The Perils of Startups

By Steve Barrett
Tuesday, May 1, 2018

“Every investment involves risk” is boilerplate language in finance — but not all risk is equal.

Physicians shared financial mistakes with Medscape, ranging from Martha Stewart Living stock that flopped to an investment property that could not be developed to cattle that somebody promptly rustled. A popular stop on the path to distress was an ill-advised investment in a startup.

“We put a large investment into a startup clothing company that went bankrupt,” one physician lamented. “I did get a nice T-shirt, though.”

A medical school friend persuaded another to sink money into a startup that was actually fraudulent.

Technology was no safe haven, either. One provider lost money in a new EHR company that met an untimely demise.

Quaint bistros that wound up not becoming all the rage were another source of misery — pain compounded by the fact that many such ventures involved partnerships with family and friends.

Still, startups can succeed for physicians who do their homework. For example, understanding ownership structure is vital, Kathy Stepp, a founder of Kansas-based financial planning firm Stepp & Rothwell, told Medscape.

“The general partner usually gets to make all of the decisions, including how the income and any profits are distributed,” Stepp says. “As a minority partner, you may have no say in anything at all.”