TOM HUDSON: The great American companies of the last century were names like General Electric (NYSE: GE) or IBM, firms that were built to grow and mature for an enduring value. Will we be able to say the same about today’s hot companies like Linkedin or Pandora? Here`s Harry Lin, executive in residence at Idealab, a technology incubator in Pasadena, California.
HARRY LIN, EXECUTIVE-IN-RESIDENCE, IDEALAB: The title of a 1990s business-book classic, “Built to Last” is coming up a lot in tech circles. “Built to Last” examined such storied corporate giants as 3M (NYSE: MMM), Ford (NYSE: F) and HP (NYSE: HPQ). Quaint, huh? But let me not bash industry giants. Let me instead highlight something very unusual that`s becoming more usual in the startup world. Early-stage high-tech entrepreneurs are liquidating their equity really, well, early. Used to be that founders, CEOs and first-round investors held their stakes long and strong until the startup had achieved true value. Then, when the company went public or was acquired, those parties could cash out, earning their rewards.
I won`t name names– Groupon, Dropbox, Airbnb — but some buzzed-about startups are using their venture capital rounds to pay out those parties. So your startup is un-profitable, not a household name, has lots of me-too competitors and you`re rewarded with tens of millions of dollars. Columnist James Temple derides this as not built to last, but built to flip. Or put more nicely: sucker the next investors before anyone finds out your startup won`t succeed. Overly harsh? Time will tell. I`m Harry Lin.