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  • Writer's pictureChuck Kanafi

Breaking the Cycle of Tech Startup Failure

According to Fortune Magazine, 9 out of 10 startups fail.

While many of these failures (about 4 out of the 9) are product-related, the other five fail for reasons which can be traced back to misunderstandings, conflicts and dispute within the startup, or between investors and founders.

One thing is clear: the startup ecosystem hates courts and litigation. Cash can't be wasted on expensive lawyers and court fees, and getting a verdict can take a year or with the advent of Covid-19, even more in an industry where “runway” is calculated in weeks and months. Presenting your case in open court can mean exposing trade secrets not protected by patents in the court record, open to competitors to see (and there are vultures who comb court proceedings and provide precisely this service).

Investors are inclined to write off losses (or even their entire investment) in those 9 cases – but if even one of these 9 investments could be saved, it would mean double the return for the investor.

Between founders, conflict is even more destructive. Due to short circuits in communications, many viable, innovative and profitable services or technologies are abandoned and fade into oblivion, and what is maybe worse – humans who were colleagues and friends fall out, destroying a relationship of years. Investors lose, society loses, and the founders lose the most.

Appropriate/alternative dispute resolution (ADR) – and specifically mediation – provide an answer to these concerns. ASM Plus mediators who are neutral third-parties assist parties in identifying their underlying interests and needs, and harmonizing these with those of the other parties.

The parties can meet in joint session, or in private meeting with the mediator. They may or may not be represented by lawyers. In many cases, it is possible to resolve the dispute while creating value outside the narrow confines of the specific dispute, with participants often reporting that their relationship is stronger than it was before the outbreak of the conflict. This process is characterized by a number of properties unique to the mediation process:

  • Mediation is consensual: nothing can be imposed. If a party is dissatisfied at any time, they may unilaterally stop the proceedings, or ask for modifications.

  • Mediation is confidential: proceedings may not be used or quoted in later legal (or other) proceedings. The mediator(s) cannot be called to testify in court.

  • Mediation is collaborative as opposed to competitive: it is concerned with value creation rather than distribution, and with preservation and where possible rehabilitation of the relationship between the participants. The principles of good faith and fairness - on the part of the parties but also on the part of the mediators themselves - is central to the conduct of the mediation. In fact, a commitment by the parties to act fairly and in good faith is a precondition to the entry into the process.

  • Mediation is cost-effective: it is quicker than litigation (most cases can be resolved in far fewer meetings than in court – often in one session) and due to its less formal nature requires fewer procedural resources.

  • Particularly now that easy to use, high quality Zoom software is now are used as opposed to face-to-face mediation the whole process of setting up appointments has become or even easier. This is particularly true of instances where the parties are situated some distance from one another e.g. in cross-border disputes.

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