I summarized the article to make it look less Canadian, because with all honesty - Alex wasn’t talking just about Canada; Australia is equally as guilty.
There are finite games (played for the purpose of winning – wars, politics, sports) and infinite games (played for the purpose of continuing to play – learning, culture, community). Infinite games become more rewarding as more people join them.
Good angel investors play an infinite game – they get more money by not trying to get more money. They try to create something, i.e. the game is an infinite one – it’s way too early to think about specifics other than growth, which takes a long time. Good angels come from startup exits (most of the time).
Bad angel investors play one of the two finite games:
o Just the ROI game, thus pushing startups to generate more or less predictable returns (never huge).
o The bragging game for the satisfaction and the status. They waste founders’ time, suggest things that would look good on the angels, not the startups.
Sadly, Canada and my beloved Australia are not made for true startups that don’t know how the victory will look like. [MK: Defined opportunities are limiting the potential, they are easy to understand for investors with real estate or mining experience, but their advice is toxic.]
Exits motivate startups because they create positive role models and motivate founders to change their perspectives towards long-term.
Canada, Australia, Russia and Europe suffer from one large drawback: the lack of liquidity events, which makes all startups and founders obsessed about selling to someone – anyone. Or drive them towards unnecessary IPOs (or even SPAC mergers).
Deal speed is a hugely important factor: in the Silicon Valley a deal can be closed in under a week more or less on the founders’ terms; elsewhere is the matter of months and the founders get ripped off. The longer the investor has to evaluate the startup – the lower the chance of the founder-friendly deal there is. Time kills the founders’ leverage. Dealmaking takes as long as there’s time available. [MK: I always say that the better you know someone – the less you want to see that someone.]
Milestones are a disaster in disguise because startups learn to optimize for them in order to get funded; milestones replace the long-term view for the sake of showing “traction” in the prolonged investment tango. Measurable things (and the predictability in general) kill the opportunity for unbounded growth [MK: and attract a managerial type of folk, not a visionary one].
Valuations outside of the Silicon Valley can never match the SV levels, and this creates a disincentive to start businesses. Everywhere other than the SV a valuation is more or less tied to the ROI and a potential exit [MK: in Australia it’s very common for angels to challenge startup founders on the potential exit opportunities].
VC funding is a controlled bubble: any valuation is a call option on a discounted future valuation. I.e. the company’s valuation has to grow, and any round is a chance to buy equity in a startup that will be soon be valued much higher if it doesn’t die between the funding rounds. No one in SV needs real valuations (other than for the purpose of stock options pricing) – everyone is pricing a bright future.
Accelerators, incubators, mentorship programs are good for stroking the ego of people who want to look like the friends of entrepreneurs, but that’s about it in terms of value.
Governments think that giving grants to startups will help them build a product. In fact, they ask for proofs of the use of funds: timesheets, work reports, plans, etc. – this all immediately limits startups to a tunnel vision with no room for experimentation. [MK: and I know Australian companies that are hooked on grants and convincing themselves that there’s some traction – for years.]
Mentorship programs can be very-very damaging to startups because of their deterministic nature: mentors have to say something, and this usually results in lower variability of experiments. [MK: To an outsider this can look like a good thing, but for someone that knows the Black-Scholes-Morton option pricing model and appreciates the volatility this is a nightmare.]