The fallacy of “funding” event as a key media story

Every one of my journalist friends asks me for “exclusive” stories, which I can understand. What I am very upset about is that their next request is for “exclusive funding stories”.

I had a reporter come by to talk today to me about our companies. He mentioned that his opinion was companies that were funded performed better than those that were not.

His primary reasoning was that those companies were  “filtered” by investors and the “due diligence” was done, so they were “better” companies.

There are many times I would disagree but keep quite and move on. This time I did not.

 

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This was one of those times when I felt the person was just plain misinformed, misguided and did not really look at any of the facts, but preferred to have anecdotal information color his opinion.

The mountains of evidence that proves his opinion incorrect was insufficient for this reporter  to change his fundamental position.

1) Funded companies have higher % of failures than unfunded companies.

2) Funding does not guarantee success but success guarantees funding.

3) The value that an investor provides towards “due diligence” is limited. If you take a look at venture returns over 90% of funds do not have any success in picking “winners”.

I am the first to admit that its extremely hard to get any kind of funding. Its harder in India, but does that mean companies funded in India are somehow “better” than those that are not funded? At best my argument is they have just about as much chance of success as any of the others.

What does a funding event really tell you about a company?

Its tells me that the company needs money and was able to get it.

Does it tell me that the company will succeed? No? Exhibit A is the eCommerce companies that many investors funded in 2010-11 in India.

Does it tell me that the company is targeting a large market? Possibly, but that’s true of the many other companies that did not get funded, but are chasing the same market.

Does it tell me that this company has potential – it has as much or as little as the others that are not funded.

In fact over 73% of publicly listed companies were not venture backed.

I would consider any reporter downright lazy if they left the “due diligence” only to investors alone, because investors overall (including me as an individual) are more wrong than right.

Why do I make a big issue of this with reporters as opposed to any other person?

1. They are supposed to be objective and fact based as opposed to have their opinions color their judgment.

2. They are supposed to question their assumptions and seek the truth not report fallacies.

3.  They wield an inordinate amount of power given the number of people that read their pieces.

I’d love a counter argument and understand why reporter love “funding stories”.

P.S. I also dont understand why people wont debate their positions. It tells me that they are not confident about any of their hypothesis or positions and would rather be ignorant and prefer to have misinformed opinions.

</Rant>

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10 thoughts on “The fallacy of “funding” event as a key media story”

  1. Nice post!. One of the more interesting posts recently. Funding does not guarantee success, but gives a chance – a level playing field some times especially the space we are in. First time entrepreneurs does not help either I guess. In our case to just give an example – getting traction but slower rate as more companies have realized how to optimize spend. We are adding complimentary services within system management and monitoring. To do a fairly decent job and compete with competitors, it is an uphill battle. Right now it is a chicken and egg issue – customer is willing to pay, but need additional services to have a compelling reason to pay. We are working rapidly developing these services. SaaS model is a challenge – but never realized it is such a big one. So many open questions, so many ifs and buts (FUDs) — if you really think – “$$” can solve some, but not all. We still have to keep plugging away..

  2. Agreed. Two examples that come to my mind are fusioncharts and Visual Web Optimizer. My information might be inadequate but they are top players in their markets and never took funding to reach there. On the other hand, their competitors in valley, chart.io and optimizely are both very well funded companies!

  3. So I myself do not necesarily believe that just by fact that if you got funded, means you will be successful.
    But it might improve your chances of success. My reasoning being, you have involved someone new into your business who has put in their money. They would pull all the strings necesary to make things work. Again, that does not guarantee success, but improves your chances doesn’t it?

  4. This is a tl;dr kind of response, so bear with me.

    The lure of a funding story is more of a lure of exclusivity. As a journalist, it is one of those little things that gives you a kick…akin to a cricketer getting a hat-trick or a hundred. I dont know about the others, but we’ve often had to fight and hustle to break a story. If i get an exclusive story i dont have to fight for, i dont get a kick from it. But that’s just me. I know it sounds terrible, but that’s the truth. it’s like a sales guy closing a big deal.

    Now on to slightly more contentious issues of startups versus big companies and funded versus unfunded companies. This is merely the way I think and as editor, it defines MediaNama’s approach. This is subject to change, and if someone can change the way I think for the better, I’m more than happy to be corrected:

    Ours is a digital ecosystem approach: we want an open, fair and competitive digital ecosystem, and we like covering things that shape the ecosystem – from Internet to mobile, policy and court cases to financial performances, licensing arrangements and products. When we consider covering a company, we – and this is true mainly for us – try and envisage how it will impact the value chain, and whether it has the power to sustain. Or we see if they’re doing something particularly interesting or unique, that others will benefit from learning about. We try and look through the fog of hype.

    This means that we can miss out on stories or trends: we (regretfully) missed out on the Flipkart story initially because we were skeptical about e-commerce, but we had heard about them: they never approached us.

    We used to believe that only big companies are able to shape the digital ecosystem in India – much more than startups, so our focus was almost entirely on those. That has changed now, and we’re always on the lookout for products and services that we feel can scale, or change the way things are done.

    These decisions are highly subjective, and we get a lot of heat for it some times, but i need someone to convince me that their startup is worth covering. so when someone mails me back without responding to the questions in all earnestness, we decline to cover them. Sometimes, if we think it’s not worth covering, we say no straight away.

    Sometimes, if we think that the startup truly has the potential to change the ecosystem – whether funded or not – we cover it in great depth. We did think so, in particular, with Mime360, which was acquired by Flipkart and became the foundation for Flyte. They were giving music labels the ability to control delivery of music across platforms, a marked shift from the existing model wherein music labels gave hard disks to aggregators, and had little access to reports, which could be fudged. We’re looking for nuance.

    Unfortunately, much of the startup coverage today is geared up around promoting startups, and garnering pageviews, rather than delivering value for readers beyond discovery. The discovery element can easily be disrupted by launching a Startup PR wire, which will compete with some of sites.

    On funded vs unfunded startups, I think it boils down to sustenance, and *our* ability to process requests for coverage. We’re bootstrapped ourselves and given the breadth of what we have to cover, we used to follow a policy of covering only funded startups, because funded potentially meant sustenance. And, we needed an easy filter for de-selection: Companies with money (or companies making money) are more likely to shape ecosystems. Even then, we were selective about what we covered. Frankly, it was never about delegating judgment to venture capitalists. It was about making decision-making easier for us when we needed it.

    Now that we have a bigger team, we have dispensed with that filter. However, our focus on delivering value beyond just news to our readers, remains. We work with the perspective that our readers have very little time, so we try and give than as much as we can – news, analysis and opinion – in ways and formats that are easier for them to consume.

    We are opinionated, but our opinion is not set in stone. Happy to be corrected or proven wrong. If what we say provokes a reaction, and leads to a discussion, even better. Sometimes there’s value in the story. Sometimes there’s value in the discussion.

    On the point about power: It takes one bad story or one shallow opinion for people to change their views about you. We try and do our best with each. If we make a mistake, we’re the first to acknowledge it. The way I see it, you’re as good as your last story, but the reader will still return if she feels you’re trying hard, and honest in your approach. Trust is all we have.

  5. I think Indian bloggers still possibly feel that selling equity is relatively sexier than raising debt. Companies that are cashflow positive will raise debt to conserve precious equity. But these events, being ‘unsexy’ and not ‘silicon valley’ in nature, dont make headlines.

    Money is important to build and grow a business, a startup, or whatever a company may be called. But the source sometimes overshadows what the funds should be used for.

    I applaud you Mukund Sir, for how you have attacked the prejudiced thinking that has permeated the media minds, which glorifies raising funds rather than deploying them.

    Warm Regards,
    Pranay

  6. Folks, we lose sight of the facts here, if this discussion were only about whether funding is a measure (or indicator) of potential success. I think Mukund’s point is really about the assumptions – the journalist in this instance made – and really masks the larger issue of how most main stream media in India views story hooks –
    does it involve money (funding in case of startups, or spend/investment in case of MNCs),
    does it involve an award or other recognition (where this acts as proxy for validation),
    is someone famous (usually ends up being someone from overseas — this luckily is on the wane) involved – there seem fewer stars in the startup/business world than in Bollywood – which for a nation of a billion people seems sad.
    To be fair to the journalists, I don’t know if this is their editors doing or the marketing departments!

  7. If a venture is a tree, funding is sunlight. But to grow, a tree also needs water, fertilizers and above all due care from the gardener.
    Most difficult business questions have unbiased, dependable answers in nature. 🙂

  8. i meant : non-media experience.
    We get excited about great products!, irrespective of person/team behind it (i.e. what vs. why)

  9. Thanks for raising this 🙂 A very deep rooted question which has multiple facets attached to it. Agree with Nikhil to an extent and to push the envelope further have written a blogpost
    (http://jubinmehta.blogspot.in/2013/03/why-any-funding-event-is-key-media-story.html)

    Pasting the same personal opinion here:

    To put foundation to some of my claims, I’ve been working for YourStory for more than two years and this has been my only experience in the startup space. Reporting about early stage startups, I have written about more than 500 of them and that is my only claim to ‘glory’. Whatever I write over here is sprayed from what I have drink from the thought-pool collected from this stint.

    Firstly, just like the case of Indian startups imitating US models, the media houses are no exception. This is what I call ‘getting crunched’ phenomena. Techcrunch set the bar and just a casual glance at their homepage will verify that every other story has a mention of the funding in the headline. It makes one feel that funding is very important and a key milestone in a startup’s lifecycle. And from the point of view of media, these headlines ensure views. Even though the story might just have a passing remark about the funding, a mention of ‘So and so backed company…’, ‘Raising money, so and so did this…’ makes people interested.

    Anyone embroiled in the startup world knows that no idea is really unique and there are multiple companies working on the same idea (note that I’m being biased towards the tech product space). In this scenario, a reporter has two options- “XYZ to come up with a product to do ABC” and “Venture backed XYZ to come up with a product to do ABC”. You know what he or she would pick.

    Then, let’s come to the due diligence part. When one talks about reporters, they have been taught to back their statements with experts and voices in the field (I haven’t studied reporting but this what I can make of it from what I’ve seen). Naturally, who do they turn to? VCs. Their job is to put money into companies that might work and if that’s the bet, they better be good at doing that. A reporter will always have an opinion but would like to have some backing because they’d be read so widely. And going beyond this, if VC are more wrong than right, so would be the case with reporters if they start venting out opinions (also bear in mind the fact that reporters spend much less time compared to a VC with any company).

    Yes, it’s a reporters job to scrutinize a company but one also must understand that in such a nascent ecosystem, it is also of paramount importance to foster the system as a whole without creating too much of a dissonance. It is not cowardice but foresight. Yes, we need to move away from glorifying funding and I’d like to believe that most of the reporters know this at heart. (I would be really surprised if most of the reporters really believe what has been mentioned in Mukund’s post).

    Personally, I try to veer away from sensationalism but the lure of the ‘exclusive’ is strong, it’s like a badge of honour. The system is changing slowly, media is moving from temporary to more lasting reportage (GigaOm is a prime example) and more of this will happen. But as always, it’ll take time to trickle in.

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