1. Why Start Ups Fail?
Mark D. Iwanowski
Managing Director
Trident Capital
December, 2010

2. Silicon Valley: A Great Success Story
Job creation
More than 10,000 companies
headquartered in Silicon Valley
Employ more than 1.1 million
people
Wealth creation
Publicly traded Silicon Valley
companies have an aggregate
market capitalization of over $1.4
trillion
Entrepreneurial Culture
Merit Based
Lineage, Race, Sex, Personality:
Irrelevant
Success Oriented
Making a lot of money is
acceptable
Failure is part of the learning
process
Confidential and Proprietary 2

3. Trident Capital
● Founded 1993
● Seven funds since inception
● Superior investment performance and
liquidity
● [35]% All-Fund Net IRR since inception
● Sector focused, thesis driven investors
● Value investors → multistage investing
● Company builders
● Strong operating skills
● Deep domain expertise
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4. Strategy:
Sector Focused, Thesis Driven
Enterprise IT Internet
Software/SaaS
Security
Outsourcing
Payments
Information
Technology
Healthcare IT Clean-Tech
and Energy IT
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5. What do we look for as Investors?
● Attractive high growth markets with good margin potential
– Big commoditized low margin markets are NOT attractive as low margins do not
allow for any hiccups which almost always occur.
● Offering/technology that is unique in market place
– Very Important to be able to demonstrate you understand the competitive
landscape, => that is who all your competitors are and how you are different
● Proven Management Team
– Look to recruit this if don’t already have on team
● Attractive Deal Structure
– Need to have a pre-money that will allow us to hit an expected 3-5X return under
conservative assumptions
– Keep in mind , it usually takes $20+M to take a Software company through
profitability and much more for a hardware company
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6. SO WHY DO START UPS FAIL?
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7. Team Issues
● No Strong Entrepreneur on Team
– Need to know how -- and be willing -- to taken prudent risks
● Team not Properly Trained/Educated
– Teams without experience have very high probability of failure
– Not knowing what they don’t know
● Single Founder
– Few Successful Startups Have One Founder
– Requires Team with Common Vision
● Half hearted attempts
– Lack of commitment kills large number of start ups
● Lack of Confidence
– If you aren’t sure, who will be?
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8. Market Issues
● Not knowing your customer
– Engineers many times fail to build what customers want, they
build what they think they want without confirming by talking to
large enough sample set
● Not understanding the competitive landscape
– Failure to know your competition is deadly
● No viable market
– Lack of homework relative to what customers will buy
● Marginal Niche Market
– Need large fast growing market to overcome start Up shortfalls
● Derivative Idea
– Rarely do small tweaks to existing products succeed
● Lack of Competitive Advantage
– Tightly coupled to knowing your competitors
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9. Market Issues
● Don’t Keep Up with Market
– Product introduction time continues to speed up
● Market Timing (too soon or late)
– Lots of cases where products brought to market too early or late
● Weak Value Proposition
– Customers must be comfortable that perceived value exceeds
cost
● Poor Pricing Strategy
– Aligning pricing with value proposition
– Converting trial customers to paying customers
– SaaS/Cloud models can be dangerous due to upfront capital cost
vs time to breakeven per customer
● Competing Head to Head with Industry leaders
– David rarely beats a stronger market leading Goliath
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10. Execution
● Not focused
– Optimizing use of resources at all times
● Not agile
– Need to shift strategy when market conditions dictate
– First business plan is rarely where you end up!
● Product shortfalls/weaknesses
– Important to understand what competition is doing at all times
● Poor product management discipline
– Ensure development focus on ROI at all times
– Critical to breakeven time per customer right!
● Cost of Customer Acquisition vs. Long Term Customer
Revenue
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11. Execution
● Not enough capital
– Revenue projections are almost always too rosy
– Cost to deliver product almost always underestimated by 2-3X
● Too much capital
– Spending to fast
– Spend every dollar like it is your last
– Balance product release vs. customer uptake
● Slow to Market
– Delays in product launch result in missed opportunity
● Launch before ready
– Too early launch can be very damaging
● Growing too fast
– Misunderstanding working capital needs
– Maintaining good hiring practices
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12. Execution
● Bad Location
– Very US few start ups are successful outside of Silicon Valley and
other US entrepreneurial hubs (Austin, Route 128)
– Need appropriate culture and ecosystem
● Poor Customer Service
– Usually results in high churn
– Cost of good customer service vs financial benefits
● Poor Channel Strategy
– Channel partners need to receive as much benefit as company
– Understanding competing products in channel partner inventory
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13. Execution
● Not willing to get hands dirty
– Critical for CEO to understand key internal risks and get in front of
customers continuously
● Bad Hires
– Most founders don’t spend enough time ensuring good hires
● Bad luck
– Sometimes “@%#&” happens
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14. Take Aways
● Continuously focus on reasons why companies succeed
and fail
● Takes a special breed to be a successful entrepreneur
● If it was easy, everyone would be doing it
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