I start with the premise that running a start up is hard. My favorite business book on running a start up is Ben Horowitz’s “The Hard Thing About Hard Things”, which is 282 pages of it’s really effing hard. As a result of it being hard, it’s a roller coaster ride. The highs, when things are working, are mindblowingly great. The lows are brutal. So appropriately celebrating wins should be a ritual at every company. But the level of celebration should be in-line with the level of accomplishment.
When a financing is completed what is the true accomplishment? Somebody (an investor, or series of investors) has been convinced to invest in the company, to believe in the dream. Now that’s a win on multiple levels. A financing is outside validation of all the work to date. A financing gives the company additional resources to try and accomplish the real goal, building a successful company that provides great service to its customers and that rewards its employees and shareholders.
But a financing is just one step in accomplishing the real goal. The hiring each great employee is also a step forward in accomplishing the real goal. Yet how much is each hire celebrated? Each sale of the product is a step forward. Each business partnership….
My problem is not the fact that there is a celebration post a financings, rather it’s the level of celebration, the level of accomplishment felt. The photo above of Lending Club employees celebrating their IPO is a textbook example of too much celebrating, being too proud of what was really accomplished.
I appreciate that the company had slogged for more then seven years to achieve the IPO. But an IPO is not an exit (for most employees or investors), rather it’s an entry in to another phase of the company’s life. A phase rife with new challenges. In Lending Club’s case, to date, they’ve struggled to meet the challenges.
When the picture was taken (December 11, 2014), the company had just IPO’d at $15 a share, and it was probably trading around $23 (it closed the first day at $23.43). Lending Club was trading at over $29 a week later. On June 11th, 2015, when the six month lock up ended, thus employees and investors were first able to begin selling shares, the shares were trading at $17. On June 29th, 2015, Lending Club broke it’s IPO price for the first time, closing at $14.54. Yesterday (July 8, 2016), Lending Club shares closed at $4.32. Lending Club CEO Renaud Laplanche, third from the left in the photo above, was ousted on May 9, 2016. I have no doubt that the two guys enthusiastically high-fiving in the back of the photo are embarrassed whenever they see the photo. Because, in hindsight, they were celebrating far TOO much. In hindsight, they’re celebrating the fact that 19 months later, shareholders who were buying at that moment, would be down more than 80%. I’ll bet, in part, they were celebrating the accomplishment of having built a great company. In turns out they hadn’t (yet).
Interestingly, in a great TED talk, idealab’s Bill Gross did an analysis of the key factors of start up success. Bill’s analysis found that of the five success factors he measured, “Funding” was the least important across the 200 (successful and unsuccessful) start ups he analyzed.
So celebrate your financings, just do it at a level appropriate with the level of accomplishment.