Why the “cha ching” of the $1B Instagram sale might actually bankrupt Boomer parents.

By now, most of you have heard of Facebook’s $1Billion sale of Instagram, an app developed by a bunch of young 20 somethings that lets users post photos. Today, Instagram has about 50 million users which works out to about $20/ person. “Cha ching” for anyone involved …

Punditry aside about whether it is a shrewd deal for Facebook – instead of “cha ching” – all I hear is hissing as the air escapes from Boomers’ retirement funds.

It is alarming and here’s what I mean.

You see, I have worked with tech ventures for over a dozen years, starting at Bell Labs New Ventures and continuing to this very day. In that time, I have worked with many startups, often gratis, because it’s so rewarding when my expertise can really make a difference in the early days of a venture. CEOs have the product vision but they rarely have marketing know-how to get the product to market.  That’s where I step in. I help startups assess their market potential so they can monetize.

And in the dozen years or so I have been doing this, I see an alarming new twist to the never ending parade of venture dreams that haunts me. I liken it to the disturbing “Gold Rush” era where many more prospecting failures bankrupted folks versus the rare, outlier successes.

In today’s day and age – here is how it goes down.

Johnny or Jane are in college and – wham – they hatch an idea for a company often inspired by the innovation incubators on every campus. The idea grabs their passionate attention because at least they can try and make it happen versus trying to get a job which is tough and depressing.

Mr. and Mrs. SupportiveParents are happy their kids have found something that inspires them, so they cover more of their kids’ living expenses so the kids can commit themselves to their “passion.”

After about three or four months, their idea has some substance and the kids realize they need some money to create a “demo”. Of course, there is no cogent business plan (if a business plan even exists) but Mr. and Mrs. SupportiveParents kick in the $10,000 or $20,000 to create said demo –  on top of the extra expenses they are already incurring to keep their kids in school. (This is when you can start to hear the air escaping from Mr. and Mrs. SupportiveParents 401K accounts!)

A couple of months later said demo is “almost done” but not quite because the kids did not really do a business plan and as they worked, the idea kept changing (translation = more cost). “But I only need another $20,000 to finish it off. Then it will take off because it is so cool. Please …” Again, as we would expect, Mr. and Mrs. SupportiveParents step in and shell out what their kids need.

Slowly but surely, over time, as their kids refine their idea; there is steady attrition of the parents’ savings plans because startups need constant funds. This tableau is playing out again and again and I know it because I have met too many Mr. and Mrs. SupportiveParents in the last few months who have depleted their savings by $150,000 or more to help their kids live their passion.

It is frightening to see since most new ventures are “high risk” in the best of circumstances, making them wholly unsuitable investments for most any Boomer given their proximity to retirement.  And if that’s not bad enough, it’s even worse once you understand that kids’ ventures, proportionately, have a higher mortality rate because they are borne of 90% enthusiasm and 10% practicality despite their parents’ 100% support 100% of the time.

This is a dangerous combination – especially in frothy times like ours where opportunities for kids are limited yet perversely, the potential for untold wealth is tantalizingly possible.

And this brings me back my point. The Instagram sale was an aberration – a fluke – an outlier event – possible because of a unique set of circumstances. Yet it infused a new level of Gold Rush fervor into the passionate hearts of ambitious young entrepreneurs despite the reality that the chances of striking it rich today are about equal to striking it rich in the Gold Rush of 1848.  And just as sadly, their loving parents are funding these ventures despite the improbable odds.

So while many people hear the “cha ching” of $1B, all I hear is the air escaping from parent’s retirement funds. It is not a happy sound. Not at all.

Judy Shapiro

P.S. – I am posting this as my personal Mother’s Day present to Mrs. SupportiveParent. Be careful – please!

The essence of business complexity expressed in pictures

This is the MOST accurate, intelligent, comprehensive explanation of why big companies manage to mess up great ideas time and time again. Pure genius.

The surprised entrepreneur – The last moment I can allocate GRATITUDE Grants

I am surprised how fast shares go in a startup company that people are excited about. Our plan is mostly done and the investors have begun to make overtures. My total ownership has been happily whittled away to include the wonderful talent this company will need.

I gratefully allocated shares to our president who is deeply experienced as both an entrepreneur and a VC. I was deeply honored when our CTO, who gets hundreds of business ideas in a year but only considers “one or two,” signed up.

Ever so carefully, I identified the key talent we would need and one by one each person on this amazing team is coming onboard with their allocation. Yet until we officially close our first round (scheduled for February), I’ve still got ability to allocate shares pretty much as I want.

But not for long.  

Now, much to my surprise, I realized how very quickly my ability to make unequivocal awards of shares will be gone. Now is the last moment I have to express my gratitude to people who have believed in my ability to create a new way forward in marketing.

So with the urgency imposed on me by our first formal funding round, I have barely a few weeks to share these gratitude grants.

I get to tell my dear gentle creative storyteller, a giant in the business of video, how valuable his lesson was in the meaning of video to create a powerful experience.

I finally get to ‘give-back’ to my “hard core” (hehe) entrepreneur, investor and civil liberties activist friend. She taught me perhaps one of the most important lessons in this space – the focus needs to be about creating shared experiences using content rather than solely focusing on the content. It is a powerful mind-bending insight that has deeply shaped how engageSimply develops its concept.

I can go back and reconnect with some of my ex-colleagues and CEOs who, over the years, inspired me, instructed me when I just didn’t get it and generally invested in me by teaching me ever so patiently. I can’t imagine how I would be doing this without their support and faith.

In the end, each gratitude grant is my way to repay the gift of confidence that each person so unselfishly gave me. It helped me turn a blind eye to the limitations imposed by stereotypes about what a tech CEO looks like (age or gender) or should do.

Over the next few weeks, I will have the distinct privilege and (one time only) opportunity to award these gratitude grants – without justification or encumbrance. To those of you on the list – stay tuned.

Lots of people track “firsts” (e.g. first investor, first alpha) – I want to note the “lasts.” I want to acknowledge these last few precious moments when I have full control of my company and I can still allocate equity as I want. This privilege is fleeting likely not to be ever repeated.

I best be sure I don’t leave anyone out. What a happy chore.

Judy Shapiro

My New Year’s wish to you all.

May 2012 be filled with dreams that let your grasp be further than your reach.

The power of a different persepective

Sometime’s life just throws you a curve. Sometimes you just need another perspective. Sometimes inspiration is as close as a kitty.

This comes to me via@sabrinacchapman and is dedicated to my friends at @HumNews and @JackiesBuzz.

The power of the courageous heart

Now that we have the feasting under control – here’s one for the spirit via Epiphany Channel (http://www.facebook.com/EpiphanyChannel)

The power of positive thinking ;)

Here’s great advice to help after all the holiday parties and feasting… great strategy!

 

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