Once again, the press is here to remind poor, unsuspecting founders that venture capital can — GASP! — result in your startup trying to grow too fast. From today’s New York Times comes the link-baiting title: “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost:”
The V.C. business model, on which much of the modern tech industry was built, is simple: Start-ups raise piles of money from investors, and then use the cash to grow aggressively — faster than the competition, faster than regulators, faster than most normal businesses would consider sane. Larger and larger rounds of funding follow. The end goal is to sell or go public, producing astonishing returns for early investors. The setup has spawned household names like Facebook, Google and Uber, as well as hundreds of other so-called unicorn companies valued at more than $1 billion.New York Times
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Wait, venture capitalists give you millions of dollars in order to get huge returns?! Capital can be used to grow faster than competitors — tell me more, New York Times!
But for every unicorn, there are countless other start-ups that grew too fast, burned through investors’ money and died — possibly unnecessarily. Start-up business plans are designed for the rosiest possible outcome, and the money intensifies both successes and failures. Social media is littered with tales of companies that withered under the pressure of hypergrowth, were crushed by so-called “toxic V.C.s” or were forced to raise too much venture capital — something known as the “foie gras effect.”New York times
What!??! Startups burn through the money that investors give to them?! I thought startups were suppposed to put these funds in municiple bonds!
And social media is filled with companies that grew too fast … say it ain’t so, New York Times.
Everyone in Silicon Valley, the founders most of all, understand the deal: VCs give you the money to take a shot at changing the world. Most of the time it doesn’t work out and that’s OK because when it does work out the world’s greatest companies are built.
As far as I’m concerned, you live once and if you’ve got a shot at changing the world you should go big or go home — it’s not like VCs are going to ask you for their money back.
Can a great company be built outside of the venture capital industry? Of course!
Can a huge, billion dollar company be built without investment in a short period of time? It’s very uncommon.
If you want to bootstrap and/or build a boutique business, have at it, but the ground truth I see every day, and I invested in 50+ startups in 2018, is that founders love their angel investors and covet landing venture capitalists that will bet on them changing the world.
Venture capital is a giant, hard to understand and imperfect gift to humanity. It’s the best option for high-growth startups today, and while it might be hard to understand from the outside, it’s awesome that it exists.
When I travel around the world, everyone wants to rebuild what we have here in Silicon Valley, and many ecosystems are making serious progress.
If you don’t want venture capital and you want to grow slow, go for it. Use your credit cards, savings, revenue or bank loans (do those exist?) to get it.
If you do want venture capital in order to go big and change the world, gear up for battle, as you have to beat out hundreds of other founders to get it.
Bottom line: Founders are smart and it is no news flash to them that going big with venture capital is riskier than building a small business.