Category Archives: When Startups Fail
With all the news about hundred-million-dollar rounds and billion-dollar valuations, it can be hard not to look at the world of entrepreneurship and angel investing as a thrilling ride that only has one stop: success. But to be a successful entrepreneur or serious angel investor, you must have a realistic understanding of the startup failure rate and internalize that, in
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This is a grim fairy tale about a mythical company and its mythical founder. While I concocted this story, I did so by drawing upon my sixteen years of experience as a venture capitalist, plus the fourteen years I spent before that as an entrepreneur. I’m going to use some pretty simple math and some pretty basic terms to create
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Many entrepreneurs seems to be convinced that the “crowd” of regular people using the Internet will somehow solve their startup funding needs, when they sense a lack of interest from accredited investors. Professionals maintain that there is plenty of money and equity for qualified startups, and funding marginal startups via any source will only make more people unhappy.
Well-known crowd-funding
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Take your choice (these are both real, honest-to-God pitches, and I’ve got the originals in my possession):
Contestant A CluelessCo is an internet startup company seeking $2 million of equity financing to fund our company for at least one year. CluelessCo will become the main consumer outlet for the internet, digital cable and satellite TV, and cell phones and PDAs.
Every startup with any traction quickly reaches a point where they need to hire employees to grow the business. Unfortunately, this always happens when pressures are the highest, and business processes are ill-defined. At this point you need superstars and versatile future executives, yet your in-house hiring processes and focus are at their weakest.
The result is a host of
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It’s not great…but it IS part of the business.
If you are an angel investor, the only way to do it is to take things very seriously. If you take angel investing seriously, you should aim to develop a portfolio of at least 30-40 investments over 5-10 years of active investing. If you invest in 40 startups, 20 of them (absolute minimum!)
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Every startup founder I know talks about the chaos of their business, which they usually attribute to that burst of growth that is required to get to positive cash flow. They envision a stable environment after that point, and may have convinced themselves that they will be safer and happier with a livable income, maintaining a loyal but flat customer
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I’ve been advising and mentoring startups and growth companies for years, and find myself always pushing them to try something new, for the sake of growth and survival. When you try new things, you make mistakes, and I’ve seen many. Smart companies learn from their own mistakes, but some don’t pay enough attention to other people’s mistakes.
In the spirit
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Based on my experience as a mentor and an entrepreneur, if you fail on your first startup, you are about average. That’s not bad, but who wants to be average? Every young entrepreneur knows implicitly that startup success is a long hard road. Statistics show that the failure rate for new startups within the first 5 years is higher than
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If your first startup fails, you are about average. Most entrepreneurs fail on at least one attempt. Investors agree that an entrepreneur who has never failed probably hasn’t pushed the limits. What investors look for is not that you never fail, but that you learn from the failure, maintain a positive attitude, and work with integrity on the next one.
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