Startups in America: Beware of Geeks Bearing Gifts

Authors note: This blog, for the most part, is focused on Healthcare and related topics. Perhaps I am stretching the concept of related topics a bit with this post because so much of the Silicon Valley startup industry has rapidly migrated to healthcare.  I now get numerous calls, or Linked-In requests, every week to look at some healthcare or health-tech startup. I have been interested in writing a paper on the state of the startup industry for a long time and this has provided a good excuse to put my ideas down in pixels.

StartupPaperCover

Click the image above to download this paper for free

I have spent many years in the fabled Silicon Valley, working with startups and investors to develop new businesses in many different industries. Along the way I have seen a lot, some good and some not so good. I have seen good entrepreneurs and investors, and I have lived through a few really bad ones as well.

While much has changed, much has not. Some things have gotten better and others much worse. What has stayed the same is that it is still very difficult to conceptualize, finance and build a business to maturity in a way that is good for founders, employees and investors.

To a great extent I think that the system today is simply stacked against all of us.

I have come to the conclusion it could be much easier and much more effective if we simply did a few things a bit differently. This paper is a little of what I think! Click the graphic above to download your free copy.

America has long been a land of invention and innovation. Having lived through the entire PC revolution, I can see that we have been blessed with massive change to the U.S. and the world due to both technological innovation and a business climate that supported risk capital investment. For the past 30 years or so, this engine of change has been based on the startup business industry. In more recent history the engine has showed signs that it no longer may be what it seems. Some have said as early as 2012 that it is fundamentally and forever broken. Yet, from the pace of young entrepreneurs out trying to start businesses to again change the world, one would never know there is a problem. You’d never know, that is, unless you actually looked a little below the surface.

Entrepreneurs trying to raise money in order to start a business are faced with numerous pitfalls, posers, crooks, charlatans and RPRTrs (Right Place Right Timers) all scattered along what is, for many, little more than a boulevard of broken dreams. We have a cast of characters in both the good, and not so good meaning of the word. We have entrepreneurs, serial entrepreneurs, venture capitalists, angel investors, angel investment groups, super angels, crowd funding, facilitators, “consultants,” deal syndicators, incubators, accelerators and many others. All of these entities want the entrepreneur, or the investor, to think they are “The Answer.”  Some of them may be — many more end up being their worst nightmare.

In this paper I try to give an overview of where these characters came from, what benefits they can bring and the kind of harm they can render if we are not careful. I also try to track come of the changes and show how they have built the current dynamic environment. I also ask some questions for you, the reader to think about.

In my opinion, from the entrepreneur’s perspective, the access to smart money has never been easy. More importantly, from the investor’s perspective, it has not been hard enough. We believe a lot of things about the value of the hi-tech, biotech and Internet industries. We also believe that startups are key to our economic future.  I am not sure that all we believe is correct. I do think there are some fundamental questions we should answer.

First and foremost, if we are going to have a robust startup business industry, we need to understand not only why startups fail, but how to help them not fail and to bring them longer term viability. You will find, if you read this paper, that there are some things we can do to improve how we develop startup businesses that I thank can have significant long term effects and are relatively simple to do.

This paper reflects on my historical perspective working with startups and investors, what I have observed that worked, and what I have learned that does not.  I have condensed a number of very good research papers as to both the evolution and current state of capital access from VCs, angel investors and other sources as well as some excellent reports on why startups succeed and why they fail.

Overall, my conclusion is there are a number of things we should do differently if we want to continue to have a robust startup industry in the years to come. I make a few suggestions at the end.

I hope you will either click the link above or the title and download your free copy.  I only ask one thing!  If you feel this has merit, forward to people you know and let them read it also.  As I said this paper is free and I hope it will circulate and open up some needed discussions.

Startups in America – Beware of Geeks Bearing Gifts (revised)

And as always, I appreciate you reading my blog and hope you find things of value here.

— Tom

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Facebook: the IPO of the century – Really!

Ok, I guess now I can ask the question my publicist urged me not to ask two weeks ago. You see the snake oil is still flowing and I want to know why we never learn! The question is…

 What is the thing about Facebook that makes it worth $108 billion since it is entirely based on intangible values?

Well it looks like the jury is in and the answer is nothing. Sometime, relatively soon people will wake up and realize that the problem with the Dot-Com successes are that unless they can create a tangible and necessary value proposition in a down economic period,  then the value of a company like Facebook is not just speculative; it is simply ludicrous.

Worse, I suspect there is hidden in the recesses of this offering the same attitude that was pervasive in the last Dot-Com bubble burst. The most important thing to the original investors, the Venture Capitalists that funded this company is not value it is simply liquidity.  The good thing for these investors is, once again what is driving the public is perceived value not real value. In effect, what a lot of the “public” is willing to pay for does not have to equate to real value—ever.

You see, venture capitalists are paid to return value to their investors, not the future public owners. P. T. Barnum said it best, “There is a sucker born every minute!” So to all those that purchased this snake oil, there is a Latin phrase you should learn, “caveat emptor.”

This has been a carefully orchestrated dance with the devil ever since the first big money went in the door.  Rumors of government intelligence connections have been rampant for years, mostly as water-cooler as excuses to try to justify the ever climbing stratospheric price, but the reality has been a very simple one.  It is the same thing we who have lived in or near this tech-money world have seen for years.  It is the siren song of untold riches, if you just buy a few of the baubles, these simple slips of paper, that will grow, that simply must grow don’t you think. These that just can’t fail because after all it is “Excite@Home (oops that’s a bad one), or it is AOL (opps again) or it‘s Netscape (oops), I mean, you know what I mean, because, you know, they simply must grow to ever higher levels—its technology after all. If you get in now you too can be the next “Tim Drapers, or Brook Byers.”  Just buy a few, for a small investment, a pittance really, this dream can all be yours!

I live right in the promised land of private equity investors—Silicon Valley, CA.  I have spent much of my career around VC’s and Angel investors. Private Equity is a great thing. Without it much of the things we take for granted today would not even exist. It is the basis for the growth economy we have had for years. Along with Real Estate it has formed the basis of the so called FIRE economy that gave us the rapid rise in currency from a mere $500 billion in 1972 to over $16 trillion today. And while many of the dollars created went to real products, tangible products, things you could touch and feel in your hands, much recently has gone to companies based as much on perceived value as any tangible calculation. In this modern world there is no regulation that will protect people from the avarice of wall street, nor should there be. The onus is on all of us to keep both of our eyes open and both hands on our wallets.

Alas, now will come the predictable filing of lawsuits by those who will blame everyone for the unrequited love, the incredible get rich quick scheme that was the Facebook juggernaut. Here’s a news flash, you have no one to blame but yourself. You should know that if it sounds too good to be true it is. Get a freak’n clue! This was a liquidity game, played by major league players from the get go and Mr. Barnum definitely ruled this day and many people will likely soon feel like they got caught at a church picnic with their pants down out behind the barn with Mary Sue.

Now, those who are watching this intangible value-based company decline by the day can pray that it pulls a trans-formative move and, like Amazon did years before, maybe become a true value supply chain player. Years ago there were those of us who saw the original Amazon business plan and just knew then that the original ‘no brick and mortar warehouse, drop ship from publisher’s model’ was not going to work.   All of us then learned a valuable lesson. The lesson we learned was that it was liquidity, not value, which was the play.

As my 13 year old son now says, “you all got schooled!” You know what?  He’s Right!