Saving the World with Startups
On a recent business trip trying to drum up support for RSCM, someone asked Dave and me why such obviously talented guys were starting a fund instead of a company. I’ve been thinking about that question for the last week and have a much better answer than the one I gave.
I want to make the world a better place. But it’s not clear precisely what interventions will lead to the best outcomes over the long term. I think I’m a really smart guy, but I’m quite sure I can’t evaluate all the potential interactions within a system as complex as the world society to figure out the optimal plan.
Luckily, I don’t have to be that smart. We just have to collectively be that smart. And economic markets are the best way I know to organize collective action. The more effectively we can all create value, the better off we’ll all be. Creating wealth won’t directly solve a lot of problems, but it enables the solution of an incredibly wide range of problems.
So here’s the math that leads to my conclusion that increasing the number of startups we can fund is the best thing I can do for the world. This study shows that a 5% improvement in startup creation leads to about a half a percentage point improvement in the economic growth rate. If we could increase the rate of startup creation by 10%, we could add a full percentage point to our economic growth rate.
From this dataset, I determined that the world GDP growth rate over the last 30 years has been about 4%. So we could probably achieve a 5% growth rate by increasing startup formation by 10%.
This seemingly small shift has dramatic results over the long term. In 50 years, world GDP would be 60% (1.6x) greater. In 100 years, GDP would be 160% (2.6x) greater. I think a world in which everyone were 2.6x richer would be pretty sweet. That’s a gift I want to give to my great-great grandchildren.
Seed-stage startups are the key because that’s where businesses are born. A larger pool of innovative seed stage companies will naturally attract a larger pool of investment in later stages. About $10B every year goes to professional investments in seed-stage startups in the US. So if we can add $1B, that’s 10%. Even better, if we develop a better process, this process can be copied all over the world. If it’s a lot better, I bet we can do significantly exceed a 10% improvement.
That’s why I’m focusing my time on revolutionizing the process for funding seed-stage startups.