We Need More Honesty in Venture, From Everyone

Part of my "What's Wrong with Venture" Blog Series

Have you ever gone to a startup event, heard a founder explain their idea, think to yourself "this idea is terrible" and then out of respect and social norms say "seems really cool, how far along are you?".

Then you speak further and hear that maybe they even raised a pre-seed round, got an angel or VC in on it and all you can think is "that's going to crash and burn so quick".

Or on the opposite side of the coin, you hear of a VC cutting a big check into an idea that you just can't fathom. And everyone flocks to understand what the VC what was thinking.

The industry has been flooded with a wave of over-encouragement, kum ba yah feelings, and blind support.

VCs

The role of venture capitalists (VCs) is critical in the startup ecosystem, no denying that. They are however, the gatekeepers of funding and often the validators of an idea’s potential. Yet they are wrong most of the time, but we treat them like they are right most of the time.

The lack of honesty from them (how often has someone said something is "too early" just because they didn't want to tell someone they had a bad idea) is fueled in part by social norms, but also in part by a fear of coming off as stupid or wrong.

This fear has led to a shift in landscape. Some VCs seem to have become more concerned with following trends and capturing the next unicorn than with rigorously evaluating the fundamentals of the businesses they invest in. This trend-following behavior often leads to inflated valuations and investments in startups with questionable value propositions.

When VCs pour money into ideas that seem far-fetched or poorly thought out, it sends a signal to the rest of the market that these ideas are worth backing. This can create a herd mentality, where other investors and stakeholders pile into the same startups without critically assessing their viability. The result? A bubble filled with hype-driven investments, where both founders and investors are set up for failure. See generally the AI hype of the last year, or the crypto hype from a few years ago.

VCs need to remember that their role isn’t just to provide capital; it’s to provide smart capital. This means taking the time to truly understand the market, the technology, and the team behind a startup. It means asking the hard questions, even when it’s uncomfortable, and being willing to walk away when the answers don’t stack up. By doing so, VCs can help foster a more sustainable and honest startup ecosystem.

Startups

Startups are the lifeblood of innovation, but they are not immune to the culture of over-encouragement and lack of critical feedback. Founders are often caught in a whirlwind of optimism, buoyed by initial funding, media attention, and the excitement of creating something new. Their friends and family jump into support them and tell them this will be huge. There's virtually zero honesty that their business will most likely fail. But this optimism can become dangerous when it blinds them to the realities of their business.

Too often, startups are driven by the need to please investors, peers, and the broader ecosystem. They focus on crafting a compelling story rather than building a solid product or business model. This can lead to a situation where founders ignore warning signs, gloss over challenges, and fail to seek out the feedback they need to make their idea truly viable.

What’s needed is a cultural shift where honesty and constructive criticism are valued. Founders should seek out advisors, mentors, and peers who are willing to challenge their assumptions and provide the tough love that’s necessary for growth. By embracing a mindset of continuous improvement and being open to critical feedback, startups can avoid the pitfalls of unchecked optimism and build businesses that are genuinely poised for success.

Service Providers/Consultants

Service providers (e.g. banks, consultants, lawyers, accountants, etc.) often lurk around the ecosystem waiting to see where they can provide value. While many of them can actually be better than hiring a FTE, many of them also act as supporters and grifters with one thing in mind, acquiring new clients.

They do offer the expertise, tools, and support that startups need to grow, however, they often gush in support so that founders think that they're on their side. This leads to scenarios where consultants and service providers talk up a founder to win the business later.

When consultants and service providers are too eager to please, they may avoid giving the honest feedback that startups desperately need. Instead, they might focus on keeping the client happy, delivering what’s asked for without questioning whether it’s truly the right approach. This can lead to a situation where startups are guided down the wrong path, supported by well-meaning but ultimately uncritical partners.

Service providers need to embrace their role as trusted advisors. This means being willing to push back, to ask the tough questions, and to provide feedback that may not always be welcome. By doing so, they can help startups avoid costly mistakes and steer them towards strategies and solutions that are more likely to succeed in the long run.

Conclusion

I understand the human element and that when people go to start their own company and pursue and idea they are taking a huge risk. I'm not saying we need to be harsh, but I do think we need more forums where people can explore ideas and concept in an open sandbox and if more founders were to come in with an open mind, I think we could have better outcomes.

Founders and VCs need both thicker skin and to be more honest. It could save millions in wasted resources and time. We can drop the failure rate of startups from 90% to 70% overnight by telling people "this doesn't seem needed or feasible at all" instead of "seems cool!".