It’s not only unicorns that could be in trouble next year. Any startup whose runway is shorter than its path to profitability will likely die. The never-acknowledged truth that working at a startup, even a well-funded one, in Silicon Valley is risky will be outed.
I’m always amazed at how little the entrepreneurs we’ve been coaching for almost two decades know about financial statements. The weeks we go over the financial part of starting and growing a business in our entrepreneurship programs are notoriously under-attended (to be understated about it). No one seems to be interested in learning what it takes to run a sustainable business from a financial perspective.
Funding makes that worse, because now these entrepreneurs can really sweep finances under the rug. Just this week on TWIST I heard Tim Draper and Jason Calacanis laugh about entrepreneurs who suddenly call their VCs and say “I’ve got to raise money fast,” after a long silence. When Draper asks them how much runway they have left, they often reply, “none.”
Imagine being the early employee of a company whose founder doesn’t even know how much money’s left until there isn’t any? These poor young people get recruited using sophisticated recruiting platforms designed to attract the best and the brightest, and the currency to do that in Silicon Valley is equity. But equity, my young friends, is even more volatile than bitcoin.
I’ll tell you a little story from my own experience. When Intel bought my business they offered me a sum of money and equity. The equity had a one year cliff and vested completely after five years. My strike price was$61. It was Intel’s most profitable year ever.
But I hated working at Intel, and after the one year, I was out the door. I left four years worth of equity on the table to become an entrepreneur again. I’m sure people thought I was nuts.
But soon after I left, my stock went under water. Even at a big company. Had I stayed, my stock would have been worth next to nothing.
So here’s my rant: no one should go to work for a startup unless he or she knows how to read a profit and loss statement or a cash flow statement at the very least. Same with the founder and the executive team. I don’t care if you know all about preferences, dilutions, and all that other high finance crap, if you can’t balance a checkbook at the end of the day it will all turn to dust.
And if you are a founder and don’t share your financials with your employees, you are little more than a slaveowner, no matter how good a cheerleader you are for the company. Ultimately, you’re a guy/gal paying low wages and asking people to work on the come. All your employees should know where the company stands at any given time.
If nothing else, that allows them to help you if you need faster turnarounds or more sales.
That’s why I wonder whether Uber, still in volatile startup mode, should be doing a naming deal with the Warriors. Two years and two dozen lost local legislative battles later, the Warriors could end up with a stadium that has no name. Uber has no way of predicting how much cash it will have three years from now.