Wednesday, June 3, 2015

Please Don't Celebrate Failure!

Silicon Valley and the venture capital industry were built on taking risks and making big bets on technology, teams, and markets.  It's great that failure does not need to be worn as a scarlet letter as it does in other cultures or Hollywood...(wonder if a pic of Emma Stone will get a few new visitors to the ProfessorVC blog).

I remember back in the day when VC's took risks and would invest in nascent technologies and markets.  Now firms are more interested in piling on a late stage financing for an Uber or Slack after product/market has been de-risked and the only question is whether the sky high valuation will ultimately supported by the financial markets.

For a number of years (or at least since twitter has been around), the Silicon Valley echo chamber has publicly celebrated modest exits or acqui-hires.  However, now, it seems that the pendulum has swung so far the other way that failure is being celebrated.  Every week there is another post about "how we failed".   Medium seems to be the platform of choice to promote your failures.

Here are a few:

I recently had a fireside chat with Dave McClure at SJSU where I questioned Dave about a blog post he wrote on failure, late bloomer, not a loser (I hope). You can skip ahead to the 37:35 mark where Dave lets out the secret that writing about being a loser will get you a huge audience for your blog.

SVCE Speaker Series: Dave McClure from SJSU CoB on Vimeo.

Perhaps, those entrepreneurs are just looking to make a few bucks with google AdSense and Commission Junction while figuring out next career move...

I agree it is good to share lessons learned with other entrepreneurs.  Also, if it is cathartic for you to do a post-mortem for the world to see, I'm not going to stand in your way.  However, where I draw the line is when failures are treated as less than a little speed bump on the road to success.  FAILING SUCKS!! YOU ARE IN THE GAME TO WIN!! EMPLOYEES LOST THEIR JOBS AND INVESTORS LOST MONEY!!

Ok, now it's time to reveal what got ProfessorVC's tighty whities in a bunch.  I received this email from a CEO/founder of a company where I was an investor on April 14th at 8:29 PM:
Thank you for your belief in me and the entire team. We had bold visions for how we were going to upend research and investment in the private market, and we wanted to make that vision a reality. Unfortunately, like many startups, we’ve run out of runway to execute. As of April 15, company will be effectively out of cash.
Yeah, you read that right!  Oops. we're running out of cash tomorrow!! Oh well, we failed...This was with no advanced warning and only bullish statements on company's progress.  It's one thing to be an optimistic entrepreneur but another to be delusional and reckless!  Apparently the entrepreneur (can't tell you who it is but his name rhymes with Saul Pingh) was too embarrassed or arrogant to respond to my requests for answers and more info.  Another investor had to threaten to have his lawyer make the next request before getting a call.  It turns out there was ultimately an acquihire and investors may potentially receive a very small fraction of our investment back.

As an investor, I expect to lose money on many of my investments.  That's part of being an angel investor and luckily the returns on the winners far exceeds the losses on the losers.  However, if entrepreneurs are going to build their companies on other people's money, they need to communicate and work like hell to win!  Sorry, contrary to popular belief among the millennials, there is no trophy for losing (actually, a quick google search shows there is one).

Please don't win one of these!

PostScript: The identity of Saul Pingh was discovered by a DC reporter Chris Bing following in the footsteps of those other DC investigative reporters Woodward and Bernstein...Chris attended the celebration of the acquisition (pic below)

On April 16, the acquisition deal for Disruption Corp. by 1776 was announced. Those pictured include 1776 co-founder Evan Burfield (far left); Virginia Gov. Terry McAuliffe (center, behind podium); 1776 co-founder Donna Harris (to right of McAuliffe); and Disruption Corp. founder Paul Singh (far right). DC Inno photo.


Unknown said...

Hey Steve, what would you recommend is a satisfactory update cycle to investors? An update every month? Every few months? Twice a year?



Steve Bennet said...

Most of my companies provide monthly updates around first of the month. This seems to be a best practice. Of course, if something major is going on such as company is running out of money and about to cease operations, should be communicating early and often...

Srikant Sharma said...

Excellent blog! Entrepreneurs need to understand that even the best businesses are not much better than trying to swim across a river infested with a particularly vicious species of sharks called Failure. They need to know how to swim fast, fight those sharks, and most importantly time it jut right so that they make it most of the way across before the sharks start to take notice. There are three key parameters I have learned that are absolutely a MUST HAVE for any business to succeed (this is true for a pizza shop or a large tech play). First, there must be demand - customers must want what is being produced. This has to be ascertained to the n-th degree of certainty. Second, the team should know how to run a business. It's ultimately a business, not a product. Third, there must be reasonable assurance of availability of capital to grow the business. There will be other challenges - but they can be fixed for the most part. I have learned that the first three are very difficult, if not impossible, to fix after the fact. And yes, failure totally sucks! As Coach Red Sanders said, "Winning isn't just everything, it is the only thing!"

Anonymous said...

This is hilarious. Paul Singh was the key note investor at a tech event in Cleveland a month ago. He came across to me (and others I spoke to, at least 4 others in particular) as a complete deuche (sp?) and out of touch. Its funny, because I also no of an Ohio investor that was less than happy with him for the investment, but I never got the full details.. I guess I now know why. Its frustrating when "posers" like Paul get to be headliners and get to "fail up". Hopefully this duly tarnishes him.

Anonymous said...

Too bad Disruption didn't use it's own app and they would have known how it was doing..... #justsaying

Anonymous said...

Time for VCs to blog on medium, as to how they feel about the recently failed entrepreneur who's is wearing the failure as a badge of honor?

Anonymous said...

Yes I concur. I have been in the tech investment community in the DC region for years and I attended one of Paul's events for his Crystal Tech fund. When I introduced myself to Paul in a friendly and collegial (after having paid for his event) he was in fact a complete douchebag, and not friendly at all.

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