Launching a startup? Don’t believe the fundraising hype

Published on July 3, 2012 UT San Diego

Beware TechCrunch and its evil twin, the news release.

Like the mythical Greek sea monsters Scylla and Charybdis, the rock and the whirlpool that lured sailors to their certain death, the reading, and even worse, the believing, of what is written can lead to the worst of all the sins — Startup Envy.

If you read TechCrunch.com, you will believe that every startup raises $10 million in two weeks at an amazing valuation. If you believe that everyone else is easily raising money, you will be consumed by envy and lust, and if you are consumed, you will go nuts. If you go nuts, you will feel miserable and inadequate and wonder why everyone else is a success and you are a failure. And if you believe you are a failure, you will jump off the Coronado Bridge.

Hey, don’t jump. Here is what you are missing — the truth.

The truth that the first-time entrepreneur doesn’t know is how all those fabled startups actually end up. Most live loud lives initially, with pronouncements of money raised, including the names of several important and famous people who “participated in the round.” This is guilt by association. The greed button goes off in your brain and you ask: How do I get to Mr. Famous, who made billions at his last startup? (His last startup success does not equate with any certainty that will happen at this current startup.) But our mind plays tricks on us, and we conflate the two.

Note: Revenue from Mr. Famous may appear closer than it actually is. He is now off to Cannes or to Bucks (the famous eatery in Silicon Valley), but I assure you, he is not making sales calls.

This is then followed by a news release trumpeting a strategic partnership with a large and powerful company.

Note: The words “strategic partnership” are seldom if ever attached to the actual giving of money to the startup.

Now the startup enters the Slog, also known as the forced march — a subject I am familiar with, given my time in the Army. This is the march searching for revenue and traction before you run out of money, and once again have to beg for more rations.

Note: At this point, Mr. Famous is probably off onto several other deals. Do not be surprised if he has changed his cellphone and you cannot reach him.

Next comes quiet desperation. Can we pivot, and can we save this dog? The “projected revenue” is not materializing, and your investors are doing the Kubler-Ross from denial, anger, bargaining and depression to acceptance.

“There must be some way out of here, said the joker to the thief, there’s too much confusion, I can’t get no relief.” – Bob Dylan, “All Along the Watchtower”

This is how it goes for most startups. It is the dark, lousy truth that this line of work is really hard. And to save your sanity and your soul, you need to know it. The fanfare at the beginning usually ends “not with a bang, but a whimper.”

I know the truth. I can list the local companies and the CEOs that have made a splash in the media, only to end up quietly at the salvage yard.

And I share this with you, not out of arrogance (I have had my disasters), but because it is a very treacherous road that you have started to walk. You need courage, fortitude and a fair amount of luck. Reading the puffery and the self-aggrandizements is tantamount to looking down while you are crossing Niagara on a high wire.

Neil Senturia and Barbara Bry, serial entrepreneurs who invest in early-stage technology companies, take turns in writing this weekly column about entrepreneurship in San Diego. Please email ideas to Barbara at bbry@blackbirdv.com

Leave a Reply

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>