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What are the Odds?

What are the Odds? 150 150 Basis State - We Find Exits for Software Companies

One of the most frequent questions that we receive is, “What are my odds of a successful acquisition?” In analyzing our historical client results, we have found that there are two factors that have outsized impacts on success. While in aggregate the odds are 50/50, if you can answer ‘yes’ to these two questions, they move to roughly 80/20.

  1. Are founders/employees still with the company?

    Our data show that if the company has no personnel (is effectively shut-down operationally) it only stands a 10% chance of being acquired. We used to think that there was a market for the tech of non-operational companies, but clearly that market is small.

  2. Does the company have revenue?

    Companies with less than $50K in annual revenue stand a 15% chance of being acquired. Given our strategic acquirers have very little interest in preserving legacy revenues / business models, we suspect having some revenue is really just a signal for the software working with live, paying customers.

Answer ‘yes’ to these questions, and you stand a ~80% chance of successful acquisition. Answer ‘no,’ and your odds drop below 20%.

Although we are set up to take customers who face these long odds, we generally try to steer them towards alternatives such as our Strategic Partnerships product (currently private beta) or taking a few months, if possible, to put the company in a better position for a successful outcome.

The COVID Crisis and Sub-Scale M&A

The COVID Crisis and Sub-Scale M&A 150 150 Basis State - We Find Exits for Software Companies

Finding exits for sub-scale companies is more about finding visibility through the fog than envisioning opportunity across a big blue ocean. So when the fog set in a couple months ago across the broader economy, and we continued to market acquisition targets, it was second nature for us to start looking for clarity.

What we see is that acquisitions are still happening in specific sectors, though at a slower pace with lower valuations, with more focus on immediate returns.

Sector matters

When we market an asset, we usually do it across multiple acquirer segments, giving us a broad view of M&A interest. Obviously, today’s M&A appetite varies significantly by how COVID has affected the industry sector. Sectors like travel and physical retail are too busy with short-term survival to consider long-term strategic opportunities…at all.

M&A is not categorically dead

Consistent with previous macro crashes (i.e. ‘01, ’08 – see appended chart), we expect deal volume to go down 20-30%, but not to stop. We have found that acquirers in sectors that are only moderately affected by the crisis are eager to engage. Some of this likely has to do with the fact that we deal in sub-scale assets. Smaller assets are a way for acquirers to take advantage of their current leverage without taking on excessive risk.

The default is cautious diligence, but competition ultimately dictates urgency

We have had acquirers express their desire for a slow process given flux in the broader market.  Of course, once other interested parties come to the table, any individual acquirer no longer dictates the timeline. When there is competition, an acquirer that wants to take things slowly can either accept the consensus pace or drop out. That is also to say, if you have a single interested party, prepare for a long slog. No one likes to take a leap during a crisis if they have the option to wait.

Acquirers expect bargains

As with timeline, no individual acquirer dictates the price if there is competition. However, if acquirers are universally expecting bargains given the current environment, then sellers should be prepared to sell at a discount. As shown by previous downturns, acquisition value decreases more than deal volume.

Revenue matters more

Companies are in the process of mitigating their risks. Acquisitions are inherently risky, however, acquisitions with a short path to a positive return on investment are less risky. An asset doesn’t necessarily need revenue to be an attractive target, but if it can paint a very clear picture of how it will boost its acquirer’s revenue, it stands a much better chance at a successful outcome in today’s environment.

In short, M&A is still happening, but there is wide variance in the probability of getting to a successful outcome. Where any given asset sits along the probability spectrum depends on damage to its acquirer sectors, and its ability to create near-term revenue. And valuations are down. The fog has arrived, but at least we’re catching some glimpses through it.

Sub-Scale Exit Preparation

Sub-Scale Exit Preparation 150 150 Basis State - We Find Exits for Software Companies

Even in the best of times, most sub-scale startups treat documentation, process, and exit preparation as a chore to be done later. But as these companies (SellCos for rest of this article) look towards a potential exit, they will quickly realize how much work needs to be completed just to satisfy due diligence in an acquisition. Below is a list of steps every business should be taking now, and in the future, to ensure they are prepared.

Acquisition Structure and Why it Matters

Most sub-scale businesses will be acquired via an asset purchase. Rather than purchase the entire organization, including any past, present, and potential liabilities, the acquirer will pick and choose which assets it wants. For most SellCos this will primarily be the Intellectual Property (IP), but often customers will be included.

In an asset purchase an acquirer will not have as heavy a diligence burden as they would in a full purchase. But SellCos will need to ensure their assets are properly documented and compiled for the acquirer to review. Acquisitions are expensive for an acquirer and their bid will factor in expected diligence costs. A high cost of diligence, in either time or dollars, will lead to at best a lower purchase price, or more likely an acquirer not making an offer at all.

Intellectual Property Prep

Think of IP preparation in two different aspects – Can acquirers prove SellCos own their IP, and can an outside party easily review what SellCos have built.

Can SellCos prove they own their IP?

We ask this question to every client and every CEO emphatically states yes, confident they own their IP. But when we begin our review and ask for a list of all employees/consultants who worked for SellCo, including title, start date and end date few have a list prepared. When we ask for an electronic folder of all offer letters, non-proprietary agreements, and consulting letters, we get a mix of unsigned word documents and other forms. Very rarely do we find countersigned copies of these key documents. SellCos may believe that all employees sign these documents, but can they prove it. And if SellCos cannot produce countersigned documents, can they confidently represent to an acquirer that the software and processes are properly owned?

Now the good news – these are common issues even in the best run organizations. Even with great processes in place, physical signed documents can be misplaced, or countersigned electronic versions placed in the wrong folder. But SellCos can take a few simple steps to help limit this risk.

  1. Create their list of all employees and contractors from the inception of SellCo. Note missing countersigned documents and begin the hunt to find them.
    • Once SellCos have exhausted their search, and if they are missing important documents, work with an attorney to determine if and how to remedy
  2. Create an ongoing process to ensure everything is properly countersigned and filed
    • It can be a weekly or monthly process where an employee is assigned to update your employees list with all new employees or contractors, verify all their documents have been countersigned, and filed both physically and electronically.
    • Assign a second person to verify they can find the electronic copy
  3. Keep a clean electronic folder of only final documents.
    • Every offer letter and consulting agreement likely has multiple versions in MS Word or some form of PDF. Those working copies are fine to keep, but store the final countersigned agreements in both the employee folder and a separate clean folder
    • This will make review and compilation significantly easier later

A few minutes of work each week or month can save time and money during an acquisition process.

Acquirer review

At some point in the diligence process, the acquirer will want to review the actual code and architecture of the software. SellCos should:

  • Be prepared to demo how the software works and how users typically interact with the solution
  • Have a full system map showing the architecture of the data and tables
  • Be ready to share some version of the underlying code. We do not recommend sharing full code, but enough for the acquirer to understand that it is well built
  • Identify any 3rdparty software in the code

Remember that for the acquirer time = money. Better prepared SellCos that can quickly and easily share this information increase their chances of a completed transaction at a higher valuation.

4 Tips for Getting Product Management Right (While You’re Doing it All Wrong)

4 Tips for Getting Product Management Right (While You’re Doing it All Wrong) 150 150 Basis State - We Find Exits for Software Companies

There’s a right way to do software product management. There are schools to teach it, certifications prove it, and plenty of articles on it. This is not one of them.

This is an article on how to manage an early-stage product when resources are too constrained to do it perfectly. When money is too tight to hire a full-time, certified product manager. When there’s not enough time to manage formal processes. When perfect is the enemy of good.

In short, this is an article on where 99% of product management starts — no money, no time, and infinite ambiguity.

While not a complete guide, here are 4 tips that have helped me manage less-than-perfect initial products:

#1 Fly Your Tattered Product Flag

There’s a difference between being incompetent and making measured trade-offs. Whatever product you develop initially will take its beating from the market, and morph wildly before achieving market fit. That’s also to say, effort to optimize a product before it hits the market is probably not well-spent.

As an investor, advisor, stakeholder, I get concerned when a company releases a gorgeous product before it has any users. It concerns me far less when a company releases something slightly janky, or barebones simple. That’s a signal that the company is saving dry powder for when the product vision becomes clearer.

So rather than apologize for your initial product, wear it as a badge of good sense.

#2 Discuss the Economics with Your Technical Team

Unguided, your technical team will likely create the best technical solution for your technical needs. That’s pretty much their job, done well. But the best technical solution is not always the best business solution. For example, sub-scale, contracting human review can make a lot more sense than building automation.

Developers tend to be naturally analytical. If you take the time to share the economic rationale of one approach vs. another, your technical team is going to get it. And with time they’ll incorporate that thinking into their own decision-making.

Plus, without a lens into how they are made, business decisions can look like they’re based on gut and not fact. Showing that there’s rationale behind the decisions can foster trust.

#3 Sometimes, it’s Okay to Give it Away

When you first create a product, the thing you need most is market feedback. Any friction to getting that feedback is probably not worth whatever benefit it brings. If you spend months negotiating a big contract, those are months that could have been spent iterating towards a product that has some chance at long-term viability.

I have found that the fastest way to get the feedback I need is to suspend whatever is giving customers pause. In order of importance, these items tend to be (1) setup fees, (2) contract term, and (3) price. If one of these items is impeding your ability to get your first customers, knock it down.

It took me many years before I became comfortable with foregoing good terms to get feedback. Here are the objections that I had rattling around in my head, and what I’ve learned about them since:

Objection: You will erode your perceived value
Learned: You’re a startup. No one has heard of you. You have no perceived value to erode…yet.

Objection: You need to prove willingness to pay
Learned: Once your product is stable, and appreciated, you can charge a fair price for it. If existing customers won’t absorb the new price, then you didn’t get the value right, and it’s back to the drawing board.

Objection: Investors need to see commercial traction
Learned: Investors need to see commercial traction on a product with market fit. Traction on a product that hasn’t found its fit is the single biggest sinkhole of early stage capital and should be terrifying to investors.

Objection: You will deplete your runway
Learned: Nothing depletes your runway faster than spending time on the wrong product.

#4 Think Hard Before Playing Pufferfish

The guidance often goes, startups should make themselves look bigger than they are to gain the trust of prospects. There’s some solid logic to this. Prospects can be wary of tiny companies, because tiny companies often go out of business.

On the flip-side, any large customer is going to test your capacity at some point. At that point, it’s better to be known as a strained 3-person company than an incompetent X-person company.

Also, fakery is exhausting, and if you’re caught, it will erode goodwill. You should be focusing on building good relationships with early customers rather than perpetuating a lie.

Once the market has validated your product, you’ll have plenty of time to do product management the right way. Until then, time is a scarce resource, and letting go of perfection is one way to use it to its fullest.

Founder Passion Versus Investor Fiduciary

Founder Passion Versus Investor Fiduciary Basis State - We Find Exits for Software Companies

I frequently hear investors say they are looking for passionate founders. I think in this instance “passionate” is just a proxy for “driven.” Driven founders work hard, and push through adversity to get to success.

Really, investors are not interested in just any flavor of passion. It’s important to consider whether yours is the type that investors want.

Here are some founder passions that I’ve seen:

  • To make a difference in the world
  • To make money
  • To be TechCrunch famous
  • To build a remarkable internal culture

Investors can also have passions. They might take the form of a thesis on a certain type of business, or a focus around businesses with a particular aim such as environmental responsibility, ending poverty or curing disease.

But VC passions live within strict guide rails of fiduciary duty. As “dual fiduciaries,” VCs represent the interests of their portfolio companies as well as the limited partners in their fund. Limited partners generally have one overriding interest: return on capital. In turn, making money rules the day.

Any of your passions could potentially conflict with your investors’ fiduciary duty. For example:

  • Your passion is to make a difference in the world, and you find an avenue to deliver a greater return at the expense of impact
  • Your passion is to make money, but your odds of a personal return conflict with the VC portfolio model
  • Your passion is to be TechCrunch famous, but there’s another leader out there who is better equipped to take your venture to the next level
  • Your passion is to build a remarkable internal culture, but getting to attractive economics requires trimming perks or headcount

Your term sheet may (or may not) give you the final say in sticking to your passion, but either way, running a business that’s at odds with your investor interests is no fun. Best case, you get your way, your investors turn their attention elsewhere, and you end up with all the overhang of a VC-backed business but none of the value-add. Worst case, you don’t get your way, and you’re dragged along with a business about which you have no passion.

And when you’re tired and the chips are down, which happens often in the early stages, you’re going to need to call on that passion to keep pushing.

So be realistic about the intersection of your passion with investor fiduciary before you take that check.

Study the Wall Before You Focus on the Road

Study the Wall Before You Focus on the Road Basis State - We Find Exits for Software Companies

“When they teach you how to drive a racecar, they tell you to focus on the road when you go around a turn. They tell you that because if you focus on the wall, then you will drive straight into the wall.”    – Ben Horowitz

Ben Horowitz has a great point. There are a myriad of pitfalls that can kill a startup, and worrying about all of them while trying to execute is a folly.

But I have found that not being aware of them at the outset is also a mistake.

I have spent a lot of my career looking into startups that are falling short of where they aimed originally. They are headed for the wall, if they are not already pinned up against it.

For the most part, these companies were not doomed from the outset by a bad idea. Nor did they make a single big mistake. They usually had one bad habit that ground away at them over time, until the only thing left to do was to make a hard turn to avoid crashing.

The most common bad habits:

  • Staying in the basement too long (over-speculating, over-designing, over-building)
  • Concession strategy, trying to be many things at once
  • Being slow to pivot when the evidence is screaming the right answer
  • Scaling prematurely

And you can usually spot the bad habits without having any company history, just by meeting the founders. Founders who love the tech are prone to staying in the basement too long. Founders who are gentle are prone to concession strategy. Founders who talk better than they listen are prone to being slow to pivot and scaling prematurely.

We all have tendencies that pull us in various directions. It’s important to understand those tendencies, and how they can pull you towards the wall if you if you don’t design ways to guard against them.

Weak tendencies, just being aware of them could be sufficient.

Stronger tendencies, you might need to find a co-founder who can counteract.

And the strongest tendencies might dictate which kinds of startups you are capable of leading. For example, I don’t like long odds over long timeframes. I will not build the next Facebook, because in 2006,  I would have snapped-up Yahoo’s $1B offer in a second. Had my co-founders disagreed with me I would have remained firm. Had my investors disagreed with me I would have remained firm. And in hindsight, I would have been dead wrong and responsible for an immense disservice to all stakeholders. So knowing that tendency steers me away from taking on go-long / go-huge plays.

In short, know thyself, and study failure before you start. Understanding all the ways in which you could hit the wall will help you set up your venture in a way that lets you focus on the road.

The VC-backed Bullseye, and What Happens When You Miss

The VC-backed Bullseye, and What Happens When You Miss 150 150 Basis State - We Find Exits for Software Companies

Building a successful VC-backed company requires getting everything just right. Getting it right means hitting a bullseye where three factors intersect: Founder Competency, Market Reality, and Investor Approach.

When you hit that intersection, you have a big exit and sail away to your private island. When you miss, you either hire or negotiate, depending on how you miss.

Let’s start by defining the three factors.

Founder Competency

This can be either markets you understand, or innate skills. They will drive your ability to execute well in a one type of venture, and struggle in another. Highly technical founders can have a rocky road building sales-driven orgs, and vise versa. Founders that start in the SMB market might struggle with a pivot into, say, government contracts, even if they spot an open niche. Adapting is hard.

Investor Approach

Investors try to stick to a general approach across their portfolio. At the broadest level, most investors look for scalable tech that can create a big category and have a huge financial outcome. Ventures that live in the cracks simply don’t fit in most portfolios.

A level underneath, most investors have some other thesis, or collection of theses, that guide their investments. For example, the aging US population needs accessible tech. Or industries with information asymmetry are ripe for disruption.

Investors usually talk about their approach when raising funds. Deviation merits some explanation, so there’s friction to changing the approach to accommodate a single portfolio company.

Again, adapting is hard.

Market Reality

While Founder Competency and Investor Approach are visible from the outset, Market Reality isn’t totally clear until a venture has been in the market for a while. What we think is going to happen once we’re in market is usually wrong in number of ways. Our customers might be bigger or smaller than we expected. Our core use case might appear from out of the blue by some happy accident. We pivot and adapt, and hope that the pivots don’t take us too far out of our competencies, or our investors’ approaches.

Market Reality Doesn’t Align with Founder Competency: Hire Leadership

When startups find that their Market Reality doesn’t align with Founder Competency, it’s far from a death sentence. If the founders are sufficiently humble, they’ll find leadership that can fill in the gaps. Investors are usually very helpful in tapping their networks for talent.

Sometimes the transition goes well and sometimes it causes fissures. New leadership might change the tenor of the place in a way that demotivates the team. Or they might try to run a playbook that worked for them in the past that doesn’t factor the nuances of the new venture. Overall, misalignment between Market Reality and Founder Competency is sub-optimal, but workable.

Market Reality Doesn’t Align with Investor Approach: Negotiate

VCs rely on reputation for deal flow, so they are generally forgiving towards portfolio companies that are still finding their way. On the other hand, when it comes to re-investing, they have a fiduciary responsibility to their LPs to not “put good money after bad.”

If you find yourself with a decent business, that you are good at running, that doesn’t fit the approach of investors, you’re in a tough spot. You can’t expect your investors to reinvest in a business that doesn’t fit their model, and you can’t expect new investors to come in if your old investors are sending a cautionary signal.

Those lengthy docs you signed as part of your financing are designed (in part) to protect investors in this scenario. What happens next depends on those docs, and your investors’ willingness to make adjustments. The conversations that follow are awkward, humbling, and may not work out in a way that you like. But the next step is always an honest conversation.

One of the keys to making a VC-backed startup work is making sure all parties are aiming for the same bullseye. Also, understanding how you might miss, and the impact to your viability, should be an important factor in deciding whether you want to seek funding at all.

Yes, You Can Make Your Feature a Successful Business

Yes, You Can Make Your Feature a Successful Business 150 150 Basis State - We Find Exits for Software Companies

“Sounds like a feature, not a product.” Anyone who has been on the VC trail a few times has probably heard these words. It’s one of the most common reasons for VCs to pass on your business.

It makes sense. Features don’t get to VC scale, and they can easily get knocked-off by large platforms. For example, Google is notorious for obliterating swaths of startups by adding free features to its suite.

The entrepreneur’s response to the feature-not-product dilemma is often to head back to the drawing board and create a bloated vision around the feature. “We’ll add X, then Y, and eventually disrupt market Z!” The problem is that this fills a VC need, but not a market need. In all likelihood, you started with a feature because the market just wants the feature.

Believe it or not, you can create a business out of a feature. It may not be built to last, or get you famous, but it can deliver a better return than a decent exit after several rounds of VC financing (i.e. after dilution & liquidation preference).

Here are some keys to a successful feature business:

Capitalize for a Modest Exit

Don’t take VC for your feature business. Just don’t. Your investors won’t be happy with your modest plan, the market won’t be happy with an artificial attempt to make it bigger, and you won’t be happy when the proceeds from your sub-scale exit go 100% to your investors. If you uncover a scalable business down the road, you can always raise capital then. VC is designed for scale, period.

Embrace Being Invisible

Whereas most businesses cringe at the thought of letting their brand sit in the background, feature businesses should seize opportunities to ride alongside larger brands. There are two reasons for this: capital efficiency and acquisition positioning. Most of the capital burn in software startups goes towards acquiring customers, so if you’re running lean, it can make sense to give up some margin and brand equity to let someone else do your selling. And, this type of partnership can build the business case for eventual acquisition.

Make Hay While the Sun Shines

Remember, your feature business could get undercut at any time by a larger platform. Make conservative long-term plans, harvest profits while you can, and if you get a good offer for the business, take it.

Your Valuation is Not a Multiple of Revenue

Your prospective acquirers will be looking at your ability to accelerate their feature roadmap, bring a new feature to their existing base of customers, or inject a new set of customers into their base. They will not be growing your current standalone business, so it doesn’t make sense for them to value your business based on revenue. As you consider valuation, consider the value that you are bringing the acquirer; it might be considerably higher or lower than typical revenue multiples.

You probably didn’t set out hoping to create a feature business. But if that’s what you have, structure it correctly for the win.

The Destruction of Perfectly Good Tech

The Destruction of Perfectly Good Tech 150 150 Basis State - We Find Exits for Software Companies

Startup failures send perfectly good tech to the scrap heap. That’s nothing new. What is new is that more and better tech is getting abandoned earlier. It’s an inefficiency created by our convergence around a common playbook.

It starts with taking the path down a very narrow funnel

The standard startup playbook goes something like this: build a product, get some market traction, raise capital, scale revenue, sell for a multiple of revenue. The machine that generates VC returns and founder fortunes has been tuned to this sequence of events.

More often than not, the plan derails somewhere along the way. When the breaking point is revenue at scale, perfectly good tech is often scrapped.

Trouble begins with a big leap from a solution to scalable economics

As entrepreneurs, we look for problems without available solutions. “Hailing cabs is the worst, I wish there were a better way.” Then we create a solution, and can usually find some customers to pay for it.

But a good solution and promising early adoption don’t necessarily portend good economics at scale. As we move beyond early adopters, the cost to acquire customers often outstrips what they’re willing to pay for the solution.

A bootstrapped business that faces this scale constraint can stick to its profitable niche, drop its acquisition costs through channel partnerships, or trim overhead to operate at a slimmer margin. Any of these would be rational moves to keep the business healthy.

However, any of these moves is anathema to the VC-backed playbook. The goal is scalable revenue, and your job is to pivot until you find it, even if the odds start to look slim.

Then, investors get fatigued

The beginning of the end is when your seed investors show fatigue. The runway is getting short, your investors are hesitant to re-up. Without their support, your odds of securing new investors are severely hampered. You are facing a period without cash, or a down round that will likely impact you and your co-founders.

Finally, founders get fatigued

Faced with a down round or a period without cash, you and your co-founders might question the mission. You could look for a buyer, but with a telling P&L and balance sheet, buyers will smell blood and negotiate from a position of strength. Your perfectly good tech is valued as scrap as you near the end of your runway.

By limiting our options, we destroy value

The value of tech and the scalability of a business model are two very different things, but once you are on the VC track, the two become conflated. When the scalable business model fails, it drags the tech down with it.

It doesn’t have to be this way. Good tech can have value within a niche, or wearing another company’s brand, or folded into another company entirely. Just because the tech doesn’t scale as a standalone business model doesn’t meant it is worthless.

When an entrepreneur creates a solution to a problem, it might become an acquirable asset, or a small/medium-sized profitable business, or maybe even a scaled enterprise. Any of those outcomes can create wealth. But in our adherence to a common playbook, we’ve voluntarily crossed two options off the list, and left ourselves with scaled enterprise or bust. The unfortunate result, among other things, is the destruction of perfectly good tech.

2019 is the Year of Sustainable Entrepreneurship

2019 is the Year of Sustainable Entrepreneurship 150 150 Basis State - We Find Exits for Software Companies

I was looking through a list of around 40 companies that had gone through a certain startup accelerator’s program. Of the 40, I knew of two exits (one small, one large) and one viable continuing operation. 90% of the companies were either gone, or on life support.

Using VC math, one might argue the one big exit created enough benefit to justify the entire portfolio. Perhaps it created a few wealthy founders, who in turn might become angel investors and seed new portfolios.

But what happened to the 90% of founders that failed? I’m guessing they retreated to the corporate world, badly burned, and very few will ever take a second shot. And most of the portfolio companies seeded by the few successful founders will probably face the same fate, and on, and on.

How long before the pool dries up? At what point will prospective founders look down the barrel of a 90% chance of failure and say “no thanks”?

I think we’re getting close to that point. We’re already seeing a slump in seed funding, and some welcome backlash against #struggleporn, #hustleporn, and other rhetoric that keeps founders engaged in a losing game. I predict 2019 will be the year we question what fostering entrepreneurship means, and hopefully, move to a sustainable model.

Fostering Entrepreneurship: 2009–2018

For the past decade, we’ve encouraged founders to create “investable business models”, almost out of thin air. Investable business models have the potential to get huge, usually on the back of a big trend that will catch the eyes of VCs. We’ve focused on maximizing the odds of investment, not maximizing the odds of creating a successful entrepreneur. And those two objectives can absolutely be at odds, as I’ve explained in the past.

I’m not going to beat-up too much on the old model, because I think the results speak for themselves. We’ve designed for outliers, and that’s exactly what we’re getting.

Fostering Entrepreneurship: 2019 Forward

First and foremost, a model for sustainable entrepreneurship needs to create successes for entrepreneurs. I mean successes period — not exclusively huge successes. Nothing creates a thirst for more success than a taste of it.

A model for sustainable entrepreneurship abides by 3 rules:

Rule 1: Small is OK; your first venture may not be your biggest venture.

For most of us, and especially first-time founders, the range of good outcomes extends way below Zuckerberg dollars. Seeing something you’ve envisioned become real, making payroll, and putting enough in your bank account to keep your family happy…that’s a terrific platform on which to build skills. Maybe you get bored after a few years and decide to scale it up, sell it off, or wind it down and launch something more ambitious. If you’ve been able to forego early VC funding, the timeline is yours to control and the bar for a good outcome is within reach.

Somehow, we’ve decided that shooting for a modestly successful outcome is a concession. We’ve been telling first-time skiers to skip the bunny slopes and head straight to the top of the mountain. A few miraculously make it to the bottom, but most end up with broken legs. There is no shame in logging some practice runs before going big in any endeavor, including entrepreneurship.

Rule 2: Know your definition of success

Don’t let your accelerator program tell you that success is raising a seed round, then an A, then a B, then a C, then going public. There are many flavors of success, each faces different timelines, probabilities and capital requirements, and only you can decide which ones fit. It could be that your definition makes you “uninvestable.” In that case, the worst thing you can do is to take investment; you’ll find yourself long-term committed to someone else’s target.

Rule 3: Celebrate business victories more than fundraising victories

Everyone acknowledges that raising capital is a means to an end, not an end in itself. And most everyone, including VCs, agrees that fundraising is often incorrectly portrayed as a clear win instead of a mixed blessing.

This consensus is getting lost on its way to the press. Fundraises account for most of the startup news out there, and are always portrayed as clear victories. It’s probably too much to ask for more balanced reporting on fundraises; the ugly particulars are not usually made public, and would only serve to buzzkill a good headline.

More realistically, we can start shining a light on successes outside of fundraising. Since these stories may not be event-driven, it’s incumbent on us, the entrepreneurial community, to bring them to the press.

A lot of hype has been created around startups over the past decade. There is no shortage of interest in becoming an entrepreneur. In order to keep the interest from fizzling, we now need to help deliver real successes, which requires rethinking how we’ve defined success in the past.