This start-up founder has a novel strategy for getting ahead: Telling the truth

Key Points
  • Start-ups are all about secrecy, especially when it comes to their revenues and failures, but biotech entrepreneur Ethan Perlstein of start-up Perlara is taking a very different tack.
  • Will it work?
  • Not everyone thinks so.
Ethan Perlstein, founder of Perlara, shares his biotech fundraising tips
Ethan Perlstein

First-time entrepreneur Ethan Perlstein has a unique strategy to get ahead: Telling the truth.

"To beat me, any potential rivals would have to out-transparency me," said Perlstein, in an interview with CNBC. "And that's anathema to the status quo."

Perlstein's approach with his start-up, Perlara, which is working with families to find cures for rare diseases, is radically different from how most start-ups operate.

Investors and boards typically pressure start-ups to stay quiet. A lot of entrepreneurs also believe that secrecy will help them quietly sneak up on incumbents. Plus, it can be a bit embarrassing to talk about non-existent revenues in the early days of a company. It's a lot easier to win investors by selling a big vision.

Perlstein wants to start a movement to do just the opposite: Share numbers, share data, share everything. That includes saying what he thinks, even if that means pissing a few people off. (Perlstein almost certainly raised a few eyebrows when he referred to tech investors as little more than "biocurious," while insisting that the best way they could help him is to cut the platitudes and cut him a check).

To test out Perlstein's commitment to openness, CNBC shared a handful of questions that would get a polite but firm "no comment" from most founders. He shared his responses via email:

  • Perlara booked revenue of $250,000 in 2017 and Perlstein is hoping to secure that amount within the first few months of this year. He believes he's on track.
  • He pays himself a salary of $200,000.
  • His biggest disappointment about a customer falling through? After a "lot of time" talking to pharma companies Sanofi and BioMarin, he didn't get a contract.
  • He pitched 75 venture funds last year and about a quarter of them never engaged again after the first meeting.
  • Fund-raising was an "emotional rollercoaster" that became particularly stressful when it became clear his company wasn't going to get an institutional lead investor and its runway was shrinking. It was "the most challenging experience of my professional life so far."
  • His goal for 2018 is to be profitable. To do that, he'd need to make 2017's revenues in the first few months of this year.

Perlara has raised just shy of $10 million in venture capital since its 2014 inception. It is a graduate of one of Silicon Valley's most competitive accelerator programs, Y Combinator.

Not everyone agrees... 

It might seem a little nuts for an early-stage start-up to share these metrics publicly. But Perlstein has his reasons:

  • To help other early-stage entrepreneurs who don't hear enough about their peers' rejections or failures. He noted the "psychological toll of feeling like an imposter or loser" and how founders will take the inevitable rejections and mistakes very hard, if they don't believe others are experiencing them also.
  • To battle the "old boys' club" in Silicon Valley and in biotech, where the same sorts of people get funding each year by benefiting from exclusives networks.
  • He has a personal passion for transparency and sharing.

While his approach might seem admirable, not everyone agrees that it's the right thing to do.

"Things could change for a start-up from month-to-month," said Steve Kraus, a health and technology investor with Bessemer Venture Partners. One big customer win or loss could change things, and make last week's numbers irrelevant. So it might be advisable to never share them in the first place.

Kraus is also skeptical that it will give Perlara a competitive edge.

"And as for getting an edge for transparency, I'm not so sure about that," he added. In pharma, said Kraus, sharing data might open up a company to more competition from incumbents, who could then deliver a better, faster product.

Others believe there's a middle ground between Perlara's total transparency and the prevailing culture of secrecy. Evidation Health's Christine Lemke, who is also an angel investor, said her start-up makes it a policy to share as much as they can with potential recruits. Evidation works with other health start-ups to help them generate evidence to back-up their claims.

But getting approval to share revenues publicly would be another story.

And she wonders whether companies would regret taking that approach if their company goes through a bad patch.

"I bet that transparency goes away if your revenue takes a nosedive," she said.