Are you certain? Mine has yet to be discovered. We are still looking for the unicorn after assisting, associating, and directing close to 100 start-ups. I had no idea the road ahead would be so challenging when we unveiled Beta Project 25 last December, with the goal of finding and helping 25 businesses or start-ups become world class in the following 25 years. “You sure have to kiss a lot of toads before Prince Charming comes along,” I discovered after receiving 7,253 applications and speaking and spending a lot of time and resources. The Beta Project 25 crew was fueled by storytelling, and start-up entrepreneurs are known for finding the best storytellers. For a start, we have to listen to a lot of fairy tales from the would-be entrepreneurs. “The world will look different once we come into the market,” they say. “My start-up will be the leading business in a new industry.” Many of them believe their story about how they can foresee what others cannot, and how this stands to make them a lot of money. And they retell them to us. Whom to believe, when you cannot easily verify such tales? This is the difficult part. In recent years investors who are new to the terrain have been piling in. A venture capitalist (VC) trying to raise money may favour start-ups of the kind that have done well recently, even if they are not the best, long-term bet. Oddball start-ups with more potential might then be starved of capital.
I have a nagging fear that the more money is funnelled the less “true” innovation will occur. Well, perhaps. But we could be missing great business ideas. One source of discomfort is that most VC funds are often narrowly segmented by region, industry, or stage of investment-and sometimes all three. Money is attracted to themes that have worked well recently. As Bollywood has discovered, it is easier to sell a variant of an old story than a brand-new one. I believe there are drawbacks, though. A truly game-changing business may sit astride several themes and be ignored. The crux is to find the next Steve Jobs. The man who can get things done. We know that we have to kiss a lot of toads to find a prince-even a halfway handsome toad. The average VC firm screens 200 targets a year, but makes only four investments, according to one study and the VC can offer a logical explanation for the choices as well. It is obvious that moon-shot ideas are starved of funding. SpaceX, Elon Musk's space-exploration firm, was valued at a whopping $74billion int its most recent funding round. Even borderline scams are given a respectful hearing. The trouble is most of the enterprises believe they are worth the money they ask for just because of their idea. They do not understand the statute of Elon Musk. That is the challenge. The truth today is, with interest rates near to zero, more money chasing scarce ideas and talent means that the prices paid for start-ups rise, which with all else remaining equal means returns fall. And the absence of cash constraints can spoil a promising start-up. If it blows a lot of money on marketing, the resulting growth can distract the founders from underlying faults with the product. Telling a good story is vital in the start-up business. But there is a danger in believing your own fairy tales.
(The writer is Chairman, Beta Group. The views expressed are personal.)
