Entrepreneurs Face Headwinds From Investment Sector

The $5.2 trillion global information technology industry can leverage enormous gains for entrepreneurs and investors. However, the risks of failure for tech startups are extremely high and appear not to be constrained by a lack of finance or having a college education.

Statistics show that over 90% of startups fail for varied reasons, with major contributors being marketing, management, funding, and regulatory issues. For example, tech startups like Anki Inc and Jawbone suffered funding and product management issues, prompting an abrupt end to once-promising entities.

Recent surveys show computer science and business administration studies on undergraduates that 9.8% and 7.4%, respectively, account for the highest number of dropouts. The World Economic Forum and others across the globe believe a combination of educational costs and the availability of alternative learning options are to blame for the staggering rates of discharge for U.S. colleges and universities. Conversely, these former students continue to make up the growing number of budding tech entrepreneurs.

According to Kanin Asvaplungprohm (Asva), Founder and General Partner at Robust, entrepreneurs have no business raising venture capital if they don’t acquire the fundamental skills and knowledge first. “Sadly, a college education is not a guaranteed ticket to equip tech entrepreneurs for success. With no revenue, technical prowess, or funding, execution will be extremely difficult.” Asva adds, “Innovators will find that the best way to learn is through real-world experience. Relentless iteration is the key to success.”

Asva belongs to a category of solo fund managers who have successfully launched an early-stage fund that straddles North America and Southeast Asia. Robust is an industry-agnostic venture capital firm that supports paradigm-shifting companies from ideation to execution.

Growing up in an entrepreneurial home laid the foundation for future approaches to business. Asva’s lineage consists of over six decades of experienced entrepreneurs. “At 18, I came to the U.S. and obtained a bachelor’s degree in Management Science at the University of California. Then I graduated summa cum laude in a master’s program in Financial Analysis at the University of San Francisco,” shares Asva.

Asva’s entrepreneurial entry point with Marwin Technologies spearheaded their risk management in Thailand. Subsequent positions at Bangkok Bank, Econ One Research, and Dynafolio prior to securing Venture Partner at a Fintech fund well-positioned Asva for individual and firm-wide success.

Variable Risks

Data on entrepreneur entry points and subsequent success indicate that Asva’s family of sole proprietors might be a significant reason for his success. MIT, Northwestern, Wharton, and the U.S. Census Bureau examined the correlation between age and startup success, shining a light on age as a key factor to consider. The data revealed that the mean age of startup founders across the U.S. was 42 years.

Technology founders were discovered to be one year older, shattering Hollywood’s image of the Gen-Z or Millennial startup founder. Unicorn founders’ average age of 45 further dispels the notion that age is a limiter on the north side of life expectancy. The data runs counter to Zuckerberg, who famously quipped, “Young people are just smarter.”

Approximately 16% of startups fail due to financial problems, and more than two-thirds never deliver a positive return to investors, according to Tom Eisenmann, the Howard H. Stevenson Professor of Business Administration at Harvard Business School. “To be sure, failure will (and should) always be a reality for many entrepreneurs. Doing something new with limited resources is inherently risky. But by recognizing that many failures are avoidable and follow the same trajectory, we can reduce their number and frequency,” says Eisenmann in Harvard Business Review (HBR).

Startups are, by definition, innovative. When you take a novel idea with little or no proven traction and try to run with it, funding is going to influence the outcome.

Innovative product development can serve as the precursor to failure if the cost to produce a Minimum Viable Product (MVP) challenges scale-up needs and opportunities. Undoubtedly true in the Life Sciences, Biotech, and Hardware spaces, which will always be more capital-intensive than SaaS or Consumer Brands, as the latter can go to market faster.

Dileep Rao, author and writer for the New York Times and Forbes, has participated at various levels of investment and sees the MVP as a challenge for both the entrepreneur and the investment community. “The focus on a viable product is often accompanied by a capital-intensive strategy and needs angel capital (AC) followed by VC [capital],” he says.

“The problem with relying on VC is that VCs only finance about 100/100,000 ventures because they need to see evidence of potential before they finance. This means that entrepreneurs need to know how to get from Idea to [an] Aha [moment], and there can still be a chasm between MVP and Aha [moments] unless the opportunity is a unicorn technology, like Genentech,” adds Rao.

Funding is also particularly challenging in growth-stage companies that need to maintain market success. Cutbacks due to lack of funding run the risk of a failed product, operations, and enterprise.

Venture capital funding exists to meet market demand for a financial foundation to structure growth-building strategies and operations. Startups are often viewed as too risky for banks when no collateral or previous profits exist. Venture investing is a high-risk, high-reward proposition. “As VCs, we know that. VCs construct their portfolios knowing that a fund’s top investment should generate positive returns that will outperform everything else in the fund put together; this is called the power law,” says Asva.

Data shows VCs are sitting on $290 billion of unallocated capital. Money is everywhere, but an entrepreneur needs to find a partner that can add value beyond liquidity. Pick the wrong investor, and it can cost you your company. “Lead investors can and may fire you from your own company,” says Asva.

Formal Entrepreneurial Education

The U.S. education system has yet to implement a formal entrepreneurial curriculum across the country, even though the majority of near-term high school graduates aim to hang their own shingles.

Exceptional entrepreneur case studies on those who have dropped out of college and gone on to build billion-dollar companies (Steve Jobs, Mark Zuckerberg, Bill Gates, etc.) often distance students from formal business and tech disciplines. Many visionaries leave because formal education is a relatively inflexible environment. Hours of study can be devoted to something they find more productive.

A college education gives you the training, network, and structure. But it does not necessarily translate to drive and resilience structures needed to navigate abstract professional paths. Asva contends, “They [students] can feel a caged yearning for studies that can be directly linked to productive activities.”

Many emerging entrepreneurs choose to shadow a more established operator or learn on the job by working on another project rather than pay tuition and accumulate student debt.

Jason Jabbari, Wenrui Huang, and Michal Grinstein-Weiss, academic researchers from Social Policy Institute at Washington University in St. Louis and Global Economy and Development, examined skill and talent gaps and approaches to remedy the situation for employers and would-be employees. The trio commented in Brookings TechTank, “Given technological advances spurred by the pandemic, the skills gap will likely continue to grow, which will have a disproportionate impact on persons of color, and this impact will remain unless new reskilling models are scaled up.”

In the face of challenges faced by tech entrepreneurs, statistics show that failed startups have a 20% chance of succeeding the second time around. This data may be the underpinning to an overall reticence by entrepreneurs to start a second venture. The obstacles can be linked to a thin long-term vision, overvaluing product-market fit and timing, and an initial lack of funds.

Asva is determined to help tech entrepreneurs launch and relaunch their innovative projects. Hence, he is broadening Robust’s scope further through the upcoming launch of Robust Research, a publication designed to empower entrepreneurs with knowledge. Robust Research aims to democratize access to information by publishing essays, white papers, and reports on emerging trends in venture capital and other areas in collaboration with the best and brightest minds.

“Visionary founders pivot. They’re relentless and they think in decades. That’s why it’s crucial at the early stage to invest in the best, brightest, and most resilient people,” concludes Asva.

Interviews have been edited and condensed for clarity.