WARNING: Venture Capital is for founders who want to grow fast (duh)
Jason Calacanis
I invest in 100 new startups a year... get a meeting with my team at launch.co/apply, or learn how to start a company by joining founder.university (our 12-week course). watch thisweekinstartups.com if you love startups
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 knownas 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 municiplebonds!
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.
PS — I am blogging everyday this month! Check out my other blog posts below:
Day Ten: “Podcast Recommendation: Cafe Insider & Stay Tuned with Preet”
Day Nine: “Podcast Recommendation: Bret Easton Ellis”
Day Eight: Day Eight: “Lean Management: The Power of the EOD Report”
Day Seven: “The Ultimate Outsider’s Hack: Read All The Biographies”
Day Six: “The Three Vendor Rule”
Day Five: “Should I move my #startup to Silicon Valley: the 2009 & 2019 answers compared”
Day Four: “How can I do an #MVP for a delivery service I want to start?”
Day One: “How do you get an angel investor’s attention?
Helping ambitious managers become confident leaders | Construction and Infrastructure | Increase productivity, retain top people and make work fulfilling.
6 年A very amusing read !?
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6 年? .
Founder and CEO of Panda Eagle Group
6 年VC funding is often talked about, but there is nothing wrong with starting a relatively small business that keeps going and having enough to live a good life. Often there are other motives and requirements that VCs have that yield to the reasons behind making some of the investments they have. Furthermore, some traditional exits have not resulted that good in recent times such as IPOs. Look at many of the recent particularly Chinese tech IPOs. Often times as an ordinary guy that reviews start ups and SMEs, but also through media and other sources know about what the big, famous guys are investing in there are so many questions in the business model (such as where the revenue is supposed to come from in the future). It gets difficult to explain to founders that the real world of investment is not quite like that. We also have to look at the high number of companies that failed because of starting too fast and/or not concentrating on the details.
Relationship Officer at DTB Tanzania
6 年I agree