Can We All Succeed?

Posted: May 17th, 2010 | Author: | Filed under: posts | Tags: , , , , | 7 Comments »
There's more than one route to success

The list of startup accelerators I’ve been cataloging has grown larger than I expected. We’re now up to 93 programs, in many corners of the world.

I think it’s fantastic that there are many people working to encourage entrepreneurship. It’s wonderful for the aspiring entrepreneurs and an extremely positive development for the innovation that drives our economy.

There’s another aspect to this growth that I’ve been discussing with several accelerator alumni and other entrepreneurs recently, though. That is: I wonder, though, if aspiring entrepreneurs are getting the right message about what ‘success’ is, as people rush to inspire and motivate these business moguls of tomorrow.

There seems to be an unstated message that success for entrepreneurs in today’s world is to raise a six figure VC round and scale your business to millions and millions of users. Funding = validation and its build a massively scalable business or fail fast. As a culture, we’re captivated by the outlier success stories – it clouds our visions. Really difficult challenges become simplified in our minds to make the impossible seem within reach. Things like: “After all, it’s only a matter of fine tuning your user acquisition formula and then just dumping gallons of virality fuel on the fire…” (Simple, right? — Because money burns really well!)

Seeking validation from investors by way of filling the bank account with other peoples’ money becomes the goal. Right from the get-go, entrepreneurs are planning how they can go from 0 to 1,000,000 rather than 0 to 1,000. My friend, DJ Stephan, Chief Marketing Officer for, likes to say “It’s like setting off to build the next Empire State Building when you haven’t even even looked at the construction plans for a one-story house.”

Now, to be fair, no entrepreneurship professor, speaker or mentor I know or have heard of has ever stood up and defined success like that. But just look at the headlines that are being featured. These are the role models that entrepreneurs are watching.

$2m to Newsy in series A round. $3.6m to HelloWallet in series A round. $6m to WordStream in series B round. $7m to Critero in series C round. $23m to Invidi in series D round. And that was just in one week.

Building a so-called “lifestyle business” is a dirty word, apparently. (So much so that Josh Kopelman put out a call for a new term.) I’ll use sustainable business.

I get it. Building a business that doesn’t sell for hundreds of millions of dollars to Google isn’t as sexy as one that does. It isn’t the splashy news that TechCrunch wants to feature. It isn’t as cool a story to tell your friends.

Is that ok?

A sustainable business that brings in more modest revenue is still a driver of innovation and economic development. It still can beget the entrepreneur life-changing money. Perhaps more importantly, it gives them experience and a success to someday parlay into another venture. It keeps them in the entrepreneurship game, rather than putting it all on the line, burning out, and not giving it another go.

And the probability of success is higher. It is likely easier to figure out how to create a useful business for your 40,000 fellow students than 400,000,000 Facebook users. And once you figure out how to make modest money from one market, it doesn’t necessitate putting all your chips on the table to see if you can turn on virality faucet.

It’s not that it’s wrong to aim for the stars. But after evaluating that option and finding that it might not be fully baked, it should be ok to aim for something more reasonable and to have that success celebrated.

There are only 600-some venture capital deals per year in the US.1 Assume that a percentage of this activity is series B/C/D financing, leaving only a portion of these deals for seed-stage / series A investments. Let’s assume 50% are seed/series A, to be generous — so, 300 VC deals for new ventures. Now, I realize that not all of the 93 accelerators on the list are in the US nor are all companies in the accelerators VC-fundable and not all of these VC deals go to accelerator-launched startups, but if they were, that would be ~3.22 deals per program. Assume each program has ~10 startups. So, on average, that’s 7 startups that aren’t getting funded, per program. The real number is actually much, much bigger. Are these entrepreneurs just going to give up and go home? If they define success as raising money, they might as well. Even if you include angel deals, there is not enough dealflow for each company to define success as finding follow-on funding.

Sometimes I feel like with the age of tech startup businesses, the focus is exclusively on building a product that people want. Entrepreneurs forget first and foremost that they are setting out to build a business. As in something that generates money. With not enough “Other Peoples’ Money” to go around, some of these companies are going to have to push the envelope and actually create businesses that generate revenue from day one.

Fortunately, there is more than one way to build a company than to focus on raising VC funding. Let your startup evolve and see where it goes. If VC funding is the right way to go, great. But just because you don’t build a company that fits with the pattern VCs are funding, it doesn’t make you any less of an entrepreneur. Let’s make sure we define success appropriately.

Entrepreneurs know in the back of their heads that raising funding is unlikely. Still, the temptation is there to keep telling yourself that the metrics don’t apply to you. With the number of accelerated companies seeking follow-on funding, the writing is becoming more plain on the wall. If entrepreneurs knew up front that building a VC-funded rocket ship wasn’t feasible, would they still think it was worth the long hours, the lack of pay, the risk, to build a successful business that is a bit smaller? Enough to get started?

I hope so. And I hope that the mentors in the 93 startup accelerators around our world are conveying that message. The message that explosive growth powered by VC rocket-fuel or smoldering ruin aren’t the only two options in entrepreneurship. After all, we can’t all be in the first group – another direction is perfectly ok, too.

  1. Number of software-only VC deals in 2009 based on the PwC MoneyTree Q4/full-year report was 619.

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  • Chris Han

    Hi Rob, I enjoyed reading your blog post, but I think you may have misread the report. You stated that there are ~600 deals per year, that should actually be ~600 deals per quarter. The report you sited also contains the exact number of funded companies for seed or early stage companies. Your estimate of 300 is close, but again the figures are per quarter, not per annum.

    “Venture capitalists invested $4.7 billion in 681 deals in the first quarter of
    2010, according to the MoneyTreeâ„¢ Report from PricewaterhouseCoopers
    LLP and the National Venture Capital Association, based on data provided
    by Thomson Reuters.”

  • Robert Shedd

    Hi Chris,
    I appreciate the comment!

    The post was written based on the Q4 / 2009 Full-Year report, which I can't easily find on the site at the moment. You can find a copy here:

    In any case, the stat I pulled was from the top of page 3:

    “For the year, Software remained the largest single industry category in terms of deal volume and second largest behind Biotechnology in terms of dollars. Venture capitalists invested $3.1 billion into 619 Software deals, a 40 percent decline in dollars and a 35 percent decline in deals from 2008 when $5.1 billion went into 948 deals.”

    The report that you linked to appears to be the Q1 2010 report.

    The new numbers from the Q1 2010 report are interesting:

    “Seed and Early stage investments declined in the first quarter, dropping 30 percent to $1.4 billion. The number of Seed and Early stage deals dropped 24 percent to 299 from the prior quarter. Seed/Early stage deals accounted for 44 percent of total deal volume in the first quarter, compared to the fourth quarter when it accounted for 47 percent of all deals. The average Seed deal in the first quarter was $5.4 million, up from $4.0 million in the fourth quarter. The average Early stage deal was $4.6 million in first quarter, down from $5.6 million in the prior quarter.”

    Their definition of “seed” appears to be a bit larger than what most seed-stage entrepreneurs I know would define it to be. $5.4m… wow.

  • Chris Han

    Hi Robert,

    Thanks so much for the reply. Gotcha. I actually misread what you wrote. I did not look at your footnote, and so did not realize the 619 number was for software-deals only. That makes much for sense.

    Yes, the NVCA site is a goldmine of interesting data. I've been enjoying their reports. Thanks so much for turning me on to it!


  • Robert Shedd

    Glad we got on the same page and that you've been enjoying the NVCA site!

    What kind of entrepreneurial interest are you finding at HBS?

  • Chris Han

    Sadly, I graduated from HBS in May. I thought HBS was surprisingly good for those interested in entrepreneurship. There's a thriving community of students who either created or joined startups during school, and great professors who go out of their way to help students. I did a couple field studies working on internet startups and various projects in the social space.

  • Robert Shedd

    Thanks for the reply! Good to know RE entrepreneurship at HBS! There's certainly an interesting debate about MBAs for entrepreneurs at the moment, but it's good to hear that for those who do decide to pursue an MBA, there are strong opportunities for them during the MBA programs.