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Funding failure

How stories drive faith in innovation.

The rule of thumb for disruptive innovation is — make it ten times better and cheaper than the incumbent.

That’s a lot. It’s very rare. Yet all of us secretly shoot for it. All of us secretly want to be David against Goliath.

The market wants that too. It’s still very rare, but the market wants it bad. So the market makes resources abundant. Combine that with the click bait headlines of panicking media and the loop closes.

$270 million invested in venture per day on average in the US. About 90% deals fail. More than $145 billion waiting to be invested.

We all secretly believe in disruptive innovation.

It’s still very rare. Yet, it doesn’t feel rare.

More than $ 270 million is invested daily into high potential high growth businesses in the US. Close to 90% of technology ventures flop in their first 18 months. Yet, there are new venture funds being born every month. Each one is a tiny bit different from the last. The sliver of differentiation, they will tell you, is their ticket to find and catch the unicorn.

Source:  Pitchbook

Source: Pitchbook

In mid 2017, there was more than $145 billion of “dry powder” in the market. That’s money committed into funds, waiting to be allocated into equity positions.

That’s money waiting to be invested into immature high risk businesses. Let’s reverse that. There is a deep shortage of investment opportunities. Some say too much capital is hurting venture capital. But that’s another story.

What does this enthusiasm mean? How does this affect culture?

The outliers themselves will tell you a story after the fact. And we love a good story. You will find patterns in the study of success. The virtues of the successful. But attaining those virtues doesn’t make you one of them. The odds are still against you.

They even teach at Stanford that this is not the way to get rich. 9 out of 10 startups fail.

Startups are not the road to riches. Most of the time.

Those are the odds.

Then there are conditions. Culture, environment, heritage, generation… Peculiarities in every dimension randomly affect the outcome. It’s uncommon to be a knockout success.

How do you feel? Does it feel like startup success is uncommon?

No. Because startup failure is not a story. There is no drama. Because it’s expected, we don’t pay attention. They close up, everyone cuts their losses or they find a suitor.

So why do we believe in becoming the story?

There is limited downside, and unlimited upside.

Innovation enables more innovation. Cheap servers enable access to cloud services. Widespread connection enables access to commoditized solutions. Once a privilege is now a commodity.

Commodity enables almost anyone to make almost anything. More people making anything doesn’t mean better odds. It means more stories.

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