In the Company of Venture Capital

People have different definitions of “startup” and “venture capital,” and it’s that foundation that causes frustrations and misplaced expectations.

What Frustrations in Venture Capital?

• The real reason founders are not funded VCs don’t say in a pitch process
• Why Venture Capitalists Aren’t Funding The Businesses We Need
• VCs like to take their time with their decisions because it’s a good idea to do so
• Why don’t more VCs care about good tech?

I ran a quick query on my favorite Q&A site, Quora, and found a litany of similar questions:

• Why don’t investors fund more movies?
• Why don’t VCs fund traditional profit making businesses in India to help them scale up?
• Do VCs fund nonprofits? If not, how else could they get funded from private investors?

The gist of the theme we’re seeing is that people are disappointed that VCs aren’t interested in their thing. And that’s spurring disdain toward, and misconceptions about, Venture Capital; aggravation that we might explore a bit more, to help alleviate and better direct everyone’s focus toward meaningful connections.

In MediaTech Ventures, our most popular article is Venture Capital Firm Investment in Entertainment Companies, reinforcing for me anyway, that people the world over are trying to figure out why investors aren’t engaging, and how to better raise capital.

And with all that in mind, it dawned, that to a very great extent, it isn’t that you need more customers, a better pitch, or some other evidence of a good business, it’s that we’re seeking funding from the wrong sources of capital.

Think of all the Capital in the World as Being Isolated in One Hypothetical Company

This is a thought exercise; a way to change our perceptions and expectations. So play along, imagine if our entire economy was ONE big company and that everything we do and everything we have exists within that company.

VC is a target in recent years. “Why won’t it fund my new business??” “It doesn’t like profitable, sustainable ventures, WTF??”

I’m paraphrasing of course; the point is that there is the ire toward certain forms of capital because it inexplicably doesn’t fund otherwise successful things. Fair? So here’s our notion: Think of that company, everything we all do has a correlation between With The Company vs. Otherwise Reality

The company

Consider (oversimplifying of course) that our company has money allocated to 4 distinct things:

1. Operations: employees and licenses, supplies, etc. – the stuff needed to exist
2. Growth and optimization: marketing, developers, promotions – the budgets allocated to become more
3. Innovation and R&D: research and development, experiments, design, trials – the investment companies make in completely new things
4. Mergers & Acquisitions: acquiring small businesses, legal expenses to merge – consider the expenses incurred when companies make major changes

Thought exercise. With me so far?

Your work, your venture, draws resources from one or more of those sources.

To appreciate the role of Venture Capital, we look at the purpose and expectations of capital sources for each of these cases as though it were reality and not our isolated company:

1. Operating expenses and employees for our company funded akin to a Bank Loan. We know how the money is used, for what, and our operation drives measurable revenue – Money out / money in.
2. Marketing and development budgets are *business investments.* We’re putting money into something, knowing what to expect but not directly driving revenue. We’re investing in the business. And while we use the word “investing,” this isn’t the same as Venture Capital investment because our allocations to development or marketing are typical, familiar, and with expected results. This is what you’d get from a business investor, partner, or in something like revenue based financing.
3. Our company’s Research & Development is fueled by Venture Capital. We don’t know if it will work, we don’t have or know the model. We have to invest in a great many tests, experiments, and endeavors that will fail, if we’re to uncover that which might work. We’re funding possibilities.
4. M&A (Mergers & Acquisitions) is Private Equity. Our company has cash on hand, equity, and other assets, and we can use that to do massive things with organizations.

Why doesn’t Venture Capital fund the profitable business? That’s not its role. That’s not its purpose.

Frustration or expectation is misplaced IF and WHEN we’re developing or operating a business that isn’t suited to Venture Capital. VC funds the experimentation of our economy.