A while ago, The New York Times posted an article, ‘In Silicon Valley, Partying Like It’s 1999 Once More.’ One of the Valley’s VCs said, “Risk is being discounted tremendously.”
We’ve all heard of risk-taking as an entrepreneurial quality. Most successful and seasoned entrepreneurs will tell you that they take calculated risks. For every success story about an entrepreneur who funded his/her venture with credit cards or personal loans, there are numerous failed ventures that never got to the next stage, let alone made the headlines.
With what appears to be another tech gold rush, San Francisco is flooded with aspiring founders who dream of being the next SnapChat or Instagram. Not long ago, I attended a startup meet-up. One of the presenters was a Frenchman who had just landed in San Francisco the day before; he had a mobile app that he had created. And he had just moved to San Francisco to get plugged in. Unlike this unseasoned founder and those who presented that night, I’ve lived through the dot-com and dot-bom days. I’ve known those who succeeded and those who failed.
To give you some perspective, my first job out of school was a corporate finance position for a boutique investment bank on Wall Street. In 1990, companies that we were vetting had to have an operating history, real assets, and positive cash flows. In the dot-com bubble, most startups had no operating history, real assets or positive cash flows. Yet, the VCs poured millions of dollars into various tech companies, whose founders spent lavishly on themselves and their employees. There were a lot of people who either focused on product without a process, or process without a product. And then they all hit a wall because they ran out of money; what they produced didn’t perform seamlessly or user-friendly—no one wanted, and/or it did not scale.
Aspiring founders should not be seduced by Greed’s siren call. Seasoned VCs may be ‘discounting risk tremendously,’ but they can afford to play big, win big, and lose big. If you’re an unseasoned entrepreneur, you need to envision not just how big you’re going to win, but also how big you are willing to lose, can afford to lose. You need to research and assess the various risks you’re taking (financial, emotional, legal, etc.) ruthlessly and realistic. Don’t bury your head in the clouds and get carried away by all the buzz.
Proceed with prudence, with caution.
Here is the link to the article, “In Silicon Valley, Partying Like It’s 1999 Once More.”
© 2013-2015 My-Tien Vo