Startups Don't Make Money; Money Makes Startups

The Myth of the Idea

In my experience, I initially bought into this appealing myth: success was simply about having the right idea—one achievable, profitable, and ideally disruptive. My own startup concept closely resembled what we now know as Smart Contracts, a technology that didn't even exist at the time. My idea ticked every box:

• Technological feasibility
• Market potential
• Innovative disruption

But I didn't stop there. I ticked every bonus box as well:

• A deputy general counsel from one of the world’s largest banks as my partner
• Personal and professional accolades in tech and law
• A working prototype
• Patent pending status
• Published papers supporting our legal theories

Facing Invisible Barriers

We were courted by venture capitalists and angel investors, yet no one ultimately committed. An unseen barrier kept us from securing necessary funding. A mentor explained the phenomenon succinctly: "Everyone wants to be first to be second." Investors showed interest but were hesitant to be the sole funders. My partner even proposed syndicated investing—pooling resources from several investors to mitigate risk—but even this failed to move the needle.

The Hidden Objection

Frustrated, I sought to uncover the real objection behind the polite refusals. Having worked extensively in Japan, my default was extreme politeness, but after a year in Hong Kong, coupled with high stakes and unclear feedback, my patience wore thin. I decided it was time for clarity.

In a tense meeting with two senior advisors from a local investor club, I faced round after round of objections—first familiar ones, then softer, irrelevant ones. Eventually, I pushed past courtesy and demanded honesty: "What's the REAL objection?" After a thoughtful pause, one advisor bluntly asked, "Do you have a rich uncle?"

They explained the investors' true perspective clearly: venture capitalists aim to multiply their investment many times over, inherently a risky venture. To mitigate these risks, they prefer founders who themselves have significant financial backing, ensuring the startup's longevity through inevitable challenges.

The Role of Financial Backing

Indeed, money makes startups—startups inherently tend to lose money, at least initially. The survivorship bias prevalent in startup culture makes this easy to overlook; I've heard that 95% of funded startups fail, not even counting the unfunded ventures. Successful startups often mask the substantial financial backing provided by their founders, whether from family wealth, personal savings, or previous entrepreneurial success.

Talent Alone is Rarely Enough

Entrepreneurship narratives often spotlight raw talent, determination, and groundbreaking ideas. But what isn't highlighted enough is the financial foundation behind these success stories. Many successful startup founders begin their journeys already supported by personal savings, family wealth, or capital from previous ventures.

If you're entering the startup world armed primarily with talent and ambition—but without a substantial financial safety net—be mindful that the path may be significantly tougher. Recognize the additional challenges you'll face and approach them strategically. Seek alliances, partnerships, or roles that help build your resources and credibility before diving head-first into your own venture. There's no shame in starting as an employee, advisor, or co-founder on someone else's project to gather experience, resources, and connections.

Ultimately, exceptional ideas and talent can prevail, but realistic planning and an awareness of the hidden financial hurdles are key to navigating the startup landscape successfully.