Capital: Spent, Deployed, Made Up

Dear Startup Folks, Most of you live in a fantasy land, where numbers are not real and, therefore may be anything you want. This comes up across every situation; a founder believes the total addressable market is the entire population of the earth, or that the conversion rate will be an easy-to-calculate 5%, or that ad spending scales perfectly across budgets, leaving no change in efficiency between $100, and $100 million. This is all nonsense, but it is at least such unrefined nonsense that everyone knows the speaker is diluted. However, the made-up numbers also come up for metrics that are far less transparently phantasmagorical. Every startup I meet with requires asking questions to find out how much money they have actually spent. Knowing the true spend, the revenue, and some educated guesses about market size is very telling. If a restaurant makes $30k a month in profit, that sounds great, but if the startup cost for the restaurant was $4 million, that restaurant clearly failed a long time ago. Unless costs can be cut drastically, or revenue can increase drastically, the restaurant will have to operate for 11 years to hit break even with the investment. People know this inherently, so they lie. Founders will come up with numbers where the startup costs literally pennies to launch. Normally those costs don’t include free rent in Dad’s office building, the $3k monthly stipend from Mom so someone could work full time on the project, or the thousands of dollars worth…Capital: Spent, Deployed, Made Up