What has not changed since the last update of High Tech Start Up was issued in 2000? Here is what I have found has continued with little modification.
Your comments are welcome, as I am in the process of drafting the update to the book.
Much has remained the same. Tried and true methods and lessons still work well. Add them to what is new and you’ve got what it takes to convert an idea into a world-class new enterprise. That is what is discussed in depth later in this book. For now let’s look the time-tested lesson about typical high tech startups—many of them contrary to popular stereotypes.
1. The chances are 6 in 1,000,000 that an idea for a high tech business eventually becomes a successful company that goes public. It was lower – around 3 in one million -- in the years following the peaking of the Internet boom in 2000. Chances of going IPO remain lottery odds.
2. Fewer than 10 percent of the funded startups go public. Amazingly small, still too small in my opinion. Pauses in the IPO market (e.g. 2007 – 2008) make the chances to go IPO even smaller. The numbers for Internet era startups were running less than 7 percent as of the end of 2008.
3. Boom periods such as the Internet boom-to-bust years produce (mostly paper) billionaires and a lot of bankruptcies (some VCs saw most of their investments go out of business). When the bubbles burst they bust a lot of startups, founders, and their investors.
4. Successful venture capitalists rise from the startup ranks, typically coming from successful venture-backed new enterprises. Since 2000, some large venture firms have layers of partners, from junior to senior. Associates starting work directly out of MBA school rarely make it to VC partner.
5. Business plans remain typically poorly prepared and thus are not well received by venture capitalists. Most founders rely on PowerPoint presentations and a short Executive Summary to get their money. This leaves unprepared presenters vulnerable to tough questions.
6. “Unfair advantage” and “sustainable competitive advantage” are missing in most business plans—but are considered by investors to be critical if the high tech startup is to have an acceptable chance of succeeding. Plans lacking such an advantage rarely receive venture funding from experienced, successful venture capitalists.