When it comes to failure, investors must take their share of the blame

Just as entrepreneurs are encouraged to learn from setbacks, the firms backing them can gain knowledge from their own actions

Closing time: there can be a number of reasons why businesses fail, and it’s not always the fault of the entrepreneur

Closing time: there can be a number of reasons why businesses fail, and it’s not always the fault of the entrepreneur

 

Failure is an option, as long as it comes with a lesson to be learned – that is the advice regularly given to the country’s start-up scene, which is often characterised as being too risk averse when compared to its international peers.

But for every mistake made by an entrepreneur trying to turn an idea into a business, there can often be another one made by those supporting the start-up process.

“There’s naturally going to be failures in our investments which don’t meet the expectations we had at the outset,” says Ben Hurley, CEO of NDRC, which runs two early-stage accelerator programmes – LaunchPad and Venture Labs.

These failures are to be expected to a certain extent, according to Hurley, especially as the centre deals with early-stage concepts that are often deemed too risky by commercial investors.

However, the firm has also learned lessons from its previous programme – Catalyser – which led it to rethink the fundamentals of its strategy.

“Those two [LaunchPad and Venture Labs] came from the learnings of failures in previous investment programmes . . . learnings from successes as well, but failure is where you get the real deep learning,” Hurley says.

Catalyser initially saw the NDRC pursue collaborations with firms, forming unincorporated joint ventures which involved sizeable investments.

But the centre soon realised that it could have more of an impact by making a small investment at a start-up’s embryonic stage, where it could help in the fine-tuning of the product and business model rather than getting on board when that had already been hard-wired in.

“Looking back on previous investments where we put a sizeable amount of money in and the company hasn’t done any better as an consequence, actually providing the right amount of fuel at the right time is better than having the plane overloaded and unable to take off from the ground,” says Hurley.

“We were looking at opportunities coming into us, and while they were pitching for sizeable chunks of money, we figured out that this company can go a long way on smaller amounts.”

For Drew O’Sullivan, director of the DCU Ryan Academy’s Propeller accelerator, there were equally valuable lessons to take from previous investment vehicles.

“The key thing is the experience of the people running them,” O’Sullivan says, a lesson he learned while heading the Genesis Enterprise Programme in Cork, a publicly-funded incubator programme which pre-dated many of the investment prospects available to start-ups today.

“The more experience the promoter has, the smarter they are about how they use the resources put in front of them.”

O’Sullivan says he also learned to put experienced mentors at the heart of the process, making them as integral as the start-ups themselves, as what they can offer was priceless when done correctly.

But while the likes of LaunchPad and Propeller have benefitted from the shortcomings of previous schemes, that is not to suggest that they arrived in the world as perfect programmes.

In the case of Propeller, O’Sullivan says there is a constant evolution of the programme and its approach, which may change on the basis of what did or did not work in the past, or what has changed in a market that start-ups are looking to exploit.

Mutually beneficial

One of the outcomes of this constant evolution is that the programme is now inclined to take on a smaller cohort than it might have done before, while working to better individualise its programme to each start-up’s own needs.

Propeller has also changed the way its mentors interact with start-ups at certain points, having a smaller panel of owner/managers – and not potential investors – spend more time with each company in order to better understand what they do.

“It’s mutually beneficial,” says O’Sullivan. “Mentors got to know them better and on the other side they learned more without it feeling like an investor pitch.”

For NDRC, the process is also an ongoing one – with the launch of Venture Labs itself coming from what it has learned in the past.

What it offers in each of the programmes is also under constant review.

“The key thing we’ve tweaked over the years has been the range of things we’re putting in, and we’re looking at the impact they have on the company,” says Hurley.

Game-change impact

For example, gaming firms developing platforms are now approached differently to those creating the games themselves.

“We’ve added new features to each of the programmes,” says Hurley.

“And we’ve dispensed with some that didn’t have any game-change impact on a significant number of the companies coming through.” Missed opportunity: The one that got away Failure as an investor is not just about the bad decisions you make – it is also about the good decisions you miss.

For US investor Chris Sacca – who includes Twitter, Instagram and Uber amongst his successes – one missed opportunity was AirBnB.

“I was one of the first people to see the AirBnB page,” he told journalist-turned-entrepreneur Alex Blumberg, who is podcasting his own attempt at forming a start-up at hearstartup.com.

“I pulled them aside and said, ‘Guys, this is super dangerous, you’re renting out a room in somebody’s house while they’re still there, somebody’s going to get raped or murdered and the blood is going to be on your hands . . . there’s no way this will succeed’.

“That’s a $10 billion business today that I am not an investor in.”

Sacca is not unique amongst investors – in fact it is almost inevitable that backers will miss out on a good opportunity for one reason or another.

“It’s bound to happen,” says Drew O’Sullivan of the DCU Ryan Academy, who cites a number of reasons as to why an investor might miss out, of which their own misjudgment is just one.

“I know there were cases where we wanted a company but they got a better offer elsewhere,” he says.

He says another company – which is growing strongly – decided not to go through Propeller as they were more comfortable bootstrapping instead.

“It happens, but I don’t shed any tears over it,” he says.

No specific case springs to mind for Ben Hurley of NDRC, who says that the relative youth of the LaunchPad programme means that many may not have “gone the distance” just yet.

Given its focus on early-stage ideas, the company is also less inclined to lose out to rival investors – and where outside interest does exist it is often a sign that the NDRC is not the right fit for the start-up in question.

“If a company is strong enough to attract early-stage seed funding, we’d be saying, ‘You’re actually strong enough, go ahead and take the money that’s on the table from the other support’,” he says.

“We can’t add value at that stage – there’s nothing for us to do because we’re looking to transform at that concept stage before they become investable.”

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.