A Tragedy of the Commons

I’ve been living and working in Colorado since 1994 when I first came to Boulder to get a Masters in Engineering.  At the time, I wanted to study this Information Super-highway thing and learn all about advanced data communications and the world wide web.  In grad school I started my first “real” company and raised a bit of venture capital. 

In Boulder its always been an incredibly collegial environment.  VCs, Entrepreneurs, retired business executives, and the like, all tend to take meetings, help each other, and share information in a  generally transparent and helpful way.  My experience in Boston and Silicon Valley is that these areas are more cut-throat and culturally competitive.  Here in Colorado the sense is that we all can work together to drive the collective ball forward.

No doubt the market here rose with the dot-com bubble and many new venture funds and companies got funding than should have.  In 2001, before the markets broke, it reached its zenith.

Over the past 2.5 years I’ve been completely heads-down helping build Lijit Networks from 10 people, no revenue, and a small market presence to 34 people, scaling revenue, and an utterly massive network that seems to grow now by leaps and bounds.  I’ve rarely had the time to really look around and see how the overall entrepreneurial environment has been evolving and changing.  Recently I had the chance to see and talk with a lot of folks about this evolution.  What I see is somewhat unsettling, but probably the best for the long-term health of the Colorado start-up marketplace.

VC firms are going out of business; some know it, some don’t.  Mostly the good entrepreneurs are busy with interesting projects.  There isn’t a lot of investment capital available unless the idea is big  – and – the people involved are really good.  This applies to both companies and VC firms.  And this is exactly what is supposed to happen.

The market here is small.  That’s a fact.  The market here is highly educated.  Also a fact.  The reason everyone pitched in to help each other and was culturally collegial in nature is that there was always a common sense that in order to compete we had to work together explicitly.  A culture was established and available to most anyone that was smart, serious, and contributed to the whole.

We are going through a natural cleansing cycle now.  We grew too fast, raised too much capital that chased too few good ideas and people.  We acted too much in our own self-interest.  The best part is that all of this is a natural process and one that is elegantly simple to resolve, the weakest die.  Self correction in an efficient market is built in.

I love the fact that the guys at the Foundry Group (one of Lijit’s lead investors) invest so much personal time and energy in programs like TechStars nurturing fledgling businesses and fostering green people.  I’m seeing more and more the collaboration between really smart local entrepreneurs carving out time to help each other even if their respective companies have overlaps in market goals.  Those of us that have an extremely long view of their careers are hard-wired to raise the collective market.  The cycle of where we are now produces better companies, stronger investment professionals and we, at least for a few years, can avoid the Tragedy of the Commons.

According to Wikipedia:

The tragedy of the commons refers to a dilemma described in an influential article by that name written by Garrett Hardin and first published in the journal Science in 1968.[1] The article describes a situation in which multiple individuals, acting independently, and solely and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone’s long-term interest for this to happen.[2]

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