Why There Aren't More Googles

Umair Haque's assertion that startups don't become the next Google because they sell out too soon is flawed. In reality, companies like Google and Facebook were open to selling; they simply demanded more than potential acquirers were willing to pay. Startups that reject acquisition offers often fare better, possibly because founders with the courage to decline such offers tend to drive success. Google and Facebook's independence is largely due to acquirers underestimating them, a common trend in corporate M&A.

The scarcity of Googles isn't due to investors pushing for early sell-outs but rather because they fail to fund the most innovative startups. Venture Capitalists (VCs) are surprisingly conservative, despite their image of fostering innovation. They often resist novel ideas unless persuaded by exceptional founders. VCs are consensus-driven, which inherently causes them to miss out on groundbreaking ideas.

The startup investment landscape has a significant gap. While Y Combinator funds early-stage startups and VCs invest in more established ones, there's a lack of investors willing to commit to startups that show promise but are not fully developed. This gap presents a huge opportunity, especially as startups require less capital and become more numerous.

VCs need to adapt to the changing startup environment by making smaller, more numerous investments. However, they are resistant to changing their traditional methods. If VCs don't evolve to fill this gap, new types of investors will emerge, potentially fostering the creation of more companies like Google—assuming acquirers don't stifle the startups they purchase.

The original article: https://paulgraham.com/googles.html