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How To Cope With Startup Envy

Dear Lucas…

My startup recently failed. I was the CEO, and it was in a super-hot space with three other competitors. Two of the competitors were acquired and the founders in both companies became super-wealthy. I checked out their LinkedIn profiles and for most of the founders, it was their first startup.With only two startups left, our other competitor’s growth stalled while ours went through the roof. We were way in the lead until we tried to raise our next round of funding. The VCs did not want to invest any more money. We tried laying people off, but in our frenzy to grow quickly, we ran out of money and had to shut down.

Meanwhile, the stalled competitor had scaled down operations earlier than us, which naturally gave them more runway. They ended up pivoting into a tangential space where they (accidentally?) hit on a big new hot trend. Almost a year after they scaled back, they were now raised a round of funding at a huge valuation.

Should we have done something differently? How did I screw it up when I was ahead? I can’t get over the feeling like none of it is fair. I get the feeling that other people keep winning big all around me, except for me. Do you have any advice that can help me?

—Almost Famous


 

Hi Almost Famous,

Your story is so common that it has been told for thousands of years and countless ways. It is straight out of Taoist mythology. Here is how I usually modernize it.

A father has a son. Everyone congratulates him and says “What great news!”The father responds: “Maybe.” The son grows up and breaks his arm in baseball. Everyone says: “What bad news the broken arm is!” The father responds: “Maybe.” A war breaks out and the military rejects his son due to the arm injuries. Everyone says: “What good news the broken arm was!” The father responds: “Maybe.” The son goes off to war anyhow. Everyone says:“What bad news your son went off to war.” The father responds: “Maybe.” The son is part of the platoon that kills the dictator. Everyone says: “What good news your son went off to war.” The father responds: “Maybe.”

I think that I will use your version of the Taoist myth instead now, because it illustrates the same structure but using terms I love.

An entrepreneur starts a company and gets millions in venture capital. Everyone congratulates him and says “What great news about starting a company!” The entrepreneur responds: “Maybe.” The company’s growth stalls. Everyone says: “What bad news about your growth!” The entrepreneur responds: “Maybe.” A bunch of companies in the same space are acquired. Everyone says: “What good news about the acquisitions!” The entrepreneur responds: “Maybe.” The company lays everyone off to extend runway. Everyone says: “What bad news about layoffs.” The entrepreneur responds:“Maybe.” The company pivots and raises a mega-round of funding. Everyone says: “What good news about the funding!” The entrepreneur responds:“Maybe.” The company runs out of money and shuts down. Everyone says:“What bad news about starting that company!” The entrepreneur responds:“Maybe.”

“What could have been” haunts us only when we forget that “what will be” alone can illustrate the full depth and measure of “what is”.

Are you going to let yourself be defined by what could have been? Or are you going to appreciate the here and now, and create what can be?

“Character consists of what you do on the third and fourth tries.” ― James A. Michener

I can hear your response already: “but so-and-so didn’t have to wait for their third and fourth tries.” That’s startup envy talking. The one who succeeded monetarily is the one you should pity, not yourself.

It is your turn to build character this time instead of hording money. Relish it. Treasure it. Learn to appreciate it and be grateful for this opportunity. Your failure is your accomplishment, wear it proudly. Your failures build character like tearing muscles builds scar tissue. It makes you fucking buff.

Nobody can build character for you. Think of your heroes. Are they people full of character? Guess how they got it. Was it by obsessing on what could have been? The experiences you are having right now are irreplaceable and precious and rare.

Fortunes come and go. Building startups is a long game. It is not long on money. You might win money in one startup, then invest it all and lose it the next startup. Startups are long on character. This is the dirty little secret nobody tells you up front: the spoils go to those left standing.

–Lucas

(If you liked this article, you might also like Are You a Craftsman Founder? by Lucas)

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Lucas Carlson

About the Author

Lucas Carlson

Lucas Carlson is an executive, author and entrepreneur. He helps founders discover opportunities for growth, both for their companies and for themselves. He was the CEO and founder of AppFog, a popular startup acquired in 2013 after signing up over 100,000 developers and raising nearly $10M in venture funding from top angels and VCs.

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How do I manage my anger after pitching VCs?

Dear Lucas…

I have never raised money before and I don’t know how anybody remains sane after pitching venture capitalists. I just finished my first round of bay area pitches… and it sucked. I had to tell the same story a half dozen times a day and I never knew how well I was doing. Sometimes the person I was with seemed engaged and asked a lot of questions, other times they would check their blackberry midway through my pitch.You would think that the engaged VCs were interested, but afterwards what they said was a total crapshoot. Some told me “It’s too early, but we’re very interested and we should stay in touch.” A couple told me flat out that they were not interested. One wasn’t sure about the market and needed to do more research to get comfortable.

The last VC I talked to seemed the most interested and said he was going to talk to his partners the next week and get back to me, but I haven’t heard anything and it has been three days. Meanwhile, the guy who’s blackberry was apparently more interesting than me reached back out. Apparently he talked to a friend and has changed his mind about the opportunity and wants me to come to a partner meeting next week.

Why won’t VCs just tell me what they think? Why do they lie to me? I hate pitching, why do VCs make me do it? Should I just try for angel investment?

—Dazed and Confused

Hi Dazed and Confused,

Raising venture capital is hard. Especially at first, it can feel like fishing backwards and blindfolded with handcuffs and without a fishing pole. But remember who decided to walk into this casino and sit down at the slot machine. You may not make the rules, but if you win, you probably won’t be complaining too much.

First, a few general rules of thumb. You never know how you are doing while you are pitching or just after. The only way to judge how well it went is by how much followup there is the next week. If there are clear next steps a week after the pitch, that is a good sign. If not, then it usually ends as a pass. The other general rule is that the VC who you think liked you most is rarely going to be the one that ends up investing. They are usually the first ones to ask for a followup. They get hot and heavy, and then flame away. Slow but steady burners are more likely going to make it to the finish line with you.

Even though raising capital is hard, many first time pitchers haven’t thought through how hard it is to be a venture capitalist either. I wouldn’t know first hand, but I can imagine. One of my favorite VCs, Frank Artale, has been a venture capitalist for almost three years. You can imagine how many startup pitches Frank listens to—at least four days a week packed with them. Let’s guess around 8-10 pitches a day. That is around 5,616 pitches total. And out of those, he is currently is on only 10 boards. 1/10 of a percent.

Frank Artale has had to say no at least 5,606 times in the last 3 years.

And Frank has other partners that he has to convince even after he is convinced himself. Could he make up a story to tell an entrepreneur that his partners were not convinced instead of just saying no? Yes. But is it more likely that his partners just weren’t convinced? Knowing Frank’s integrity, absolutely. Could Tim Porter from Madrona say “It’s too early, but we’re very interested and we should stay in touch” when he really meant no? Yes. But is it more likely that you are really too early for his investment and that he really does want to hear from you in the future? Knowing Tim’s honesty, absolutely.

Rejection is difficult to swallow. Sometimes it feels even worse to be in limbo; you just want to be put out of your mysery. Sometimes you can’t stand it anymore. But remember that VCs literally have to say no or pass on 99.9% of the deals they see. That doesn’t mean they don’t like you. It doesn’t mean they don’t want to hear from you in the future. It doesn’t mean they may not invest in you in the future. Don’t bite the hand that feeds you, they never forced you to try to raise capital.

This process may be hard, but it is the most efficient way the market has figured out to fund innovative ideas. It may not feel efficient, but every experience you have is there for a reason. Everything you hear (or don’t hear) from a VC may not be the whole story, but is the way it has to happen in a system where tens of thousands of people think they have good ideas and only a small percent of them can ever actually get funded.

—Lucas

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