Right now, at universities and business schools all over the country, would-be entrepreneurs are dreaming of making their fortunes in the high tech industry. They’re captivated by the idea that even if their initial foray into the sector is an abject failure, they’ll still be rewarded for having the fortitude to give it a shot.

This concept long ago metamorphosed into a Silicon Valley mantra—one that some venture capitalists are trying to shatter. Integral Capital Partners’ Roger McNamee, a leading VC, told an audience earlier this year at the Kellogg School of Business that the idea of failure being acceptable is a flat-out myth, and other VCs concur. “It’s true that starting a company that fails is no ‘scarlet letter,’ but saying that failure is O.K. has been overstated,” says Oak Investment Partners’ Dave Walrod (a VC whose fund just raised an unfathomable $1.5 billion).

To be sure, there are examples of serial entrepreneurs who seem to always have work. Jerry Kaplan founded the Go Corporation around an idea—pen-based computing—that’s been widely ridiculed. Undaunted, he later founded online retailer Onsale, which acquired Egghead.com in November 1999. Kaplan is now chairman of that company, which has seen its stock nosedive to under $3 per share after reporting a loss of $17.7 million in its most recent quarter.

Similarly, Chris Hassett is still a working man. He founded PointCast, a provider of the equally ridiculed push technology, passed up a reported offer to sell the company for $450 million, and later sold it for $7 million. He went on to found online gaming company Prizepoint, which he later sold to Uproar, another online gamer, whose stock sits at about $7 per share.

So what has the myth of acceptable failure wrought? Oft-told success stories and untold fortunes, to be sure. But also misunderstanding.

When VCs talk about failures, they mean companies that didn’t have explosive IPOs or were sold for less than a premium. But too many budding “visionaries” think they have carte blanche to burn through millions in funding— because if this idea dies—there’s more money right behind it for anyone with the cajones to take a chance (as stories like Hassett’s and Kaplan’s prove).

The business media has perpetuated this misunderstanding, creating the impression that any average Joe with half an idea can be the next Bill Gates—when of course there is, was, and always will be, only one. This is why VCs who do accept unsolicited pitches—a dying breed—still get proposals from nobodies who think they can create a portal to challenge AOL and Yahoo. (This plum recently landed on Walrod’s desk—he passed, saying, “That one was just ridiculous.”)

There’s a trickle-down effect, too. Eager to get companies up and running, entrepreneurs staff up with young people who will work long hours for less money now and the promise of great future wealth. As a result, the days of working at one company from college through retirement have passed, and the concept of corporate loyalty is as alien to young people as osteoporosis. Their departures aren’t seen by them (or their ex-bosses) as a failure; they’re just bad “fits.”

Lost in the entrepreneurial fervor of the past five years is the fact that the success rates of new tech companies are only slightly better than for new restaurants. Forrester Research, for one, has predicted that more than half of all dot coms will be out of business by 2001, and most of the survivors will have to retool their business plans to continue.

And big failures have a way of illuminating little ones. April’s market correction dictated that entrepreneurs could no longer just fling any idea at a wall like a noodle, hoping it would stick. Henceforth, the only fundable ideas would have “a clear path to profitability”—the Valley’s new-and-improved mantra. “The luster is off the industry somewhat, which is good, and I think things are beginning to return to normal,” Walrod says. “It’s tough for college students—especially here in the Valley—who want to break into the industry to avoid these ideas about wealth and failure, because they see it all around them. But now they’re going to have to go back to reality.”

The Wild West mentality and willingness to take risks are indeed what have always separated the Valley from the rest. But while producing the occasional rousing success, this ethereal culture of acceptable failure more often than not results in very real loss. In this sense, it’s not unlike another enduring American institution—Las Vegas—an analogy venture capitalists, logically enough, are in no hurry to embrace.

Luc Hatlestad is a writer living in San Francisco.

The "wakeup:call" is brought to you by Alarm Clock Communications, Inc. Copyright © 2000, All Rights Reserved.