Repair or Maintain

Startups are not like bread in the bakery – each startup has its own unique fingerprint. As such, each startup also has its own specific needs. To run a startup through a standard process might address some of its needs but will also ignore other needs, needs that might be more pressing and crucial to its future. Only when these “hidden” needs turn into critical issues, do they get attention. Once hitting the “it has become critical to…” point, “fixing” the issue will usually take (significantly) more time, money, and effort, assuming it is fixable at all. The age-old adagio “it is cheaper to maintain than to repair” also holds value for startups. When a startup receives its first funding, its “fingerprint” is the key to understanding where to maintain it. This requires a startup/mission-specific dashboard that ensures that at every (Board/Investor) meeting the important needs are reviewed and progress regarding their “growth” is properly monitored. Most startups have a basic level of reporting covering their technical milestones, financials, and commercial traction. Using such a standard report as the main conduit of communication with your team and your investors/board prevents a full review of what matters to the company and with that, the ability to address and track key needs over time. This is how you end up looking for the repair shop and wasting precious resources, time, and money on fixing the issue.

Each year, around EURO 1B gets wasted through failing startups. From our own experience (we see around 180 deep-tech startup propositions every year), quite a few of these startups are by no means “failed”. Some have taken a wrong turn and did not pivot in time, running out of money. Some were unable to bring on board the right seniors to drive the next step. Some simply focused on the wrong customer segment and failed to gain adequate traction. However, all these startups have one thing in common: they failed because there is no “repair shop” for startups. Venture capital driven startups live by the capital invested in them. The VCs investing in startups expect to make a solid return on the winners. More specifically, they expect to make a (very) significant part of their fund’s return on a few of their investments, the others being negligible in the overall ROI numbers of their fund. By the very nature of the business, therefore, VCs tend to focus on the most likely winners. This explains why there is no “repair shop”: there is no money in the fund for repairs. Any decisions to provide additional funding to a startup are based on the fact that the startup is likely to be a winner – after all, there is no excuse for throwing good money after bad money. Therefore, each startup needs to ensure that it will not get to the point that it needs to visit the repair shop.

To improve the odds of avoiding the repair shop, we return to the startup’s “fingerprint”. The fingerprint will define your dashboard, your primary means of driving and monitoring the progress of your startup. It is also the primary channel for communicating with your investors and board. Maintaining your dashboard is, therefore, a primary task for the Management Team. Keeping specific needs out of sight (not shared with the investors), will almost certainly result in not being shared with the team either. As such, they will be disappearing from the attention and maintenance list until it suddenly becomes a (critical) issue.

It can be concluded that taking the first (accurate) fingerprint of the startup is essential. We—at TD Shepherd—call this process the “Discovery”. A Discovery usually takes around 6 weeks of work for a team of 3-4 people. Three will be subject-matter specialists and one will be a financial specialist (investment banker). Once the Discovery has been completed, and as part of the preparations for the fundraising (that typically follows a Discovery), we create a Dashboard for the startup. This Dashboard reflects the company at the time of the completion of the Discovery. This also indicates that a dashboard is something dynamic that requires maintenance. It is typically divided into several key sections with a short-, mid-, and long-term view of the company’s future. It will help guide the preparations for the engagement. This is typically not just the short-term section but might also impact the mid-, and long-term as key strategic content can be updated during the preparations.

Once the round has been raised, the [updated] dashboard is the starting point for guiding and driving the interaction with the investors/Board. As one focal point of the information flow with investors/Board it ensures that (1) it is maintained, (2) guides the key topics and discussions during the meetings and (3) ensures a dynamic representation of the key company targets and performance over time.