These ambitious startup founders aren’t raising venture capital, at least not for now, but they’re still growing their businesses rapidly. Welcome to Ecosystem 2.

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Patrick Murray is founder of Parking on air, a startup that rakes in $9 million in annual revenue by helping consumers find unsold airport parking spaces for a discount, through an app similar to Hotwire. Murray partnered with a private investor in the parking industry to get the company off the ground and has hired a president to run the company and its team of about 10 contractors. However, he has not chosen to go the venture capital route.

The Los Angeles area entrepreneur is ambitious about growth, but he has decided to do things his own way. To ensure he has time to enjoy his family – he is both husband and father of two children aged two and four – he has designed his business to expand as he works, working just four hours a week and relies on both its team of contractors and a variety of apps and tools to get it done efficiently. His inspiration came from both Richard Branson’s autobiography Find my virginityin which the Virgin Group founder discusses his reasons for working from home, and Tim Ferriss’ classic The 4-hour work week.

Murray kept his emotions in check as he spoke about the freedom he has at a recent community event I recently moderated at the New York Public Library. “It brings tears to my eyes when I talk about it now because I love my kids so much, and there were times when I thought I couldn’t have that flexibility,” he said.

Murray is part of a universe of entrepreneurs that doesn’t get as much attention as the startups making the rounds of Silicon Valley for funding — a universe that venture capitalist Allison Long Pettine calls “Ecosystem 2.” She is president of Crescent Ridge Partners, a venture capital fund, and co-founder of Ad Astra Ventures, another fund that supports high-growth startups with at least one female founder, both based in San Diego.

Entrepreneurs in Ecosystem 2 are ambitious founders who run startups where growth and profit matter, but not at the expense of the entrepreneurial ideas that drove them to start a business or at the expense of prioritizing people – their families, employees, customers and community. If Ecosystem 1 is about maximization – of funding rounds, company size and exit size – Ecosystem 2 is about optimization and ingenuity. “This new ecosystem is built on rigor and skill, as well as compassion and empathy,” says Pettine.

The founders of startups in Ecosystem 2 often find a way to start and grow their businesses that doesn’t rely on following the rules of traditional venture capital winning – rules that have become as clear as applying for a job at Wall Street and often require founders to take training with accelerators so they can pitch in a specific way and make the right impression. While Ecosystem 2 founders are often fully capable of playing that game, they are often more committed to building a business and a life that fits their unique vision rather than complying with the rules and choosing other routes to funding , including self-financing. “If you are That innovative, you may not fit a pattern,” says Pettine. If they’re raising venture capital, it’s at a stage where they have more say in how their startup will be run after the deal or from funds that support them doing things their own way.

In some cases, founders don’t have much access to the networks that open the door to capital. Instead of waiting a lifetime for systemic change, they are taking creative avenues to find funding so they can start and grow their businesses now. “These entrepreneurs and innovators are not trying to win a game that has been piled against them,” says Pettine. “They learn to play the game and create a new game – one they know they can win.”

As a journalist, I’ve come across many startups that embody Ecosystem 2 over the years, and was very interested to learn that Pettine noticed a similar trend in her own work when we collaborated on several writing projects supported by one of my nonprofits. customers. We both agreed that the growth of these shoddy, innovative, and capital-efficient companies is one of the most exciting, democratizing, and underreported trends in business. Graham Cochrane, a digital entrepreneur and author who participated in the panel, calls these companies “life-giving companies.”

An advantage of remaining part of Ecosystem 2 is freedom. The freedom to be an old-school entrepreneur driven above all by passion for their idea. The freedom to grow the business at its natural pace, not a fund’s timeline. The freedom to participate fully in their personal lives and community, something that is hard to do when trying to meet relentless funding goals. If the entrepreneurs go down the traditional financing route, it is usually when the company has reached the stage where the owners have more say in the future of the company and their own lives.

It’s hard to number the startups in Ecosystem 2 because not all startups raise their hands to stand up and be counted. However, according to research firm, there were 16,465 venture deals in the US in 2022 Statistical, and in the second quarter of 2022 alone, 359,000 new companies were founded in the US. While many of these new businesses are traditional small businesses rather than scalable startups, there are undoubtedly many traditional startups among them that are bootstrapping or turning to other types of funding.

The growth of technologies like artificial intelligence seems to bode well for founders in Ecosystem 2. Just as cloud-based tools made it cheaper to run a startup and lowered barriers to entry for founders who didn’t have much seed capital, it seems that artificial intelligence and tools like ChatGPT will too.

Ultimately, we will probably always need venture capital, or a substitute, to scale companies to the size of a Google or Facebook. But many founders, while seeking scale, are disinclined to reach that size and are content to find other avenues to funding and growth. They may not want to go through the training and grooming required to be part of the finance ecosystem. Perhaps, like Murray, they want to enjoy their lives every day with the people who matter most to them while still scaling up. One of the most interesting stories to cover in the coming years is undoubtedly the trajectory of the many startups that make up Ecosystem 2.