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The Big Lie of Venture Capital

montrealintechnology.com

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Re: The Big Lie of Venture Capital

#11

Post by tptacek »

gnicholas wrote: post #9

The real tension is that if you go out and focus on signing paid customers instead of growing at all cost (literally maxing out your credit cards), you'll be less attractive to many VCs. They'll say you're a "mom-and-pop business" and not one that can achieve venture scale. Basically, they want to write big checks to companies that are swinging for the parking lot (not just the fences) — not companies that want to ta…

I think this is just false. If you pitch a VC on a business that grows in a nice linear line to tens of millions of dollars in revenue, they're going to turn you down no matter what your go-to-market is, because the math of a venture capital firm simply doesn't work unless the few winners win so spectacularly that the gains swamp the losses from the losers who make up the majority. You have to commit to shoot the moon to get them interested, but you don't have to start the business so committed.

But nothing stops you from building a stable business and then using it as a platform for a shoot-the-moon pitch.

Re: The Big Lie of Venture Capital

#12

Post by tptacek »

eloff wrote: post #10
tptacek wrote: post #6

I got through this whole thing and I still can't figure out what "the big lie" is. That it's hard to get funded as a first-time founder? No shit. In the post-YC era it seems pretty close to impossible to close a round with a professional VC firm without first having done some kind of syndicated, social-proof-collecting round of angel investors --- so if that's seriously what you were playing with doing, I automatical…

What's that logical fallacy where you take what someone said, twist it into something completely different and more extreme and then defeat that extreme argument? Strawman? What he said was "Another thing investors like" is when the investor himself puts his own money into the startup. Well that's a no-brainer. If I were an investor, I would definitely say putting your money where your mouth is, is a positive signal.…

I think if you don't have real signals for investors to focus on, they'll look for tea leaves to read.

Re: The Big Lie of Venture Capital

#13

Post by asdsa5325 »

rayiner wrote: post #7
asdsa5325 wrote: post #3

It's not a "lie"- do people honestly expect VCs to just hand over money willy-nilly? Obviously, it is an investment , and they expect to make a return on their investment. I blame dumb Founders, not VCs, for thinking otherwise.

> It's not a "lie"- do people honestly expect VCs to just hand over money willy-nilly? The article takes exception to the practice of funding people who disproportionately have friends and family wealthy enough to make a first-round investment, who are disproportionately white men, who disproportionately come from a handful of educational institutions, etc. It's an odd dichotomy to assert that funding decisions that…

Companies are taking a risk by investing- so if they find people who come from top schools, and who already have gained initial seed funding and completed work, then that lowers risk. My point still stands.

Re: The Big Lie of Venture Capital

#14

Post by ryandrake »

tptacek wrote: post #6

I got through this whole thing and I still can't figure out what "the big lie" is. That it's hard to get funded as a first-time founder? No shit. In the post-YC era it seems pretty close to impossible to close a round with a professional VC firm without first having done some kind of syndicated, social-proof-collecting round of angel investors --- so if that's seriously what you were playing with doing, I automatical…

I think the “big lie” the article is talking about is that venture funding is largely meritocratic rather than largely class/pedigree based:

> unless you come from money, attended a prestigious university in the States or sold your previous startups for a lot of money, you should assume that you’re never going to raise early-stage capital.

Not sure where the author got the idea that it’s meritocratic, but that’s what’s printed.

Re: The Big Lie of Venture Capital

#15

Post by eloff »

tptacek wrote: post #12
eloff wrote: post #10

Earlier quoted context omitted.

What's that logical fallacy where you take what someone said, twist it into something completely different and more extreme and then defeat that extreme argument? Strawman? What he said was "Another thing investors like" is when the investor himself puts his own money into the startup. Well that's a no-brainer. If I were an investor, I would definitely say putting your money where your mouth is, is a positive signal.…

I think if you don't have real signals for investors to focus on, they'll look for tea leaves to read.

Agreed, because what else do they have to go on. Best focus on getting those real signals as strong as you can. Then go talk to VCs. In my opinion VC should have nothing to do with starting a company and everything to do with accelerating the growth of a proven startup. Angel investment is a little different and has a definite role to play in allowing people to get the company to the point where it can demonstrate some traction.

Re: The Big Lie of Venture Capital

#16

Post by danvoell »

"preparing our equity crowdfunding campaign. Yep, we’ll raise money directly from our users" - Unfortunately, crowdfunding is also probably a lie, by your definition. Here is a different concept, how about charge your users for your product?

Re: The Big Lie of Venture Capital

#17

Post by jacquesm »

That's a pretty extreme position to take. Sure it's harder if you can't show some prior validation or backing, but it isn't impossible. Hook up with any one of the accelerators, sign up for some mentoring programs and you'll get your introductions sooner or later if that is what you desire, provided your start-up has some merit.

And then there is the dumb money, of which there is plenty floating around, and which keeps on surprising me with the stuff that gets funded. Really, if you want to get funding you probably can, but it will come at a cost and it may not be a good fit in the longer term. Be careful of what you wish for.

Re: The Big Lie of Venture Capital

#18

Post by whoisjuan »

This reads like a rant out of frustration for not being able to raise money (and newsflash, if raising money is hard, no doubt raising in Montreal is near to impossible), but I think the author nailed it with this paragraph:

"The problem, with the Big Lie, is that it kills a lot of startups that end up building their strategy around a capital infusion that will never come, and end-up wasting a lot of time trying to fundraise. Some of those startups would have had a better shot had they focused on sales. It’s still super hard, but the odds are better. The problem is that bootstrapping success stories often remain unknown, as the valuation of those startups is never announced in press releases."

This is so true. Most people I know that have founded startups that later failed were working towards having something decent to show to institutional investors instead of focusing on understanding their customers.

Re: The Big Lie of Venture Capital

#19

Post by hsljekskfh »

danvoell wrote: post #16

"preparing our equity crowdfunding campaign. Yep, we’ll raise money directly from our users" - Unfortunately, crowdfunding is also probably a lie, by your definition. Here is a different concept, how about charge your users for your product?

> Here is a different concept, how about charge your users for your product?

whoa dude, let’s not get crazy

Re: The Big Lie of Venture Capital

#20

Post by ggg9990 »

Getting to the early signs of success (product, revenue) is cheaper than it has ever been in this industry in most problem domains, and growth and customer acquisition is harder than ever. Before a VC invests in you to tackle the second, why wouldn’t they expect to see the first?
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