Restarting Is the Real Competitive Advantage
Failure is a concept and an experience that is very familiar to Diyala D’Aveni. It is the foundation of her work, the intrinsically high risk of venture capital, where on average 60% of investments fail, but just one or two projects can repay the whole portfolio. However, D’Aveni prefers to talk about a culture of restarting rather than a culture of failure, at least based on her experience as CEO and Managing Partner of Vento, a venture capital firm backed by Exor that specialized in the pre-seed and seeding stages, funding startups with a total value of approximately €3 billion. Vento supports over 160 startups, and D’Aveni has 86 deals in the pipeline this year. The manager, a graduate of Bocconi University (with a Bachelor degree in Economics and Social Sciences and a Master of Science degree in Economics and Management of Public Administration and International Institutions), already knows that the prospect of future failures clashes with "the generalized culture that celebrates success. But we must remember that, often, the best new projects are born precisely from those who have a history of failures."
Why is it so hard to accept failure?
Even for the most talented people, letting it go isn't an easy thing to do, although many founders of the startups supported admit afterwards that it was easier than they thought. Like that time I invested in a startup I thought was interesting, led by two talented people, but whose sustainability I wasn't convinced of. After nine months, the new company's lack of growth confirmed my initial fears. The founders realized this, but I still thought I'd made a good choice, and that was people. So I reinvested in them. Now they've launched a company that digitally handles corporate ISO certifications.
What are the most common reasons why a startup fails to succeed?
Startups are forced to interrupt their development path for numerous and diverse reasons. For example, one scenario could be running out of money, as in the case of that founder who managed to restart by reinventing himself with a different project. Today, he manages an AI platform that evaluates public tenders that are of interest to different types of companies. I'd immediately add that it's not even a financial contradiction to place trust in the same people again, given that I'd already invested in them, for example in terms of training. Those who restart with a failed experience behind them perform better afterwards.
So, what is the real parameter to consider when evaluating a startup?
What really matters is the ability of people to execute a project. Especially today, when, at least for us, 90% of initiatives are related to artificial intelligence and the application layer (user-software interface, editor’s note). These are two technological fields that are quick to implement and less demanding of financial resources, where time and capital are less important. I repeat, what really matters is having the ability for the complete implementation of the starting idea.
In addition to founders' hesitations about accepting failure, are investors hesitant?
It depends. The situation varies, for example, depending on whether investors have more or less concentrated portfolios and, therefore, whether they are more or less risk-averse. However, there may be deep-rooted, but sometimes unconscious, preconceptions regarding the choice of people you need to believe in. Perhaps they are seen as too young or lacking a certain track record, or perhaps because some tend to invest in people similar to themselves, with similar careers and a common background. What is certain is that the culture of failure can vary. Abroad, success stories are treasured not to celebrate them as such but to better overcome failures. In Southern Europe, this approach is less widespread but is starting to gain ground.