I had to respond to Rick Segal’s dig at “lifestyle businesses” in EYODF Part 8 – How to Hold Down 10 Jobs Simultaneously. Even though he’s no longer a VC, he seems to still hold the standard VC dogma which despises that dreaded L-word.
God forbid somebody builds a business and gets to a point where it requires very little work and just spins off cash. To VC’s that’s a travesty. They have a pejorative term for it, “the lifestyle business”.
First, Iâ€™m sorry. Very sorry. Iâ€™m very sorry for ever (E-V-E-R!) calling your business a â€œnice lifestyle business.â€ The only thing I can think of that would be a worse insult? Throw a shoe at you. Seriously. If an investor uses the term lifestyle business, YOU throw a shoe.
Thanks Rick, where would I be if I followed your advice unerringly? (Oh yeah, cashed out of my own business at some stink bid valuation years ago and heading up some JLA funded start-up that went into the deadpool….)
A lifestyle business is one in which the company is profitable and the profits flow to the last place VC’s ever want to see them going: into the founder’s pockets. Even worse is if the company is on auto-pilot and the founder can do whatever he wants.
While the lifestyle business is unsung and frowned upon, the VC-funded start-up is celebrated and adored. Profits are optional and more frequently absent. As 37 Signals noted in their parody VC tombstone:
“When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuationâ€
The most important thing in a VC-funded startup is that it can garner subsequent funding rounds at successively higher valuations which eventually culminate in “an exit”. In today’s climate that is generally a euphemism for finding that last, greatest fool who will take all the earlier investors out at some terminally high valuation, and basically ends up “holding the bag” chock full of eternally unrecoupable goodwill. Whether that terminal investor is a big fish with deep pockets, or an unwitting public drooling over the next big thing IPO is immaterial.
Over the summer easyDNS was on the receiving end of an unsolicited buyout offer. I told the investment bank that I was about the least motivated seller that could possibly be found. After putting together an offer that was about half of what I would get my attention they told me (get this), “They have VC’s on their Board, so any deal would have to MAKE SENSE from their perspective”.
Which really cracked me up. Making sense is a laudable goal. Except when it comes to VCs, where it means “the deal has to be totally slanted in our favor and you get screwed”. Uhm ok. Where do I sign?