Latest / Success Story with Scott Clary / Lessons - The Truth About Venture Capital Nobody Tells You | Rand Fishkin - Author of 'Lost and Founder'

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Lessons - The Truth About Venture Capital Nobody Tells You | Rand Fishkin - Author of 'Lost and Founder' · Success Story with Scott Clary

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  In this lessons episode, explore how the culture of venture capital shapes modern entrepreneurship
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  and why it often limits sustainable growth. Discover why most startups fail under hyper-growth
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  expectations, understand how alternative funding models can build profitable and lasting
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  businesses, and uncover how redefining success beyond hustle culture leads to balance, equity,
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  and genuine fulfillment.
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  I think that the ideas that you champion around entrepreneurship are very important,
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  because it paints a very pragmatic picture for people that want to start something,
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  and potentially are just looking to go find VC money and think that that's the only path
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  that they can take, which it's not.
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  Yeah, well, and even for people, one of my big frustration, Scott, is that even for people who
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  don't raise venture, they build their companies in the media ecosystem and the echo chamber
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  that is dominated by venture.
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  Right, and so even if you are a startup that is an agency, for example, a consulting business,
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  the concepts of blitz scaling and hyper-growth and growth hacking and
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  maximizing growth rate of hustle culture, all of these things are weighing down on you
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  regardless of whether you are actually, you know, in that funded structure.
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  So I think this is one of my big challenges, right, is that even though many venture capitalists
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  would say, and they do say this all the time, right, they say VC is wrong for 99% of companies.
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  And if you're a tech entrepreneur, it is marketed to 100% of us, right?
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  It's the ocean that we're swimming in. So I think it's really, really wise to understand why does
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  that asset class exist? How does it function? What's the goal behind it, right? The goal behind it
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  is to avoid taxes. And the goal behind that is essentially maximize growth at the expense of
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  long-term survivability. So, you know, if you look at the small business and administration,
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  right, in the U.S., which looks at tons of small businesses. So people with whatever,
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  two to 100 employees. The average survival rate over five years is like, I think it's 55-58%.
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  It's down a little bit in the last few years because of COVID and stuff. But the average five-year
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  survival rate for a venture funded, as soon as you raise that first venture round or the pre-seed
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  or the seed round that would lead to a venture round, your five-year survival rate drops like 15%.
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  That's a lot worse than a restaurant, right? So it is a very strange
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  strange world if you are an entrepreneur. And I don't think it's talked about enough
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  that these high failure rates exist. There's also the culture of, you know, I think the whole
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  ecosystem around it creates this idea that, you know, Scott, let's say you start something tomorrow,
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  what you're essentially told is, hey, yes, there's a high failure rate. That's part of the game,
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  but you are special. And if you are good enough, if you are a true champion, if you work hard enough,
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  if you sacrifice enough of the rest of the things in your life and you put your full energy and
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  effort and you devote everything to this venture, you may be able to prove yourself as one of the big
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  success stories. I hate that too. Like, that does not work well with my mental model and how
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  how I want the world to be, right? I want a world of far more equity and far more distribution of
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  opportunity rather than maximizing inequality by saying for every, you know, 500 entrepreneurs,
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  there will be two or three big winners and a few who do okay and the vast majority will fail entirely.
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  I think that's what we have in society, American society at least, overall right now, you know,
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  if you look at the wealth distribution, income distribution, it's basically a tiny few massive winners,
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  right? A few, you know, maybe another 10% who's doing pretty all right. And then kind of this,
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  oh man, you do, you know, whereas when we were born, you know, maybe I don't know how old you are,
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  but 30, 40 years ago, you really didn't want to be in the bottom 40% of Americans. Now you really
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  don't want to be in the bottom 70% and it feels like we're going to a place where you wouldn't want to
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  be in the bottom 90% in another 20 years. That's ugly. That's not the world I want to live in.
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  That's not the world I want to agree. It's an ugly version of capitalism. It's an ugly version of
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  capitalism in that. Yeah. Yeah. Super ugly version. And look, I, you know, I think
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  extremely highly of a lot of people who are in that world, right? I have a bunch of investors
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  who are venture back. Darmeshaw, Darmesh, the co-founder of Habsaw. He was, he was the lead investor
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  in Spark Toro. He's been my friend for forever. I love that guy to pieces. I think he's a wonderful
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  human being. I don't love the model of investing that he generally does and supports, right? And
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  he's had obviously an incredible success with HubSpot and with venture backing. I know he thinks highly
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  of HubSpot's venture investors years ago and he invests in a lot of startups that go on to raise
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  money. But I don't, I don't, I don't love it. And I think, I think in order for us to change that,
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  we have to have lots and lots of role models that are showing a different path and doing it well.
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  And that's, that is the most fundamental thing that Spark Toro is trying to be is a role model for
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  a different kind of path. So we are doing our marketing differently. We're doing our growth
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  differently. We're doing hiring differently. We think about what we want the next quarter in
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  the next year to be differently. We technically, we are growing at a rate that a venture investor
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  would be excited about. But we don't have to be. It's almost unintentional, right? It's sort of like,
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  oh, well, look at this happy accident that is going along. You know, Spark Toro is going quite
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  quite well, especially at the moment. I'm sure we'll have some down months in the future. But yeah,
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  that's not our goal is not hyper growth. My goal is to work 30 or 35 hours in a week, right? I
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  want French or Italian hours. I don't want American hours. I'm not drippers. Yeah. All right.
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  That's the last one. I mean, it'll be like, of course, I know exactly what you're talking about.
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  If I remember last time, last time I went to, I was, I was last, last European trip was Vienna,
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  Austria, and the I was on my phone on a Friday afternoon. And everybody was looking at me like I
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  had three heads, like the fact that I was on my phone on a Friday afternoon. It was just a regular
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  for wasn't the holiday. It's like, what are you doing? Like what are you working on?
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  It's like Josefra. Yeah. Yeah. Get off your phone. Look at the beautiful sunset. Look at this
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  incredible plate of pasta before you just go to a vineyard. Let's go drink. Let's go eat. Let's
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  rest so get an aperitivo. That's so I mean, I don't think I don't think that at the,
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  you know, at the end of my life, I'm going to look back and say, I wish I'd made more money.
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  You know, like I just can't see it. I just cannot. I wish I, I wish I'd grind it harder. I wish
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  I'd hustled more. Like I don't, I don't think those are the things I'm going to be thinking about.
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  I think it's weird that there may be there are people who will feel that way. I don't know.
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  I don't think so. Well, I think that that's why you have to find a way. Okay. So let's, let's break
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  now. I want to break down some some tactical device for entrepreneurs on on how they can
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  build a company like Spark Toro because everybody, like you said, is marketed and they're in this
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  ocean of VC investment or if not VC investment, then okay, I have to bootstrap, but there's not
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  a lot of bootstrap success. There are some, but I mean, there's not a lot. So how do you, and
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  buddy do it? And these are not the only two options, right? There's a whole bunch of stuff in
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  between that is poorly understood and not well marketed and not it gets very little press,
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  gets very little media and for obvious reasons, right? It's just that there's not that much of it.
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  And also it is rarely the case that those people have power, influence, and wealth to impact
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  media in the same in the same way, right? So so what I would, what I would urge folks to think about
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  is in the structure of your company, you can raise money from investors private or crowdfunded
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  in ways that let you build the kind of company that you want to build. And there are supportive
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  groups of investors who are like, like myself, right? Who are looking for opportunities to fund
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  companies that have a, hey, we're going to exist for a long time. Our first priority is sort of
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  paying back our investors their initial sum. This is, this is how the Spark Toural Model works.
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  We raised $1.3 million from 35 36 angel investors. They're mostly folks, gosh, from my personal
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  network over the years. So you, for our model, you do need accredited investors, but there are
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  innovations on that model that let you crowdfund this, this same sort of thing. You can look at what
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  Sahil Langavia did, SHL on Twitter. And he, you know, he, he basically built a fund structure that,
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  that's a little more crowdfunding style. But those 36 investors put in between $25,000, $100,000 each,
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  and our goal at Spark Toro is essentially to become profitable, which, which we have been for a while
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  now, and then pay back that $1.3 million at which point everybody gets to participate pro-rata,
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  meaning to their amount of shares in profit sharing. So if we make, you know, $100,000 in profit,
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  for 10 years, everybody, you know, all the investors get to split whatever it is, 35% of those
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  profits and founders get to, and employees get to split the other part. Hopefully, right? Our hope
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  is that Spark Toro is a several million dollar a year business, maybe even a 10 million dollar
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  a year business. And that our profits are seven figures, right? And that we can pay out that money
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  every year annually. And that compounded over time, Spark Toro will actually be one of the best,
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  maybe the best performing investment in our investors portfolio, and the only downside,
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  the only shitty thing for them, ordinary income taxes, right? They'll have to pay ordinary
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  income taxes on the money that Spark Toro makes them. But if you can find, you know, sort of,
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  tax progressive investors, right, who believe in this, that the one nice thing is if and when
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  Spark Toro ever does sell, right? If it's acquired by some other company in the future, good news
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  on that money our investors will get capital gains. Thanks for tuning in. If you found this
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  valuable, don't forget to hit that subscribe button so you never miss an episode. And if you
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  want to dive deeper into this conversation, check out the links in the description to watch the
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  full episode. See you in the next one.