Why Celebrating a Startup's Death Shows Greater Life for the New York Ecosystem

By Erin Griffith , written on September 28, 2012

From The News Desk

The stats are well known: Nine out of ten startups fail, and three out of four venture firms don't return their money. And yet, as tech bloggers, we salivate over new fundings, and new launches, and the "next" Airbnb/Zuckerberg/Silicon Valley/runaway success. Each milestone on the upside gets an overblown press roll-out and an elaborate party. The failures? Well, we allow them to be spun into pivots and acquihires and purchases for "undisclosed amounts."

It's not that we don't want to write about the failures. It's just difficult to find someone who will honestly discuss it. Everyone says the strength of a good startup ecosystem is embracing failure. But in practice, almost no one does.

It's a big contrast to the turnaround/ M&A/ private equity world, which I previously covered. The odds of a big success were just as low as in the startup world. But unlike with startups, the risks and frequent bankruptcies were presented matter-of-factly. There was no mythological entrepreneur-hero ideal to maintain. Besides, it was better to explain the situation yourself than have to chatty hedge fund vultures leak it to the press.

This past weekend I went to an event that sought to change the startup failure shame in its own small way, and I loved it. A funeral for deadpool startups was held at New Work City in Soho. It was an awkward and unusual scene complete with bagpipe player, priest costumes, black veils, flowers and eulogies.  Oh, and powerpoint presentations. Those were involved, too.

Despite the morbid theme of the night, but the event was a breath of fresh air. It is not easy to open up about failure, particularly when startup culture requires that you pour every ounce of your being into your company. Losing is embarrassing, painful, and sad. It takes time to get over it, let alone talk about it and least of all joke about it.

Case in point: one of the small handful of deadpool companies scheduled to present at the funeral bailed out at the last minute. "I guess they decided it wasn't quite dead yet," one of the organizers told me. More likely, they didn't want to open up about what was going wrong.

That's what gave me respect for the founders who presented eulogies. They laid it all out there, and it was therapeutic for them. For the audience, it was also a valuable learning experience.

It was so hard to find fresh failures willing to present that the evening featured off a blast from the past: dot com flameout Most of the night's attendees were in gradeschool when the tech bubble burst in 2000. Today, when we scream "!!!OMG the bubble is back!!!" it's without a true understanding of what the original dotcom bubble actually was like.

A eulogy given by the CTO of shed some light. Back in 1999, the company had promised, through its hideously designed website, to deliver anything to your door. It raised hundreds of millions (millions! plural!) of venture capital funding and went public, despite losing money on every single order. Chris Siragusa walked us through the lavish parties, the frivolous business endeavors, and the eventual collapse of the company. But the eulogy didn't reduce to a shallow fall-from-grace Oliver Stone archetype. This guy was there, believing the hype and coding his ass off to live up to it. His disappointment over the failure, even ten years later, was palpable through sarcastic, self-deprecating digs.

It was kind of Valley history lesson that doesn't often get taught to 19-year-old college dropout founders. Or to eager-to-cry-"bubble" reporters. It was almost a cross between the SNL sketch "Scared Straight" and Old Yeller. Be careful out there, kids. You could lose your money, youth, self-worth, sanity and reputation in this game.

Siragusa's story had a happy ending. After Kosmo collapsed, he went on to start a similar delivery service call MaxDelivery. It actually earns money instead of just burning it.

The founder of Addieu, the failed business card killer, discussed a fresher wound. The company shut its doors in 2011; co-founder Brian Pappa laid out the reasons it failed in a matter-of-fact powerpoint. (Addieu: "There was an app for that.") Toasts were made, commemorative urns were handed out, the bagpipes played, and everyone drank and danced. No one really made light of the failure; everyone accepted it as a sad bummer of the startup life. The whole silly morbid thing managed somehow to feel hopeful.

An event like this speaks to the where the New York ecosystem is right now. Unlike most other cities in the world, there is a certain density of money, talent, ideas and-- most importantly--belief in New York right now. That means companies can be produced rapidly, get funding and find people willing to leave decent jobs in legacy industries to build something cool.

But the ecosystem is still so nascent that there's not too much money, or too much of a network that protects its own, or too much institutionalization of the startup business. When things flounder, there aren't abundant soft landings for the most connected. There isn't another round of funding from a lesser-tier VC. Things still fail.

That may be one of the biggest things the New York ecosystem has going for it right now. Failure is healthy--it is supposed to happen. So whenever all you proprietors of ill-fated ideas are ready, let's celebrate that. This startup funeral won't be the last.