Tue Nov 30 2010

The designer as investor

I’m a big proponent of design as a differentiating factor in startup success. So is 500 startups, the fund lead by Dave McClure I’m a mentor for. So today I was working on a few things and thought about a combination of the venture capital model and design [1] agency work - and tweeted about it.>@f: thinking about a model where a design company would always work for startup equity. trying to make this model work.

The tweet sparked a bit of a debate, so I have decided to clear things up a bit by writing a post with fleshed out thoughts. Basically I have been wondering whether it is possible to extend the venture capital MO to other industries, namely design. That is, to have design companies or agencies invest into companies by providing their skills in exchange for equity (instead of the typical cash deal). I will also add that I don’t intend (as I said on Quora) to put this model to practice - at least not now. This serves as a thought experiment.

A few pitfalls in this “design as investor” model are fairly obvious:

*Companies need cash flow and designers (and design-focused companies) are no exception. So there would be a bit of a chicken/egg problem as most people (particularly exceptional people) don’t necessarily want to work exclusively for equity in the ideas of others. Some people have suggested cash+equity deals (that are somewhat common).

*Most startups fail. This means the designer/agency would find themselves working for a large number of startups in hopes that one of them gets a good exit to get a return on the investment.

*Lets face it, picking winners is far from trivial , or we’d all be (successful) investors. Working for equity means due diligence - to a level most designers (and agencies) wouldn’t be comfortable with. This industry is used to being a bit more nimble - designer comes in, does the work, gets out (read my footnote number [2]).

There are, then, big reasons why this idea of the VC model applied to design should fail. However, something tells me we haven’t seen the end of this topic. A group of great designers with a clear sense of (what works and doesn’t on) the market, who are not afraid to take risks might just make a killing by creating a platform/process where they can invest their work serially into companies. I can promise you this: I’ll be thinking about this quite a bit (and report back on my findings).


[1]: In my posts, whenever I talk about design I’m talking about design with a lowercase d or the whole spectrum of design including (but not limited to) design thinking, graphic design, interaction design and product design. People who still believe design is the “visual layer” on top of products and services need to reframe their thinking.

[2]: This is wrong, if you didn’t get it immediately. If a startup doesn’t show at least good signs of taking design and design thinking into consideration up from the idea stage, I would say it’s doomed to fail. Sadly, not only entrepreneurs are to blame here for ignoring design from the get-go. The design industry itself needs to step up its game - the meaning of the word designer is changing rapidly (I wrote about this before).

[3]: Be sure to also check out this post by Troy Busot, spurred by my first tweet on this subject. Troy presents a model on which this idea might work if the design (or design team) was to pair up with sales too.