How To Solve The Talent Shortage
It seems that any engineer with a half decent idea (and even some that don’t have an idea) can get funding for their startup right now. My friend Rhett and I recently discussed what we thought would be a more efficient way for a VC firm to spend $15 million in the current marketplace. There are a number of incubators focusing on college students that are graduating (and sometimes not graduating). These incubators provide a service that develops talent but does little for veteran developers. Where are the veteran developers you ask? They’re probably “golden handcuffed” to existing successful tech companies, waiting around for a liquidity event (e.g. an IPO).
Our proposal would be for VC firms to target top talent that is currently experiencing liquidity problems at top technology companies. Many VC’s talk about how they invest in talent instead of ideas and this approach gives them access to additional talent. Instead of overpaying for semi-viable startup ideas the VC could instead focus on building teams by purchasing pre-IPO stock from potential entrepreneurs. These newly liberated entrepreneurs could then put their experience to work building the next generation of great companies (under the guidance and with investment from the VC).
One potential way to proceed would be to divide the $15 million into two pools. The first pool would consist of $10 million funding pool dedicated to giving 10 co-founding teams $1 million each in funding. The second pool, a $5 million liquidation pool would be used to purchase stock from co-founding teams if they are currently experiencing a liquidity problem at their existing company. The VC firm could market the campaign to would be entrepreneurs that are currently employed in some of the top startups in the industry (e.g. Twitter, Facebook, etc.).
The benefits of this approach are:
- The VC firm gets inbound pitches from talented would be entrepreneurs that have already proven themselves at top companies
- The industry gets entrepreneurs that are freed from their liquidity problems. Since these entrepreneurs are veterans they’re likely to have an existing network of technical contacts from which they can recruit.
- The VC ends up with stock in top tech companies. Assuming the stock increases in value it’s possible the gains will offset any losses incurred.