Tech is and has been referred to as the wild, wild west since the early days of Web 1. Like those pioneers who ventures out into terra incognita when the west was being settled, those web pioneers didn’t know what they’d find, and even in their travels, they were making it up as they went along.

Head’s up: the same goes for investors. There’s no startup handbook, although there are books that bear that title. There’s no investor handbook, either. Which is why founders may hear one thing from one investor, get totally different feedback/advice from another. And yet different feedback/advice from a third, and so it may go, all the way down the line.

 

Like founders, most are also making it up as they go along.

Most have no particular background in assessing what will make a successful startup. So, if you feel that investors are so much smarter/more informed than founders or you, not necessarily. Consider how they might have become investors in the first place. Many got lucky and started companies that were acquired or went public, so they had a great payday and decided to start investing. But why was the company acquired? Acqui-hire? A potential threat to a much larger company? Acquired then failed: less there than met the eye aka bad due diligence on the part of the acquiring company? There are also successful serial founders who become investors. There are always at least two sides to a story.

 

For the record, not everyone who benefited from the payday was in the C-suite. A good number were middle managers who got in early and woot! Cashed out, became investors! Some of whom did so to prove, if only to themselves, that they weren’t merely in the right place at the right time. They needed to prove that they had Mad Skills, too. All of which may help to explain why 75% pf venture-backed companies fail. Note to self: “The common rule of thumb is that of 10 start-ups, only three or four fail completely. Another three or four return the original investment, and one or two produce substantial returns. The National Venture Capital Association estimates that 25% to 30% of venture-backed businesses fail,” said Scale Finance.

Factor in the lemming-like behavior of the investment sector and how much of investing is driven by FOMO, well, consider once again the American Wild West. Many pioneers did successfully arrive at their destination. The Donner party et al, not so much.

 

To refresh your memory, brothers George and Jacob Donner attempted to lead 89 emigres from Illinois to California. On advice they received, they decided to abandon the established trail in favor of a shorter route, which led them to encounter “rough terrain and numerous delays, and they eventually became trapped by heavy snowfall high in the Sierra Nevada Mountains. Purportedly reduced to cannibalism to survive through the winter, only half of the original group reached California,” according to History.com. Also do note that George was married twice and Jacob three times. Seems they didn’t have a great track record of getting it right the first time.

 

Always get the fact/do your due diligence, too, founders.

 

Glenn Argenbright, founder and General Partner at Quake Capital, one of the most successful early-stage funds in the US, spoke at our investor breakfast recently and said that the investments he makes are data-driven. Then again, his background is in data science (and law). Do note that Quake topped the list of accelerators (Quake also runs an accelerator program) that invest in diverse founders – they’re #1 – yet, interestingly, Argenbright said that the fund’s decisions are data-driven rather than diversity-driven. It’s just that diverse and older founders tend to rise to the top.

Just that morning, Axios reported that Google Ventures shelves its algorithm. “Google Ventures has mothballed an algorithm that for years had served as a gatekeeper for new investments.

“Why it matters: This is a strategic sea change for one of venture capital’s most data-driven firms, and a Big Tech acknowledgement that human judgement shouldn’t always be automated away.”

We don’t necessarily disagree but do wonder if the decision was made as the algo was sourcing an inordinate number of diverse and older founders, drat it, no matter that Forbes recently reported that Older Entrepreneurs Outperform Younger Founders—Shattering Ageism. “One of the most in-depth studies on the relationship between age and startup success was conducted by researchers from MIT, Northwestern, Wharton and the U.S. Census Bureau. They found that the mean age of startup founders across the U.S. was 42 years. The mean age of high-tech startup founders (where one might presume that the founders are younger) was 43. And the average age of founders of the rare ultra-fast growth unicorns (the 1 in 1,000 fastest growing ventures) was 45… The study shows that the likelihood of success as a founder increases with age.”

 

So, you see we’re still all making it up as we go along – including Facebook. We’ve said it before – that no one stays on top forever – and as the appetite of the public changes, so do the fortunes of tech, literally. Re Facebook, said CNBC, “Facebook scrambles to escape stock’s death spiral as users flee, sales drop.” …”Meta is trading at its lowest since early 2019, and the stock is one of the worst performers this year in the S&P 500…Said Laura Martin, an analyst at Needham, “I’m not sure there’s a core business that works anymore at Facebook.”

 

As the Forbes piece mentioned, Mark Zuckerberg was 20 when he founded Facebook and had no real-world work experience, while Reed Hastings started Netflix at 37, ‘old’ given that the tech press does have a certain adoration for young founders, as do many investors. But chances are that the older entrepreneur has been around the block a few times and when rough times hit, they’ve been there, done that, and can assess what their next move might be – based on experience.

 

Forbes listed three criteria needed to become a successful entrepreneur, the second being the “You Have Been Successful at Your Job: Success at your job is highly correlated with your effectiveness as a founder because people who have already experienced professional success have a higher bar in how they define entrepreneurial success. This observation flies in the face of conventional wisdom, which dictates that startup founders need to be scrappy and hungry and that people set in their ways at corporate jobs will be unable to create new value. The people holding “cushy” corporate jobs are the ones most likely to become successful founders.”

 

Transparency, which has nothing to do with age, is another criterion that makes for a successful entrepreneurs – something Zuckerberg has never demonstrated – and speaking of the Donner party, they were led astray by one Lansford Hastings, an unscrupulous trail guide who was “leading an earlier wagon train along his new route (that he had suggested to the Donner party). He left word for the Donners to follow, promising that he would mark the trail for them, which was an easier passage,” wrote History.com. As they proceeded, they found a note from Hastings attached to a forked stick, warning that the route ahead was more difficult than he had thought. He suggested they make camp and wait for him to return, which he never did. The party sent a messenger to find him, who returned several days later with instructions from Hastings to follow yet another route – one which turned out to be even worse and the rest is history.

 

Since the tech world is so fond of the wild west analogy, important to note that while fortunes were made – not by everyone – many lives were lost as well.

 

As for tech, the wild, wild west it is and continues to be, marked with the same problems and mistakes we witnessed during the earliest iterations of online: namely, too much money chasing too much youth and inexperience, and that may well hold for both sides of the table. Which may go a long way in explaining why, wild, wild west references aside, so many startups end up so far south of expectations. Onward and forward (but not necessarily westward ho).