Why VC pitches are sh-t
Danny Lieberman
I help people 45-60 in life science turn their expertise into freedom.
An answer To Matan Hazanov
My mistake. The percent of VC funded startups is 0.02 percent not 0.004
Why is this number so low?
There are 2 factors at play here. Fit for VC and Receipt of VC.
Most new business are not a good fit for VC nor need VC. This is for business/operational/technology/innovation-related reasons.
Most new businesses that seek VC don't receive it. This is due to VC funds needing to return the entire fund on a single startup investment.
Now, let's run some numbers and attempt to quantify this:
Taking the US as a sample of the world:
VC Funding rate = 5%
Number that seek funding = 4,000
Number of new business applications = 5.49 million
Percent funded = VC Funding rate x number that seek funding /Number of new business applications = 0.02 Percent
Let's assume that people listen to Matan Hazanov (and all the other VC-experts) and execute perfect pitches, doing it 10X better.
The number would go up to .2 Percent
The pitch is unimportant when the potential for profit is huge.
If I bring you a pitch on a napkin, make all your mistakes but show you a cure for cancer that will make you $100BN / year you will invest.
This is not good or bad, moral or immoral. It's about money.
Perhaps this is similar to Malthus's observation that populations grow exponentially while food supplies grow arithmetically, leading to an inevitable imbalance.
As a hand-waving argument, one might argue that as populations grow exponentially, innovative businesses also grow exponentially while VC grows annually at linear rates of 15%.
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Over time, fewer and fewer new entrepreneurs will get VC funding.
Citations for new business starts
Citations for VC startup funding
[1] https://www.wsj.com/articles/pro-take-what-the-startup-count-says-about-the-venture-sector-84db8c86
[2] https://corporatefinanceinstitute.com/resources/valuation/how-vcs-look-at-startups-and-founders/
So then what to do... ??