Closer Over More in the Venture Capital Climate

In the ever-fluctuating landscape of startup funding, the traditional paradigm of "more is better" is being challenged. A new approach is emerging that aligns with the principles laid out in my book Rigging the Game, particularly the High Month Paradigm and understanding of Parkinson's Law.

A Shift to Closer over More

The recent article by Sam Blum in Inc.com offers a profound and comprehensive examination of the current venture capital (VC) landscape. In 2021, VC funding reached an extraordinary peak of $329 billion in the United States, a figure symbolizing the frenetic pace of investment and the euphoria surrounding tech innovation. The rapid growth, especially in sectors like AI, provided an illusion of never-ending opportunities for growth and success.

Fast forward to today, and the scenario paints a contrasting picture. According to Inc., the funding well has turned noticeably dry, particularly for those operating outside of AI. The once-thriving pandemic bubble, which catalyzed a rush of investments in various emerging technologies, has decisively popped.

Startups now find themselves in a challenging climate where raising money often results in flat or even diminished valuations. Some are facing the perilous path toward outright doom, stranded without the financial fuel that seemed so abundant just a short while ago.

This new landscape is not only about dwindling resources; it's about a philosophical change in how startups approach growth and value creation. The story of Mei Lin Ng, co-founder and CEO of Hearth Display, exemplifies this transformation.

Unlike many of her contemporaries, Ng didn't chase after the colossal funding rounds that were common in the heyday of 2021. Instead, Hearth Display's journey reveals a methodical and thoughtful approach that resonates with the mantra of "closer over more."

With comparatively modest investments, Hearth Display has managed to carve out a distinct path towards success and resilience. They did not pursue the fleeting allure of exponential growth but rather focused on establishing a strong sales revenue foundation early in their journey.

This prudent strategy allowed Hearth Display to invest wisely in critical areas, avoid unnecessary spending traps, and stay true to their core mission. They embraced a philosophy that prioritized what was essential, what was sustainable, and what aligned with their long-term vision.

Ng's approach reveals an underlying wisdom that recognizes the dangers of excessive funding. Hearth Display's ability to be discerning spenders, focusing on what mattered most rather than chasing the ephemeral satisfaction of having more, has provided them with a blueprint for sustainability.

In a time where the "more is better" ideology has faltered, Hearth Display's journey inspires a rethinking of how startups can approach funding and growth. The shift to "closer over more" may very well define the next era of venture capital, forging a path that values substance over hype and genuine innovation over inflated valuations.

The High Month Paradigm and Venture Capital

The High Month Paradigm, as explained in my book, "Rigging the Game," is exceptionally relevant to this shifting landscape. This paradigm recognizes that periods of apparent prosperity can take businesses farther away from their priorities. As revenues go up, businesses tend to take on new expenses, putting them in a worse position and carrying more risk.

The experiences of startups like Hearth Display reflect the High Month Paradigm's teachings. By resisting the temptation to raise excessive capital, they've managed to avoid unnecessary dilution and foster a leaner, more focused operation.

Parkinson's Law in Financial Management

Parkinson's Law, which states that work (or expenses) expands to fill the time (or revenue) allotted for it, further illuminates this scenario. Without a system in place, expenses will expand to fill the revenue amount allotted for them. This leads to the intriguing idea that taking less investment can indeed make a business more cash-efficient and aligned with its goals.

Lessons Learned: Getting Closer to What Matters

The venture capital landscape's current situation teaches us a profound lesson about financial certainty and getting closer to the things that truly matter. It's not about pursuing more funding at all costs but about understanding the risks and aligning expenses with true priorities.

Investors and founders are realizing that too much money can lead to bad decisions, over-hiring, and a lack of focus on metrics like revenue per employee. The patience and perseverance shown by startups like Hearth Display, who opted for a "closer over more" approach, exemplify a wise application of Nicholson's teachings.

Conclusion

The venture capital landscape is undergoing a significant transformation, and startups are wise to heed the lessons of the High Month Paradigm and Parkinson's Law. By focusing on getting closer to what matters instead of simply acquiring more, businesses can navigate the uncertain waters of today's market with resilience and success. The current climate might just be the time to embrace the certainty commandment of "closer over more" and recognize that sometimes, less can indeed be more.