I don’t think people realize how extremely hard it is to get a company launched. Some folks say that if you make into college ball, you have a 1:40 chance of turning pro. The odds are longer for startups.
My friend, Tom Summit of Genotrope does quarterly updates called “When will they launch?” that lists a few startups we’re all waiting to see. Only one out of twelve have actually launched. The rest are in “beta” or “stealth” or they’ve morphed into something else. Tom only listed companies he knew about. I could add six or seven to his list! That tells me that out of about twenty companies, one launched.
I’m think being generous here but I think once you’ve launched, you have about a 1:50 chance of getting angel or VC funding.
1:20 X 1:50 = 1:1000.
The odds are longer for web companies that are organically self-funded. Perhaps even as high as 1:2000. I know three or four and they’re very patient. They also have an anchor business that helps them fund the new one.
That should tell you one or two things: You need commitment and you need to be realistic.
As a startup consultant, I come across budding entrepreneurs who say “We’ve got this great idea but I don’t have any money! Can you help me find an angel?” only to find out they’re part timers who have an ok idea, no code, and no real commitment. Sound harsh? Go code and then we’d love to talk to you.
Others that I talk to have code but they’re part timers. Depending on the circumstances (my time commitments and a deal), I’ll work with them – depending on how long it might take them to launch. Are they prepared to quit their job? It depends. If it’s a straight IP play, they might not have to. If it’s an operating business, how much are they willing to give up?
Still others are full time entrepreneurs who continually morph their business model until they find something that works and they like. That’s ok. It depends on their ability to stay in the market. Each change in focus represents sunk resources and time.
Knowing the odds, are you committed?
When I first saw Steve Job’s quote, then Josh Porter’s (Bokardo) re-quote in www.bokardo.com and then Bijan Sabet’s repost, I nearly choked on my Wheaties and thought, damn, another sound bite that everyone’s going to analyze and memorialize. The next sound bite that passes over Steve Jobs lips might as well be “We don’t write code. It is divined by a higher being.”
My thoughts: Someone’s got to research the competition (to demonstrate to the VC that the potential portfolio company has a handle on the market and has something that goes beyond table stakes), understand who the market is (so that the VCs know the solution caters to the right market), size the market (so that VCs might also understand the potential of the investment) and on and on.
The most optimistic scenario for both the startup and a VC is that the startup is capable of doing of doing analysis and they have completed it - because you (a VC) are going to ask. You (a VC) might be wowed by the solution in the first meeting, think about it for a bit, and then come back around with more formal questions. Whatever the process is, you (a VC) is going to need the data to make an investment decision. The startup might have someone in that role - analyzing that data – or alternatively, they’ve got enough bullets to satisfy your initial requirements.
Most of the time, I find that there are undiscovered opportunities that the startup hasn’t considered – primarily because they’re heads down writing code or executing their initial plan – which in many cases, can’t get them a meeting with the VC in the first place. Sometimes, they’re entire misses or Phase II ideas. Whatever the case, the consultant serves as an adjunct to the start team.
The long and the short of it is:
1. Not every startup is firing on all cylinders (yet.)
2. The best entrepreneurs (including VCs) know one thing: They don’t know everything.
3. The right consultant will increase a startup’s odds of success – either as a coach, sounding board, market sizing, validation, market maker.
(Sorry Josh for the initial typo)
