center of global venture capital is jammed. 

For decades, the whole system ran on one premise: you raise, you grow, you eventually find liquidity, usually through an acquisition or by going public. Capital would get recycled, new companies would get funded, and the wheel would keep turning.

But now the bar for going public is higher than it’s ever been; some say you need a $10B valuation to attract investor interest, research coverage, and have real liquidity on the big exchanges. And there’s really only one venue left that “counts,” which is New York. So the capitalization wheel gets cranked all the way to the end, but it can’t make that last turn. There’s all this potential energy, with no release. 

Silicon Valley has been an incredible engine for innovation and progress for over half a century. It is very logical to try and replicate this engine around the world. However, Silicon Valley was launched and has been sustained by a very specific set of conditions, which do not exist in other parts of the world.

It is correct to generalize the overall idea that young, vibrant people who take risks paired with capital and mentorship can build good businesses. And yes, they can do that anywhere, successfully, more than ever before. However, the specific Silicon Valley ways of channeling entrepreneurship, funding it, and measuring success are not generalizable. Yet ecosystems everywhere adopt the entire “Silicon Valley Playbook,” whether applicable or not. To name a few elements of this approach:

1. Count unicorns as a measure of success. This makes no sense to me, because being worth $1B in São Paulo or Hanoi is a completely different thing than being worth a billion dollars in San Francisco. What other industry has a global measuring stick that’s exactly the same everywhere? In addition, this is a paper metric, disconnected from real returns. I’d rather have an acquisition for one billion Brazilian reais than a $1B “mark” any day of the week. If you make unicorn the benchmark, founders and investors will contort themselves to “join the club” instead of building healthy, self-sustaining companies.
2. Focus on single-product companies. We put a lot of importance on building one thing really well, but there are a lot of companies that stack multiple products from day one, most notably in China where the concept of a “super-app” was born. Focus might be the right way to start, because it clarifies whether you have product-market fit and can be more capital-efficient. However, focus can be a trap. Sometimes the right product is many products at once. In addition to several Chinese examples, Russia did this with Tinkoff Bank, and Kazakhstan with Kaspi, which now has a market cap of almost $20B with average net margins above 25%. The template exists. But because Silicon Valley is so focused on focus, the rest of the world is, too.
3. Leave the founder alone and be super founder-friendly. The problem with this is that, in many other places in the world, founders are doing things for the first time, in a context that may not support entrepreneurship. They don’t have all of that tribal knowledge about what it takes to build a business successfully, because few came before them. That’s taken for granted globally.
4. Swing for the fences and have lots of companies in the portfolio. However, if you don’t have the depth of founders and companies to enable that approach, you’re just spreading talent and capital across a lot of things, all of which will underperform.
5. Believe companies need to wait as long as possible before seeking liquidity and going public. In the 1980s and 1990s, there was an average of over 300 IPOs a year in the Nasdaq and companies were, on average, just eight years old. After 2000, the annual average went down to 110 IPOs, and the average company age went up to 11 years. The longer companies wait, the longer they need to be able to keep raising capital. That’s not possible everywhere. But the alternative of going public earlier is just as bad, because if you’re just another ticker worth $2B, nobody will care. You’re signing up for a massive regulatory and reporting headache, and you’re not even liquid. You can certainly delist, but who wants to delist? It’s a real conundrum.
   

I can’t think of an ecosystem that has emerged from this approach in the last 25 years that’s anything like Silicon Valley. In fact, we’re living in a critical moment where recent blow ups in different regions of ecosystems and companies have called the whole model into question. We’re seeing it in Southeast Asia and in Africa. They had several high-flying unicorns, but so many have gone bust that people are now more resistant to funding innovation in those places. Then you get no capital, which means the wheel can’t turn at all. 

Rearchitecting the system back to fundamentals

It’s time to go back to first principles. We need to switch from this idea of startups and unicorns, which are brand new words that come from the culture of Silicon Valley — young, crazy, disruptive. Instead, let’s go back to entrepreneurship and businesses. 

What is a business? Something that makes money. You buy something for X and you sell it for Y, and Y is higher than X. If a venture-supported startup keeps needing to find money, then it is not a business. Maybe you need some capital to go through the J-curve — that’s fine. But you quickly start to create something that solves a real problem and is self-sustaining.

The implications are pretty profound, though, because portfolio construction starts to look very different. You’re not trying to have 20 companies so that one could be giant and most could fail. Instead, you want five or 10 companies, all of which do reasonably well and find some way to create long-term value. And that also calls for a different approach to liquidity:

We need different funds that accept different types of exits. 

Not just venture funds expecting 10x returns for two companies, and zero for eight companies. You need a different mandate and more concentrated portfolio construction, which is what we’re trying to build at Bicycle, to some extent. Then liquidity could be an IPO or an acquisition, but it could also be dividends or buybacks, for example. Nobody’s ever talked about dividends or buybacks for startups because that’s “for private equity low-growth businesses.” That’s nonsense. 

There are many ways to monetize businesses and if you have a very cash-generative business, you should pay dividends or buy back shares. It’s not that just because you call your business a startup, it stops obeying the rules of capitalism.

We desperately need a new global junior stock exchange. 

When the big stock exchange gets too big, the bar goes too high, you get a range of companies that are interesting, but can’t quite qualify for that yet. They need liquidity and exit, but it’s taking too long to get to that size, and you need the wheel to turn. A junior stock exchange is a great stepping stone. If one is the pro league, then this is the development league: you learn what it’s like to be public, get liquidity, and it doesn’t prevent you from also going public in New York later on. 

You still need to control for quality very carefully, because you’re building trust, and a place where retail investors can buy the future. Where can I buy the future around the world today, in liquid instruments? Nowhere.

The thing is this is just a very big complicated idea to build — you need buyers and sellers, research coverage, market makers, regulation, control, audit — which is why nobody’s done it successfully yet. It’s hard, but it’s worth it, and it’s the one thing that would dramatically change how innovation happens elsewhere.

The biggest irony (or the whole point) is that Silicon Valley started closer to this model than what it is today. You had only a handful of boutique investment banks — the so-called Four Horsemen of Silicon Valley — powering the tech boom. The businesses would grow and then go public very early, as was the case with Google, Microsoft, or Genentech. Founders tended to be technical, like inventors who would start companies and then get replaced by professional management. There was a whole ecosystem of elder statesmen who could help them figure out what to do strategically and facilitate access to markets. 

In other words, the model we should rediscover is essentially the version that preceded the one we’ve been trying to implement, so we can afford to take several steps back. Old-school entrepreneurship has existed forever, long before the current wave of startup culture. We need to learn from it and to go back to basics, knowing that success means different things in different places. We’re caught in the ego game of startup land, instead of just the capitalism game of building a business. And we all need to be honest with ourselves: What we have been doing doesn’t work. 

I’m optimistic that we can make the wheel turn again. But we have to significantly rethink how we inspire, fund, and support entrepreneurs all over the world.