Last week, a bit of a controversial, but thought-provoking, perspective about Venture Capital caught the attention of a lot of my readers and followers.
There has been a horrific rash of *VC Bad* propaganda and misinformation lately, sparking my thought that people are being misled about the what Venture Capital is and does. That, entrepreneurs are frustrated because VC isn’t meeting *their* expectations, when what’s actually happening is that people have expectations of VC that are misplaced.
True or not, is the role of venture capital clear? Does a lack of clarity fuel frustration and misalignment of advice and expectations? Are people in disagreement about all this??
A comment on the article somewhat affirmed my hypothesis:
“My own feeling is that VC is too much like flipping houses. In many, if not most cases the entrepreneur and the angels are not interested in building anything, they are just interested in flipping and leaving the final investor with a flawed, leaderless business.”
As I spent the weekend sleeping over this idea, some notable VCs joined me in a discussion asking this question, affirming that indeed, people misunderstand the role of Venture Capital…
Is funding startups kind of like betting on horses? In the sense you bet on a lot of losers, for that one big win?
Is funding startups kind of like betting on horses?? This isn’t well known?? People are hoping to invest in startups as though there is a winner of a race?! Venture Capital is NOT like betting on horses; in horses, there is always a winner.
Venture Capital investing is not even like gambling in a casino, at least the odds there are better than 10%.
People have this exuberance for being a startup investor biased by headlines of wealth and the public perception of being an “Angel” or “VC.”
Here’s the dirty reality…
Startups are for the high risk takers. Startups are for people willing and able to try ONLY because they want to make a difference. There is no higher financial risk endeavor than startups. You could literally do anything else and be better off.
Startups are NOT new businesses. There’s that saying, something along the lines of “business owners work their butt off today so they can take it easier in the future.” (Something like that). That applies to new businesses – not startups!
When a business model is known, you should absolutely consider starting or investing in said “business.” A known model means you should be able to make money and succeed.
That’s not what “startups” are.
Startups do NOT know the model. They’re the R&D of the economy. They try and try and try to do completely new things, and overwhelmingly mostly fail.
That’s normal. That can’t change and isn’t wrong. That’s what startups are: try the stuff that won’t likely work so as to uncover the new stuff that might.
MAYBE think of startups more like medical research in new drugs. It will cost a lot. Some things will harm people along the way. With enough attempts, time, and effort, we might find a cure for cancer.
Is that worth it? Absolutely YES. To some. Most shouldn’t even consider taking the risk because it’s not about financial gain, it’s about the achievement. And on the path to that achievement is difficulty that most can’t manage or afford.
How is funding startups like betting on horses? Imagine running every kind of horse, donkey, and giraffe you can find, not though Churchill Downs but a dirt bike track, betting on all of them, and hoping one crosses the finish line.