Have a good idea for an internet startup?
You are just a couple of minor steps away from being the next Mark Zuckerberg!
After all, the internet is booming and investors are handing out cheques like candy on Halloween.
So get that software designed and coded, print up some flashy business cards, buy a suit and go get that venture capital!
What could go wrong?
Well, a few things actually…
The biggest startup funding fails ever
You could pay Whoopi Goldberg $8 Million for an ill-advised endorsement deal, for example, like Flooz.com did. The good folks at Flooz burned through $50 million in investment capital in 2 years, were investigated by the FBI for laundering Russian crime syndicate money and left the few people who actually used their product (which gave users “points” to redeem at online stores) with absolutely nothing by the time they folded…
Or, you could spend $16 Million on an extravagant launch party, like video streaming startup Pixelon.com did in 1999. Hiring bands like Kiss and The Who to play the event might distract investors from the fact that you founded your company under an assumed name, which is good since using your real name might alert them to the fact that you are actually a convicted stock scam felon named David Kim Stanley. Oh, also, your tech doesn’t actually work. Plus some of the software you promised never existed in the first place. Rock ‘n’ Roll!!!
You could even be a charismatic egomaniac, like Terralliance CEO Erlend Olson, who convinced investors (including Goldman-Sachs and Kleiner Perkins) that he had developed an algorithm that could find the best places on the planet to dig for oil. Despite dubious evidence that his tech actually worked, Olson managed to raise funds for his project to the tune of half a billion dollars in investment capital. He then set about spending it on things like demilitarised Soviet fighter jets. Terralliance never did find much oil and Olson has since moved on to greener pastures.
Or you could put all your eggs into one greedy basket, like the RealNames Corporation did. They raised $130 Million in funding based on a tenuous partnership with Microsoft’s Internet Explorer. The catch was that when Microsoft decided to redirect the 1 billion page views per calendar quarter it was sending to RealNames’ back to its own search engine, RealNames had literally NOTHING. They had spent as though the Microsoft gravy train would never end and can now be found pulling the copper wire out of the walls of their offices to sell for scrap.
Indeed, there are many stupid ways to blow through venture capital and many bad ways to invest it. For example:
The important thing to remember is that there are companies out there who have done their due diligence. They have a sustainable business model, primo tech, and keep sane, fiscally responsible folks at the helm who know how to develop a successful company.
In our humble opinion, the most effective way to evaluate the value of a company is to take a good hard look at the technology involved, as well as the people you are investing in, and ultimately the value it delivers to customers. Forget the flash offices, the gold-plated iMacs, and even the UberExecs on tap. But what do we know?