December 7, 2013 by Matt Chanoff.

THERE was once a velveteen startup, and in the beginning he was really splendid. He was fat and bunchy, as a startup should be; his technology was inspiring, his CEO visionary, and his market narrative had threads of real interest from customers. Many people wanted him, he thought, but of course, his ears were lined with pink sateen. But on Christmas morning, when he sat wedged in the top of the demo day presentation, the effect was charming.

For at least two hours the startup community loved him, and then VCs and angels came to dinner, and there was a great rustling of tissue paper and unwrapping of parcels, and in the excitement of looking at all the new presents the Velveteen Startup was forgotten.

For a long time he lived in the accelerator or on the nursery floor, and no one thought very much about him. Because he was only made of velveteen, some of the more high tech startups quite snubbed him. The mechanical startups were very superior, and looked down upon every one else; they were full of modern ideas, and pretended they were real. The model boat startup, who had lived through two rounds of funding and lost most of his paint, caught the tone from them and never missed an opportunity of referring to his rigging in technical terms. The Velveteen Startup could not claim to be a model of anything, for he hardly knew that real companies existed; he thought they were all stuffed with sawdust like himself.

The only person who was kind to him at all was Merrick Furst, leader of Flashpoint.

Dr. Furst had lived longer in the nursery than any of the others. He was so old that his brown coat was bald in patches and showed the seams underneath, and most of the hairs in his tail had been pulled out to string bead necklaces. He was wise, for he had seen a long succession of mechanical toys arrive to boast and swagger, and by-and-by break their mainsprings and pass away, and he knew that they were only toys, and would never turn into anything else. For nursery magic is very strange and wonderful, and only those playthings that are old and wise and experienced like the Merrick Furst understand all about it.

“What is REAL?” asked the Velveteen Startup one day, when they were lying side by side near the espresso machine. “Does it mean having things that buzz inside you and a stick-out handle?”

“Real isn’t how you are made,” said Merrick Furst. “It’s a thing that happens to you. When customers love you for a long, long time, not just to play with, but REALLY love you, then you become Real.”

“Does it hurt?” asked the startup.

“Sometimes,” said Merrick Furst, for he was always truthful. “When you are Real you don’t mind being hurt.”

“Does it happen all at once, like being wound up,” he asked, “or bit by bit?”

“It doesn’t happen all at once,” said Merrick Furst. “It takes a long time. That’s why it doesn’t happen often to startups that break easily, or have sharp edges, or that have to be carefully kept. Generally, by the time you are Real, most of your hair has been loved off, and your eyes drop out and you get loose in the joints and very shabby. But these things don’t matter at all, because once you are Real you can’t be ugly, except to people who aren’t customers.

There was a force called The Market who ruled the nursery. Sometimes she took no notice of the startups lying about, and sometimes, for no reason whatever, she went swooping about like a great wind and hustled them away into incubators or insolvency. She called this “tidying up,” and the startups all hated it, especially the tin ones. The Velveteen Startup didn’t mind it so much, for he didn’t need much money, so wherever he was thrown he came down soft.

One evening, when the customers were going to bed, they couldn’t find the china dog that always slept with them. The Market was in a hurry, and it was too much trouble to hunt for china dogs at bedtime, so she simply looked about her, and seeing that the accelerator cupboard door stood open, she made a swoop.

“Here,” she said, “take your old Velveteen Startup! He’ll do to sleep with you!” And she dragged him out by one ear, and put him into the customer’s arms.

That night, and for many nights after, the Velveteen Startup slept in the customer’s bed. At first he found it rather uncomfortable, for the customers hugged him very tight, and sometimes they rolled over on him, and sometimes they pushed him so far under the pillow that the Velveteen Startup could scarcely breathe. But very soon he grew to like it, for the customers used to talk to him, and they had splendid games together, in whispers.

Once, when the customers were called away suddenly to go out to tea, the Velveteen Startup was left out on the lawn until long after dusk, and the Market had to come and look for him with the candle because the customers couldn’t go to sleep unless he was there. The market grumbled as she rubbed him off with a corner of her apron.

“You must have your little startup!” she said. “Fancy all that fuss for a toy!”

The customers sat up in bed and stretched out their hands.

“Give me my Velveteen Startup!” they said. “You mustn’t say that. He isn’t a toy. He’s REAL!”
When the Velveteen Startup heard that he was happy, for he knew that what Merrick Furst had said was true at last. The nursery magic had happened to him, and he was a toy no longer. He was Real. The customers themselves had said it.

One evening, the Velveteen Startup saw two strange beings creep out of the tall bracken near him.

They seemed to be startups like himself, but quite furry and brand-new. They must have been very well made, for their seams didn’t show at all, and they changed shape in a queer way when they moved; one minute they were long and thin and the next minute fat and bunchy, instead of always staying the same like he did. Their feet padded softly on the ground, and they crept quite close to him, twitching their noses, while the startup stared hard to see which side the clockwork stuck out, for he knew that people who jump generally have something to wind them up. But he couldn’t see it. They were evidently a new kind of startup altogether.

They stared at him, and the little startup stared back. And all the time their noses twitched.

“Why don’t you get up and partner with us?” one of them asked.

“I don’t feel like it,” said Velveteen, for he didn’t want to explain that he had no clockwork.

“Ho!” said the furry startup. “It’s as easy as anything,” And he jumped off to the side, using some profits to invest in a new business line.

“I don’t believe you can!” he said.

“I can!” said the little startup. “I can jump higher than anything!” He meant when the investors threw him, but of course he didn’t want to say so.

“Can you run without new investors?” asked the furry startup.

That was a dreadful question, for the Velveteen Startup had no profits at all! The back of him was all made of investors’ money. He sat still in the bracken, and hoped that the other startups wouldn’t notice.

“I don’t want to!” he said again.

But wild companies have very sharp eyes. And this one stretched out his neck and looked.

“He hasn’t got any revenue!” he called out. “Fancy a company without any revenue!” And he began to laugh.

“I have!” cried the little startup. “I have got revenue! I am sitting on LOIs with lots of beta customers until my product is ready!”

The wild startups began to whirl round and dance, till the little Velveteen got quite dizzy.

“I don’t like dancing,” he said. “I’d rather sit still!”

But all the while he was longing to dance, for a funny new tickly feeling ran through him, and he felt he would give anything in the world to be able to jump about like these companies did.

The strange companies stopped dancing, and one came quite close for some due diligence. He came so close that his long whiskers brushed the Velveteen startup’s ear, and then he wrinkled his nose suddenly and flattened his ears and jumped backwards.

“He doesn’t smell right!” he exclaimed. “He isn’t a company at all! He isn’t real!”

“I am Real!” said the little Rabbit. “I am Real! The customers said so!” And he nearly began to cry.

Months passed, and the little startup grew very shabby, but the customers loved him just as much, loved him so hard that they loved all his whiskers off, and the pink lining to his ears turned grey, and his brown spots faded. He even began to lose his shape, and he scarcely looked the same any more, except to the customers. And that was all that the little startup cared about. He didn’t mind how he looked to other people.

He didn’t know it, but Merrick Furst was right, and the customer magic was working on him all the time. And one night, after a long long day of changing his code to make a customer smile, he fell into a kind of trance. And there, in front of him was the startup magic Fairy, and she told him “I take care of all the playthings that the customers have loved. I come and turn them into Real.”

“Wasn’t I Real before?” asked the little Rabbit.

“You were Real to the first customers,” the Fairy said, “because they loved you. Now you shall be Real to every one.”

And she kissed the little startup and put him down on the grass.

“Run and play, little company!” she said.