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The Next Big Idea: What Happens When A Startup Fails

The book cover of "Unwound."
Blackbird Ventures
The book cover of "Unwound."
The Next Big Idea: What Happens When A Startup Fails
The Next Big Idea: What Happens When A Startup Fails GUEST: Ethan Senturia, former CEO, Dealstruck

San Diego is looking as a hub for startup. for everyone that makes it big, about two don't. That is what happened to Ethan Senturia. This company was a startup two years ago but it quickly ran out of money, and shut down. He has written about his company Dealstruck. Midday addition is taking a closer look at San Diego's startup this month. Then our series the next big idea. He spoke with century about what it is like inside the mercurial world of startups. >> You're pitching the company to investors to give them money. It is accompanied to intermediate the banking system with a marketplace model. What does that mean? It means we were a finance company that was not a bank. Did not have compliance requirements. It was going to use the Internet to lend money to small businesses, and to allow individual investors to make loans directly to small businesses rather than put their money in the bank. >> why not save investors and have non-bank lenders to small businesses. Why did you have to use all of this fancy jargon? >> There are certain buzzwords in the startup world that resonate with investors. there willing to take risks on early-stage companies. they need to be able to see the business can reach a certain size. oftentimes, they have recognition as their drive for making decisions. certain businesses can achieve that scale. does a marketplace to businesses. businesses that take on an entire industry. companies can be very efficient with capital. they don't have it suck up their balance sheet. if you were going to a doctor, they can talk in a certain way. we have that as well in the start of world.? What went wrong? >> There's never one thing you can point to. at our core, we were a finance company. financial technology and initially we ran it more like a technology company. we did not have internal control or the right capitalization, the right people and how to grow long-term. in some sense, our mindset was wrong and that drove a lot of the decisions we made about how to build the business that I would have done differently. >> you have a great idea for something but from the person, technology perspective we would create software that would help us solve the problem. Maybe they're not as interested in the flashy technology. >> the startup does not focus on the product or they are trying to find a problem that needs solving and find a solution that the customers would value. sometimes the boring administrative options and financial services company those are even more important, you are moving into millions of dollars on a daily basis. >> they think old people with gray hair, who do not have startups do. there supermen --- super important. >> Would you lump yourselves in with those people? >> I don't know if I thought they were problems that were born are an interesting. I'm not sure I knew they were what they were. that was the first time I build a business from scratch. they were necessary to keep the plane in flight, if you will. We did not know exactly what they were, it was too late. the amount of time and technical and professional that you incur trying to fix things after they are broken, is more than if you had have tried to get them right in the first place. >> you had all sorts of training, you went to Wharton. you could have overlooked some things. do you think that speaks to any larger problem with the way started to run? >> I don't think it speaks to a larger problem. I think it speaks to a reality of entrepreneurship. that is a common debate. you go to university and there is an entrepreneurship class. we study other businesses that are successful and sometimes they fail. you could go start your own reality. that's one of the things were in surgery, you cannot learn it in a textbook, you have to go do it. that's why of venture capital community takes a risk. that is why I wrote the book. we should all be prepared what could be our outcome. go into her eyes wide open. >> take me into a mind of a startup entrepreneur. you had the chance to sell the company. sometimes when the company is doing well and sometimes when I was struggling forecast. and all those situations, it did not work out. what were just dumb with stumbling blocks? >> It's one thing if you have a copy shop and you are the sole owner. When you run a startup, that is trying to build high-growth multibillion-dollar business, you need outside investors. there are different incentives that may be contrary to what you as a founder want or think is right. You don't always have the final say. learning to manage incentives and control aboard women learning to understand what is driving people's important to be in a effective CEO. >> In one point is the ego is a big factor as well. >> Sometimes you have a big picture in your head. often what you have to sell to investors, and tell people who support you, is a grand outcome. you admit when maybe what you thought could be huge business can only be a medium-size one or a small one. the experiment needs to end before everyone can get their return after what. it is a tough admission to make. The opportunities we had to sell both times, I got to the point where I wanted to, it was not easy. I had to submerge my ego and it could've been better spent in making other people go along with it or finding other opportunities that may have been better for the company. >> you ended up losing $30 million worth of investor money. what is next for you? Are you looking for the next startup. >> yes. One of the things we say in the businesses you train a model. without means is if you are trying to build a credit decision, you can only learn to make good decisions, if you know what the fall is. >> sometimes after rationalize, this was tremendously difficult in more ways than one. employees suffer. families myself certainly. the reality is, what that means is there something extremely valuable varied and it. You touring the model on. That is what the exercise in writing the book was for me. I'm going to apply that model again in the future. That was from Dealstruck, Ethan Senturia speaking with producer, Michael Lipton. [ MUSIC ] reporter had one of the first items he covered for the paperback in 1974. was about approval for a day front project, which 44 years later, has still never been built. Covering growth involvement in projects in San Diego, can be a frustrating job. he developed what he calls his privileged perspective on the building of San Diego. Roger Shelley retired at the end of March. Roger, walk on >> thank you.

San Diego is known as a hub for startups looking to grow into billion-dollar companies. But for every one that makes it big, about twice as many fail.

That’s what happened to Ethan Senturia. His startup, Dealstruck, was a promising financial technology company a few years ago. The pitch to investors was Dealstruck could be more efficient than traditional banks in lending money to small businesses. Dealstruck eventually raised about $30 million and had 60 employees, but after a few years, it ran out of money and shut down.

RELATED: The Next Big Idea: A Guide To San Diego’s Innovation Economy

Senturia has written about what it’s like inside the volatile world of startups in his recent book, “Unwound: Real-Time Reflections from a Stumbling Entrepreneur.” He said too many first-time entrepreneurs focus too much on finding a flashy solution to a problem that customers would value, instead of the more "boring" conventional businesses fundamentals.

"We, like many in the financial technology space, initially ran it more like a technology company and didn't necessarily have the internal controls, the right capitalization, the right people and the right ethos about how to grow long-term into something that was sustainable," Senturia said. "In some sense, our mindset was wrong and that drove a lot of the decisions we made about how to build the business that I would have done differently."

Senturia joins KPBS Midday Edition on Wednesday as part of its month-long series, The Next Big Idea, on the stories behind San Diego startups.