“Funding” event as a key media story [Startup Echochamber]

[Funding != success. In fact, funding is an internal milestone, though the current noise in the ecosystem tends to celebrate funding more than anything else. In the past ,we have often asked why entrepreneurs/ecosystem doesn’t celebrate customer wins over funding (read: Signs of startup echochamber) and continuing that discussion, Mukund Mohan (CEO, Microsoft Accelerator) asks a few relevant questions.]

Every one of my journalist friends asks me for “exclusive” stories, which I can understand. What I am very upset about is that their next request is for “exclusive funding stories”.echo.jpg

I had a reporter come by to talk today to me about our companies. He mentioned that his opinion was companies that were funded performed better than those that were not.

His primary reasoning was that those companies were  ”filtered” by investors and the “due diligence” was done, so they were “better” companies.

There are many times I would disagree but keep quite and move on. This time I did not.

<Rant>

This was one of those times when I felt the person was just plain misinformed, misguided and did not really look at any of the facts, but preferred to have anecdotal information color his opinion.

The mountains of evidence that proves his opinion incorrect was insufficient for this reporter  to change his fundamental position.

1) Funded companies have higher % of failures than unfunded companies.

2) Funding does not guarantee success but success guarantees funding.

3) The value that an investor provides towards “due diligence” is limited. If you take a look at venture returns over 90% of funds do not have any success in picking “winners”.

I am the first to admit that its extremely hard to get any kind of funding. Its harder in India, but does that mean companies funded in India are somehow “better” than those that are not funded? At best my argument is they have just about as much chance of success as any of the others.

What does a funding event really tell you about a company?

Its tells me that the company needs money and was able to get it.

Does it tell me that the company will succeed? No? Exhibit A is the eCommerce companies that many investors funded in 2010-11 in India.

Does it tell me that the company is targeting a large market? Possibly, but that’s true of the many other companies that did not get funded, but are chasing the same market.

Does it tell me that this company has potential – it has as much or as little as the others that are not funded.

In fact over 73% of publicly listed companies were not venture backed.

I would consider any reporter downright lazy if they left the “due diligence” only to investors alone, because investors overall (including me as an individual) are more wrong than right.

Why do I make a big issue of this with reporters as opposed to any other person?

1. They are supposed to be objective and fact based as opposed to have their opinions color their judgment.

2. They are supposed to question their assumptions and seek the truth not report fallacies.

3.  They wield an inordinate amount of power given the number of people that read their pieces.

I’d love a counter argument and understand why reporter love “funding stories”.

P.S. I also dont understand why people wont debate their positions. It tells me that they are not confident about any of their hypothesis or positions and would rather be ignorant and prefer to have misinformed opinions.

</Rant>

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