May 112015

How 'Disruptive' Startups get Funded in Silicon Valley

The holy grail for a Silicon Valley entrepreneur is getting funded by a venture capitalist.

Here’s how a ‘hot’ Silicon Valley startup’s funding process goes:

1. A bunch of Rich White Men raise several hundred million dollars from pension funds, foundations, super-wealthy families and university endowments through the old boys network of other White Men and hang out a shingle calling themselves Venture Capitalists (VC)
2. Flush with capital, the Rich White Men sit in plush digs on Sand Hills Road, Menlo Park (CA) surrounded by abstract expressionist artwork (abstract expressionism is a school of ‘art’ that makes no sense to anyone except its creator) on the wall waiting for entrepreneur supplicants to show up and plead for money
3. Somewhere in San Jose, an entrepreneur has a “Eureka’ moment and convinces himself he has a ‘disruptive’ idea (‘disruptive’ in plain English = screw other businesses, screw other employees, screw everyone outside the entrepreneur’s self, get others to do the bulk of the startup’s work a la Yelp, Twitter, Facebook, eBay, TripAdvisor)
4. Entrepreneur maxxes out credit card and cajoles friends and family for seed funding for his ‘disruptive’ startup
5. With seed money in hand, excited entrepreneur launches ‘disruptive’ startup in his bedroom and convinces 2.5 naive dolts to join him with a spiel of an ‘opportunity of a lifetime to get in on the ground-floor’ (Think, do you want to change the world or sell soda water for the rest of your life?)
6. ‘Disruptive’ startup sees ‘viral’ growth among itchy, restless Internet teens in USA, China, India and Brazil sniffing for a ‘new high’
7. Crafty entrepreneur generates ‘buzz’ for startup by hiring PR agencies & wining/dining moronic reporters/bloggers who swallow entrepreneur’s hallucinations on ‘disruptive model,’ mind-blowing adoption rate, 500-billion pageviews and 2,500% month-over-month growth rate unquestioningly in exchange for paid banner ads and sponsorship of publication’s upcoming conference
8. Crazy entrepreneur drinks the media coolaid (stories about himself and startup) he purchased in magazines, newspapers and blogs
9. Restless entrepreneur develops Icarus Syndrome and wants to grow faster, soar higher and Kekule-like dreams up a new logo for startup – Only We Touch the Sun, Every Day
10. Entrepreneur gets delusional, can’t sleep, fantasizes about $1 billion valuation, $5b IPO, $10b holding, private island in Hawaii, teen trophy wife from Stanford, Ellison as neighbor
11. Gorging on his new Venturebeat Bible, delusional entrepreneur begs everyone for intro to a VC
12. Ceaseless begging lands entrepreneur a 10-min meeting with a VC
13. Maniacal entrepreneur makes hyperbolic pitch to VCs promising to ‘change the world’ and ‘disintermediate four layers’ and for special effect throws in words like Uber, Facebook, Gates, Unbreakable Encryption, RSA, Jobs, Page Rank, utopian, Ellison, Airbnb, Linux, algorithm, sharing economy, supply chain, locked-in buyers, pathbreaking, headstart on rivals
14. Eight Rich White Men (aka VCs) hear 2,000-3,000 similar pitches a year
15. So confused eight Rich White Men (aka VCs) can’t make up their mind, look at each other, up at the ceiling, glance at the abstract expressionist painting on the wall, down at their gleaming shoes, wait to see what other Rich White Men will do.
16. Finally, the eight Rich White Men roll the loaded VC dice (this dice will bring up ‘yes’ only once in 300 rolls)
17. Sleepless, the startup’s founder awaits response from eight Rich White Men – Entrepreneur’s chance of rejection is 99.5%
18. When dice says the rare ‘Yes’, the eight Rich White Men invest (aka ‘sink other people’s money’) in entrepreneur’s fantasies
19. Eight Rich White Men bring networking power to the startups they invest in (networking in English = picking the brains of other White Men in the Bay Area and scratching each others’ backs)
20. Meanwhile, upon advice of Eight White Rich Men the entrepreneur throws some of the Pension Fund money of retired teachers and firefighters at PR babes (all of whom bear a bizarre resemblance to Emma Watson)
21. Entrepreneur makes funding announcement signalling to world that startup has ‘great’ potential and is ready to ‘change the world’ and ‘disrupt the existing model’ of business
22. Ersatz Emma Watsons (aka PR babes) get wined & dined idiot reporters/bloggers to write about $2 billion valuation, ‘disruptive’ startup and cast the entrepreneur as the next Mark Zuckerberg but younger and smarter
23. Flying high, crazy entrepreneur repeats steps 13-22 for Series B and Series C rounds
24. Failure rate of VC funded startups is 67%-70%
25. How the Eight Rich White Men (aka VCs) make Money – 2/20 Rule, i.e. by grabbing 2% of the venture fund each year and creaming 20% off profits (if there’s any)
26. Once in a decade, one or two packs of eight Rich White Men hit one in a zillion jackpot – get 1,000X return on investment

Pension funds of retired teachers, firefighters, municipal and other government employees rarely, if ever, see solid returns from VCs

Seeing poor returns and no increase in cost of living from their pensions, retired teachers and geriatric government workers cut weekly visits to Applebee’s and Bob Evans to once a month.

And the Silicon Valley dog and pony startup VC investment show goes on!

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