How narratives can create collateral damage

When Adam Neumann, the founder and CEO, left WeWork with a golden parachute, he not only impacted his company and investors. The whole story, that let to his dismissal, triggered a change of mentality. It seemed to confirm some of the ugliest (mis-?)conceptions about Venture-backed, “Silicon Valley”-type (even though WeWork is based in New York) start-ups and scale-ups:

·       Overblown “we-change-the-world” rhetoric;

·       Growth above all else – even when scaling, relative profitability went down;

·       Collecting VC money at ever higher valuations, even though losses mounted – until the only way up was an IPO, which infamously failed;

The only part that was missing (some commentators seem to be sad about it): mistreatment of employees, sub-contractors and/or the community they operate in.

Let′s be clear: the failure of WeWork′s IPO is a good thing. It shows that the public market is functioning – the scrutiny over the IPO prospectus let to a healthy discussion about what had really been going on at WeWork, its business model and founder-eccentricity.

The broader discussion -about profitability vs. growth, founder-freedom vs. oversight- is one that needs to be had- constantly, for individual companies as well as for the startup-landscape at large.

Especially in the US, private markets may need corrections (my compassion for VCs losing money in startup investments is limited, though).

From my perspective, the criticism – from journalists, consultants, executives from big companies – often-times seems to be motivated by envy: from the outside, it seems that these young startup guys with their money-burning machines get money easily, while they had to climb the corporate ladder with blood, sweat and tears (executives), sell “the old ways” knocking doors (consultants), or are doomed to just observe from the outside (journalists).

Let me assure you: raising money from VCs is anything but easy (even in the US). For the few who get it, there are literally thousands who don′t and have to close shop.

Anyway, the debate is here and it′s healthy – for the most part. There are unintended repercussions for less mature VC markets - like LatAm.

We were on the right track: more VCs opening up, collecting money from institutional investors like pension funds, family offices and/or larger corporates; channeling it into startups. Within the last years, interest from students in starting their own company has picked up, leading to growth on both sides: number of startups and available funding. And we haven′t even talked about the market opportunities – the rising middle-class, finding sub-par service standards in numerous verticals due to lack of innovation and customer-orientation from traditional players.

However, even before the WeWork debacle, there were troubling macro-trends in the environment: from lackluster overall economic growth (at best) across all major markets to unfavorable political situations (Mexico, Argentina, lately Chile).

Combine this with the new narrative that startups are mostly money-trashing charades – and it leads to a situation where VCs are having increasing difficulties to raise money – and this trickles down to startups.

Let me be more clear: we do NOT have too much VC capital in LatAm. We do NOT need a correction of private markets. Quite the contrary: we need more institutional investors willing to invest in VCs, so it can trickle down to startups.

I believe a strong entrepreneurial eco-system is good for societies – it unleashes innovation that established players sometimes lack, to work on hard challenges (financial inclusion, energy transformation, mobility, …), create jobs and provide opportunities for young people to experiment in order to find what they really love.

What always helps are success stories. We all have an interest that our startups succeed - grow revenues, make customers happy, raise money and finally have “exits”.

So, please let′s be careful how we shape the narrative here in LatAm because the collateral damage is already there. Let′s try to differentiate and refrain from generalized statements, putting all startups in the same bucket.

As startups, let′s be conscious about what′s happening with regards to the broader narrative and contribute our share to “professionalize” how we are perceived. We have a vital (literally!) interest that VCs can justify investments in us.

Just my 5 cents.

I wish you all, like the German saying goes, that you “slide well” into the new year 2020!