Startups’ undisciplined spending is costly beyond the obvious reasons. When startup founders spend money needlessly, they have to raise more, diluting their equity and sacrificing control and profit regardless of if it the company goes public or not. And this phenomena is not only plaguing Silicon Valley and US startups, but it’s a new global startup problem.
I witnessed this personally many times, but the most rampant was last year when I visited several overseas startup ecosystems. I paid a visit this up-and-coming foreign startup with a really interesting product which we had met few month ago. When I arrived at their new office space at a sprawling brand new SME techno-park I was amazed and shocked at the elegance of this startup founder’s office and conference room setup! No kidding the furniture was most likely Italian made, it was lavish, superb and opulent! I felt like I was in the office of a Fortune 100 conglomerate! The founder bragged that the “image” the company portrayed was more important the product itself! By the way they had only one working prototype! A footnote; a few month before my visit we had requested a prototype for the US market soft launch, they did not have the funds at that time. But they were smart enough to rent a beautiful office and buy lavish furniture after just raising about $300 K… and no sales per say! Still no prototype for the US market! (Willing to bet they are still raising money, considering their “burn” rate…)
Sometimes a little frugality is good for owners, workers and investors alike, and this frugality will go a long way… And by the way don’t listen to the BS that innovation needs to have a good environment with lavish perks such as having a great location, toys, free food, lots games, playground, sandbox, work when you feel like it and all that crap. Innovation does not need it, your ego needs all that nonsense. The profligate culture and the justification by founders of lavish perks as necessary to attract and retain top talent, and create an innovative atmosphere to produces a lucrative exit is utter bull shit. And this culture of waste and needy and selfish culture is increasingly under attack. If investors decide to emotionally invest in the “image” portrayed by the founders rather than the real substance and opportunity behind the idea, then the tourist investors deserve to lose it all!
Chamath Palihapitiya, a VC investor, told a San Francisco conference of founders and investors, “It’s fine to fail. But if you fail because you didn’t have the courage to move to Oakland and instead you burned 30 percent of your cash on Kind bars and exposed brick walls in the office, you’re a fucking moron.”
Quartz article on the subject matter: Startups could raise a lot less if their expenses weren’t so lavish https://work.qz.com/1222655/