Sssh, I’m in stealth

The comeback of the stealth mode startup. While it may seem self explanatory, a stealth startup is a startup being built in secrecy. Sometimes the company hasn’t even been setup. In some cases the startup that is being built in public is actually purposefully not the end game. Why is stealth mode back? The investor markets have become pretty tough. A lot of founders didn’t need to be in stealth mode because they were raising capital so easily and could quit their day job. Here are a few strategies that I have seen deployed that I would highly consider.

1. Keeping my day job. The founders want to bootstrap as long as possible and keep their day jobs. I love this strategy. Being able to leverage your day job for connections, going to conferences and do some patient customer discovery is fantastic. The minute you are out of stealth mode, all those friends in your network think of you as a vendor. The conversations are less open and they are less helpful. The status you have in your day job also may afford you the opportunity to start building your personal brand, speak at conferences etc. This is a patient and pragmatic approach. My advice to people doing this is to become an expert at the problem. Never talk about your solution ideas. Why? They are probably wrong and the funny thing is that people will share all kinds of solutions with you.  When I was on my “pre-tirement” , I got tired of telling people in social settings “what I did for living”. Instead I ran experiments on people. For example, someone would ask me “what I’m working on?” I would say that i have been studying the RFI process and am really trying to learn how the process could impact outcomes. People would offer their opinions and give me references of whom I should speak to about RFIs. Then, they would offer up solutions. “If you could XYZ, you would be a billionaire…” It really helps you understand how the market thinks about a topic without having Observing bias in the customer discovery process.
2. Launch a consulting business. This is a great way to launch a product company in stealth and bootstrap your way to a tech startup. The only downfall that I have seen is that consulting can be a cash cow. Some founders never get to building their product company. Then they try to get funding for a hybrid business (for VCs, that’s a hard no). Having a head cut off and investing every dollar into the product requires discipline.
3. Taking on a Goliath. There are at least a half dozen AI startups that have raised significant capital that are in stealth mode. Why? There is no benefit in launching unless you have built a superior product to the incumbents. For example- If you want to take on Procore, you could launch a feature based product to try to flank their market position or you can spend 5 years building a superior product in stealth and then launching. This typically involves a capital intensive R&D cycle to create a technical moat. There is no benefit in an iterative launch.
4. Coming soon. In some cases, stealth mode is just to create some market anticipation. Does anyone remember the launch of the Segway? The much anticipated project code name Ginger from Dean Kamen. Google it if you want the details. Essentially it was leaked that Dean Kamen (inventor extraordinaire and inventor of the insulin pump) had a new project called Ginger. It was going to be a huge innovation impacting society. There was a ton of press and hype. Unfortunately, Ginger did not live up to the hype.
5. Government intervention. In some cases in highly regulated or even situations where there is a belief that your startup could come under government scrutiny, it’s best to lay low. While OpenAI was not in stealth, they were very measured in their product release approach.

As a VC, why would i entertain funding a startup in stealth mode? For me, it would have to be a huge idea. Either technologically or market significant. The founders would have to be stellar. More than likely successful serial founders.  

I am excited by a new wave of stealth mode startups. Also, putting “Stealth Startup” on your LinkedIn profile could be as amateur as putting an Ivy League school as your education when you went to a 1 day seminar. Ya ain’t fooling nobody.

While the below is true and also a shameless plug (my publisher has been unhappy with me).

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