It is the best of times to be an entrepreneur now, with easy money to be had, but gloom lurks on the horizon, according to Gary Vaynerchuk.
“This is not going to last,” he said.
On Tuesday, the investor and entrepreneur had a few choice words about the startup and funding scene in his keynote speech at the New Jersey Technology Council’s Venture Conference. “It has never been more clear to me that we are living in a moment where we’ve got more fake entrepreneurs than we’ve ever had before,” Vaynerchuk said, casting some blame on the freewheeling influx of cash to the market. “What’s happened for the last five years is insanity.”
As an early investor who backed companies such as Twitter, Facebook, Tumblr, Birchbox, and Uber, he has seen some startups skyrocket, but he has concerns about the current tone in the scene.
There is a substantial difference between having entrepreneurial tendencies and being an entrepreneur, Vaynerchuk said. That falls in line with statements he made a couple of years ago about entrepreneurs being a rare breed.
A lot of people chase money in the market and create apps just to cash in while the getting is good, he said. But what Vaynerchuk said scares him the most are the career students who automatically believe they are entrepreneurs. “Just because you go to Harvard, Yale, or Stanford and are smart as shit, that doesn’t necessarily make you a successful entrepreneur,” he said.
The consumer market does not care about an entrepreneur’s pedigree, he said, as long as they provide value through their products. The trouble is, he said, when adversity hits entrepreneurs like a punch to the mouth, the prodigies who had an easy time acing their college classes might not have a backup plan or a second move they can make.
Contributing to this frothy environment, Vaynerchuk said, are neophyte investors who, thanks to the JOBS Act, can put money into more startup ideas while hoping for a windfall. “There’s going to be a lot of lotto-chasing over the next 48 months because everyone wants their Uber and Facebook,” he said. “Let’s just remember that 99.3 percent of startups fail.”
His tone was a bit sarcastic, so take that number with a bucket of salt—however, a high rate of failure among startups is no myth. The downside of raising money and losing it, he said, has made for interesting conversations in recent months.
Many people, he said, see their failed startups, which burned through cash, simply as experience and they plan to launch another startup and raise more money again. People are not taking into account their loss of reputation with investors that comes with using up someone else’s money, Vaynerchuk said.
What’s more, he said, there is a dynamic in the market driven by older institutions being eager to bottle the innovation they see from younger upstarts. But the balance is shifting to favor startups that have no chance of succeeding. He said he wants entrepreneurs to take a step back and make sure they build things that can win.
In recent years, others in the investor community, particularly Brian Cohen, chairman of New York Angels, have doled out comparable warnings—and some tough love—about “stupid money” being poured into the startup scene. Though Cohen has said at times that angel investing is slowing down, cash seems to make its way into questionable hands.
And that sentiment was echoed Tuesday by Vaynerchuk. While he expects some billion dollar-companies to be built during this bubble, he also foresees a lot of companies that go out of business. He pointed a finger at his fellow investors for putting money into questionable startup ideas. “It’s equally our faults,” he said. “It takes two to tango.”
Known largely for his success with Wine Library, Vaynerchuk grew up as an entrepreneur, first as a kid selling baseball cards at malls in New Jersey. “When you have $ 40,000 in cash under your bed when you’re 13 and you’re not selling weed, you know what you’re doing,” he said.
He eventually built up the family liquor business into Wine Library, which later made him a player in e-commerce. Vaynerchuk became an online presence as well through his Wine Library TV video podcasts about wine. He has since co-founded VaynerMedia.
Trends and ideas Vayner said he is bullish on now on include “dark posts” on Facebook, which target ads to people who have expressed interests in related products. “The days of building up your Facebook fan page are over,” he said. “Facebook is bringing in data from everywhere else.”
He also said he is big on marketing through micro-celebrities (on social media such as Instagram) who have strong fan followings on their channels. “That has been an incredible opportunity that is only going to get bigger,” he said.
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