A rose by any other name is still a rose, but when is a venture “startup” really a startup?
Is a startup when a venture is just an idea and nothing else, or is it when an entrepreneur has developed a product, such as a cure for cancer, or is it a 6-year-old venture that has 10 banks and 25 fintech firms as customers, has 750+ employees, and has just received institutional venture capital (VC).
Business publications seem to have jumped on a bandwagon to call every venture funded by VCs as a startup, even if they have billions in valuation and revenues. The problem with this practice is that it can lead entrepreneurs to think that they can get VC when all they have is an idea, a pitch and hope.
When I pointed this out to a respected journalist, he agreed with me. Is it time to bring truth to journalism – and, consequently, to venture development and entrepreneurial education?
The reality is that it is usually not the entrepreneurs, but the VCs and the media that call the VC-funded ventures “startups.” Entrepreneurs often want to show how advanced their ventures are to get customers and/ or capital (the “fake it till you make it” syndrome), and VCs seem to want to position themselves as astute risk-takers. What is the media’s rationale?
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It would be great if the media does a better job of pointing out that VCs are very selective and need some way to ascertain potential, so they invest after evidence of potential, i.e., Aha! This suggests that entrepreneurs know:
· that they are unlikely to get VC before Aha because people cannot see potential before Aha
· that winning a pitch contest does not equate to proven potential
· that more unicorns are built with skills and not the opportunity because most opportunities can be imitated
· that getting VC is not venture success – but creating wealth and keeping it is, and
· that more than 9 out of 10 billion-dollar entrepreneurs took off without VC – they used skills and smart strategies to bridge the VC gap from idea to Aha and kept control of their venture and the wealth they created.
Here are two suggestions for venture development:
1. Start with a common definition of a startup. For credibility, business journalists need to define something as basic as a “startup.” A common definition will help entrepreneurs know where they stand and that they need to get to Aha if they want VC. Perhaps we can define a “real-startup” as a venture with an idea, a plan, and a product that is ready for sale – with no sales yet. This would assume that the research and development is done, and the venture is ready to start selling the product. And a “VC-startup” could be whenever a VC invests.
2. Push business schools to help all entrepreneurs get to Aha based on skills, and not promote pitch competitions for real-startups. Pitch competitions assume that experts can pick “winners” before Aha. But it is tough to pick winners before Aha. Even the highly ranked VCs, like Bessemer Ventures, have rejected unicorns like Google and Airbnb before Aha. B-Schools can be more effective if they teach the right skills that can help real startups. Then, instead of “beauty contests” for the best pitch, they can promote skills competitions to showcase entrepreneurs who prove their skills to start growth ventures. Skills competitions can benefit more entrepreneurs than the current system where winners are often picked because they sound credible, have the right pedigree or gender, or were admitted to highly ranked schools.
Let’s democratize high-potential entrepreneurship by teaching and promoting skills to help entrepreneurs bridge the VC gap from real-startup to VC-startup.
MY TAKE: The habit of calling VC investments as startups can be misleading to entrepreneurs who mistakenly think that VCs normally fund real startups before Aha. Can business journalism be accepted as credible when there is no common definition for something as basic as a “startup?” This can be important because VCs want evidence of potential, i.e., Aha, and entrepreneurs need to know how to get to Aha from “real” startup.