Entrepreneurs Always Bear the Brunt
Being an entrepreneur is hard, especially when you bring on investors. It is hard not to believe the hype when things are doing great. So many people sitting around the table now have a stake. It becomes easier to listen to everyone around the table telling you to build faster and raise at a valuation not in sync with the ARR because you can, and don’t forget to let the company get a little fat too.
Then reality hits that the advice you were getting and reacted to was shit. All the people who gave you advice somehow look different, like the emperor who wore no clothes. You realize that the people telling you the reality of the situation were the people you should have believed. You should not have believed the people who kept blowing smoke up the companies ass. Your company is now worth 75% less; you must fire 35% of your team, and getting through it is hell.
The worst part is that everyone around the table marked your company down on their balance sheets. They are not being as supportive as you had hoped during this downtime. You begin to realize that the only people genuinely hurting here are the people you fired and yourself.
Not all investors are like this, but unfortunately, plenty are, and it is not pretty. For the entrepreneur, as always, if you succeed, you are a champion, but if you fail, all on you.
Why did YCombinator start pricing startups at $20m valuations with barely a product? Why did sizeable late-stage and some early-stage venture firms begin to drive up the price of companies in a bidding war? Money was cheap, people needed places to put their cash besides the market, and the public markets always show where truth is made.
More significant economic problems have caused this “check” in the startup industry, but we should look hard at the investors caught up in a game and the opportunity to create jobs. This downturn is still in freefall, and at the end of the day, it did not hurt the investors; it hurt the entrepreneurs. That is the most painful thing about all of this.