The moral hazard of startups

Selling equity to venture capitalists has become a lucrative business model, headlined FT-Entrepreneurship this morning.  It’s a provocative article.  With seed capital abundant,  anyone with a compelling idea and a silver tongue can fund a couple of year’s employment in an incubator.  Entrepreneurs can enjoy the start-up lifestyle with little personal risk, Murad Ahmed writes.  The moral hazard is that Founders can live for a year or two on seed capital, have some fun and punch their lottery ticket. If things don’t take off immediately, they can simply move on. 

My move from Corporate to Startup was driven by a desire to get great ideas through to physicians and patients,  to keep control of  key business and project decisions,  to select capable and congenial talent to work with, and to keep what I win when it all succeeds. 

The reality of running a startup is more humbling.

The daily realities of long hours, frequent setbacks, demanding customers and skeptical investors requires sustained effort and deep resilience to overcome.  (Horowitz, 2014)

Along the way, I’ve learned what I am good at, mastered what I needed to know, and recognized (almost too late)what was beyond me.

I’ve always kept to my principles of building value for customers, being fair to employees, providing a return for my investors, and being honest with everyone.

The FT suggests two additional tests for identifying the truly committed entrepreneur.  During conversation, 1) Get edgy and unpleasant to see that they behave rationally and understand what they need to succeed,  and 2) Change the subject, to see whether they are focused and immediately get back to the topic. 

I’m embarrassed to say that I’ve probably failed both.  I move on when confronted by arrogance, and follow the social talker to building rapport.