I've helped some new founder types develop business plans and pitch decks over the years, and they all seem to be very hesitant to have this kind of (let me call it "adult") conversation with people, but I personally find a slick/happy/always-sunny-here pitch to be a little too used-car-salesman for my tastes. It certainly wouldn't be out-of-bounds to have one of the five projections be "total loss", but it doesn't add much information to the discussion, so while I mention it in passing, I don't include that in chart form. But, it seems to me that if honesty turns off investors, they probably aren't the kind of people you want on your board anyway... Nothing worse than a noob investor asking all the wrong questions all the time and harshing your zen when you've got a company to build.
Re:Guiding a Venture-Backed Startup to a Felony
by cookiecaper on Saturday August 20, 2016 @04:44PM
(#12328243)
The truth is that if you present a document to your investors that says "Worst Case Scenario: Total Loss", it's not going to go well. Your investors will likely believe that you're presenting that as a minimum acceptable outcome. It may make a jury feel you were trying to be honest, but you probably won't get any investment to start with if you take that approach.
Re:Guiding a Venture-Backed Startup to a Felony
by PeterisP on Saturday August 20, 2016 @09:23PM
(#12329048)
Actually no, pretty much all stock offerings include specific language that says pretty much this; and not saying so does make you liable in case if it does happen (and let's be real, it's hard to imagine any venture-capita-like endeavor where there's not at least 20+% chance of going bankrupt), and just like in this case - this is one of main factors that caused this guy to go to jail. Yes, here there were other wrongdoings as well, but generally taking on risky investments and assuring that they are safe is a crime by itself; while taking money and losing it in a totally risky business is legal as long as you have properly disclosed the risks.
Re:Guiding a Venture-Backed Startup to a Felony
by ci5er on Sunday August 21, 2016 @01:41AM
(#12329574)
I don't know. When you bring it up (other than maybe market/ecosystem flux risk), lot of the major VC types are pretty dismissive and say "yeah, yeah: startups are risky". But people who don't spend 40+ hours/week evaluating startups seem to appreciate a pretty frank discussion of the things that could go wrong and what you are doing to minimize the odds of that happening or how you will respond if they do happen.
Re:Guiding a Venture-Backed Startup to a Felony
by morgante on Saturday August 20, 2016 @09:14PM
(#12329023)
Eh? Almost any sane investment prospectus out there will state that it is possible for your investment to lose money and, in the worst case, to be lost entirely. Any prospectus which doesn't say that is almost ipso fact a fraud.
Re:Guiding a Venture-Backed Startup to a Felony
by cookiecaper on Sunday August 21, 2016 @01:05AM
(#12329479)
Correct, there is boilerplate language that states investment is a risk which is found on almost every investment instrument, including small print on commercials that pitch investment products and on the footer of every online stock brokerage. IMO that's different than inserting a projection that reads "TOTAL LOSS". I suppose the article doesn't specify whether the boilerplate language was included or not; I was assuming the author meant additional attention should've been drawn to the risk beyond the boilerplate.
This is an interesting piece of advice. I never thought to plan the negative scenarios when doing high-level planning. You always discuss possible risks and keep them at the back of your mind but adding a failure scenario to your plans among low, medium, high outcome scenarios is a really good idea.
You don't hear much about risk management/planning for startups. If you're not monitoring your risks along with your positive KPI's (or factoring them in your KPI analysis) it's easy to gloss over them or delude yourself that they don't exist.
Although, otherwise I question the value of taking much lessons out of this 'startup' failure. It's not very analogous to anything like the standard HN web startup. Just some outsider non-techies who wanted to make a 'web portal' and wasted a bunch of money frivolously (ie: 100k went to the author for licensing upfront). Even ignoring their lack of technical industry experience, their business plan heavily centered around building a community with a target market they didn't already have any traction or influence in - which is always the hardest part in any community-centric product. The tech is (usually) the easy part.