In January 2023, Anu Atluru laid out a compelling thesis: a new type of startup had emerged that she coined the “Silicon Valley small business” (SVSB).

SVSBs would operate with the Silicon Valley ethos of building fast and for scale, but wouldn’t sacrifice efficiency and profitability. They would wait for the right evidence to raise big VC rounds, spend a lot, and hire large teams.

Instead, these companies would keep teams small, embrace the potential for mid-sized outcomes, and wouldn't chase decacorn status. They might be bootstrapped, or as close to it as possible, raising little to no money at the start, aiming instead for sustainable growth.

As interest rates cranked higher and investors started looking for safer bets, Atluru’s post went viral. “A founder of a successful high-growth startup messaged me and said ‘your thesis really resonated,’” says Atluru. “I've raised $300M for my company and there’s no going back. I have to see it to some finish line. But for my next company, I’d take the SVSB path.”

The SVSB thesis also fits with Atluru’s trajectory, which is somewhat distinct from what you might expect from a Silicon Valley founder. Atluru, a graduate of Harvard Business School, spent the first part of her career in medical school, later working as a resident physician at the Harvard/Mass General Hospital. She also founded a women’s health tech company. In May 2020, Atluru joined Clubhouse as the head of community. Now, she’s building a consumer product studio and investing in other early-stage builders.

We followed up with Atluru to find out how her thesis fits in today.

I’d been at Clubhouse for a while when I started thinking about what I might want to build next, and how I’d want to do it. When I left and started exploring, I met others who were in similar stages. Many were ex-founders, or had worked at Silicon Valley VC-backed startups, or both. We’d all experienced the ups and downs of the high-growth tech startup journey in some way.

I found that we shared a lot of sentiments. There was this increasingly honest exploration of the pros and cons of the traditional Silicon Valley startup path. I found myself thinking about my own preferences and how I measured success.

What type of company did I want to build? What was most important to me? Growth rate? Scale? Sustainability? Cultural impact?

So then you reached your thesis: the Silicon Valley small business. To start, what is it?

The Silicon Valley small business, the SVSB, is a hybrid of archetypes we’re familiar with: the traditional small business and the traditional Silicon Valley startup. The SVSB combines small business values and discipline with big tech know-how and ambition.

The SVSB approach is characterized by small teams, minimal outside-funding, a high degree of autonomy, and a broader definition of success. And it often starts with people who’ve experienced the traditional Silicon Valley high-growth tech startup journey and have left with enough experience to understand the pros and cons.

I think part of why I was so drawn to your thesis is that it’s something that a lot of people have been saying lately, but hasn’t been named.

A certain type of trajectory has felt like the norm for so long. You’ve hit this point and it’s time to raise VC. You’ve gone to high school and now you’re going to college.

Yeah, and I think that norm has been a “sign of the times” for the venture ecosystem for the past few years.

It wasn’t just founders seeking money, though. VCs might advise good teams: “take as much money as you can, while you can.” You’d also get advice like: “it’s just as hard to build a small business as a big one, so you might as well go big.”

All of this tends to encourage startups to raise lots of money, chase unicorn status, get decacorn exits. And to be clear, there are definitely reasons and circumstances when you should raise significant outside capital and pursue that playbook.

But the past few years have pushed us into this place that I call the “trough of disillusionment with venture-scale bets.” We’ve seen plenty of high-growth, high-burn startups struggle to figure out how to survive, start making money, and engineer a big exit. Maybe these companies had product-market fit (PMF), but that PMF looks fleeting now. Maybe the funding markets are tighter. Maybe it's both.

At the same time, there are plenty of tailwinds that make it easier and just as compelling for builders to take alternate paths. It makes sense that the norm is being questioned.

The old path is somewhat tried-and-tested, and new paths can be scary. How should a founder decide if the SVSB path is the right fit?

I don’t want to create a new framework for everything, but here’s a small one: possibility, potential, and preference.

Think about what type of business it’s possible for you to build. The industry or sector you're building in can be a good way to gauge this. Pure software businesses with clear paths to market and low regulatory risk are a good fit for SVSBs — think traditional SaaS.

On the other hand, hardware, services, or R&D heavy businesses with high legal, regulatory, ethical, or similar risks would be hard to build as SVSBs — startups in healthcare, bio, fintech, energy, climate, defense. Many would need bigger teams with more specialists, expensive tech, longer go-to-market timelines, and more capital investment upfront.

Then, there’s the potential of the opportunity. If you expect a small or medium-sized outcome, taking on significant outside investment can become a lose-lose situation — investors don’t get the desired ROI and the team doesn’t see any upside.

Lastly, there’s preference. What approach do you — as a founder — want to take? For some, a specific vision is the single most important factor, regardless of how they get there. For others, building a business on their own terms is the game they’re excited about playing — regardless of the idea or its shape.

Is this path very solid? Like, if I’ve decided to become an SVSB, can I later become a more traditional SV business?

The short answer is yes, but it is sort of a one-way valve.

I think of company building in three stages: zero to one, one to two, and two to “N.” Zero to one, you get the initial product to market and start to see signs of PMF. One to two is when you’re trying to extend that PMF without losing it. Two to N is the scale-up phase, once you have a solid product, growth, and operating model.

Going from an SVSB to a traditional SV startup is definitely possible. I’d say SVSBs take minimal outside funding in the “0 to 1” phase, and maybe even in the “1 to 2” phase.

By that point, teams have de-risked the company quite a bit. They can actually evaluate if the next round of VC funding will supercharge their growth enough to justify leaving the SVSB path.

It feels like the other way around, from a traditional SV startup to an SVSB, is much more challenging.

It's harder but not impossible.

In short, the less money you’ve raised and the lower your burn, the more possible it is. For example, a team that’s raised $10M from VCs at the idea stage is more or less committing itself to the traditional SV route. These startups are bound to huge financial returns which can make it hard to operate as an SVSB.

A lot of your thesis focuses on investors and founders playing equal roles in this phenomenon. Do investors looking at SVSBs need to think about things a little differently?

Yes, I think investors need to truly be aligned with the SVSB approach and its downstream effects. They have to accept the economics of “minimum viable funding,” which might mean a lower percent of ownership, non-power law returns, and non-traditional returns on investments, either in how it’s paid back or in what timeframe.

The ideal investor for an SVSB today is supportive of a non-deterministic path — that means either a low probability of a huge return or a high probability of a modest return. Structurally, angel investors and small funds are most aligned with this. Most large funds can’t be, because they depend on having multiple “venture scale” exits.

Let’s say this thesis really takes off. If we have 1,000 more SVSBs, what will be different for Silicon Valley? The world?

For one, the SV startup “archetype” won’t be as singular anymore. It'll be the norm for SV founders to explore a range of paths.

I think we'll also have more builders at the center of startup media narratives. Historically, we’ve heard a lot about funding rounds and valuations, with investors at the center of these stories. With SVSBs, where outside funding is less core to the building of the company, those narratives can only be told by the builders.

The funding ecosystem will also evolve, albeit slowly. We’re already seeing investors speak the language of SVSBs — do more with less, don’t raise lots of money, keep teams small.

Some VC firms are even cutting the size of their funds. As more SVSBs emerge, this dynamic should continue independent of the market. We might see new types of investors or funds emerge to serve this niche.

Seems like the SVSB is also a way for the tech industry to weather some of what is happening right now.

Yes, there have been some big external shocks to the startup ecosystem and the world with COVID, the market downturn, and the like.

The good thing is that these external shocks help builders look inward, think about what they really want to do, and figure out how they want to do it. At a philosophical level, I see a world with more SVSBs as one that encourages more people to chart their own path.