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More Startups Have an Unfamiliar Message for Venture Capitalists: Get Lost

By The New York Times

On a sunny Saturday morning in New York City a few months ago, a group of 50 startup founders gathered in the dank basement of a Lower East Side bar. They scribbled notes at long tables, sipping coffee and LaCroix while a stack of pizza boxes emanated the odor of hot garlic. One by one, they gave testimonials taking aim at something nearly sacred in the technology industry: venture capitalRead full story

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  • As a co-founder of a VC fund, I see both sides of this, as I am an entrepreneur myself and also an investor. I have to constantly remind myself that raising money is not an indicator of success - profitability is. With constant media coverage of funding rounds and “unicorns”, it is all too easy to forget that.

    Your path as a business should be shaped by your mission, your customers and the problem you are solving, not by your TechCrunch-fueled image of what “success” looks like.

  • This is an important story. We (esp the media) have been putting VCs on a pedestal for a very long time, going so far as to use VC funding as a proxy for a startup’s success.

    As someone who makes a living raising later stage growth capital for startups and helping them exit, I have seen too many startups who should never have taken VC funding suffer the consequences of that narrative.

    But VCs are not villains here. The reality is that they are just one type of capital suitable for only a small

    This is an important story. We (esp the media) have been putting VCs on a pedestal for a very long time, going so far as to use VC funding as a proxy for a startup’s success.

    As someone who makes a living raising later stage growth capital for startups and helping them exit, I have seen too many startups who should never have taken VC funding suffer the consequences of that narrative.

    But VCs are not villains here. The reality is that they are just one type of capital suitable for only a small segment of business-model-specific companies. They should not be viewed as the default method for funding growth.

  • If you’re not planning on building a billion dollar business than you have no business taking money from a venture capitalist.

    It’s okay to build a modest lifestyle business. Most middle-class people build sizable wealth through construction, real estate, consulting, restaurants, niche markets, and more...

  • The best sign this story offers is that entrepreneurs are starting to realize that not all new companies need to be high flying tech startups. Can’t tell you how often someone pitches us an idea and our answer is “this seems like a good concept, it’s not a billion dollar concept, so you should just build your business like most people do and own the whole thing rather than taking venture money and ending up with little.” They usually aren’t happy to hear it so if this article is right, it’s a good sign.

  • The foie-gras effect: when startup founders decide to take VC funding, like ducks or geese, said startups are force-fed funding for rapid growth at all costs.

    Josh Kopelman, a venture investor at First Round Capital, an early backer of Uber, Warby Parker and Ring, described his role as VC very well: “I sell jet fuel, and some people don’t want to build a jet.”

    #VC #venturecapital #investors #startups #unicorns #foiegraseffect #lovedthefoodreference

  • @Jeanna said it so perfectly and eloquently. VCs will continue to exist and invest, but the hypnosis that exists amongst the startup community to HAVE to take their money is finally breaking in a bigger way.

    As it should.

  • In general, if you’re an entrepreneur and you can avoid it, don’t take professional money. Their primary stakeholders are their limited partners/investors, not you. Sometimes these interests align but not always.

  • Timely piece given the funding stage we are at with my company. Like anything in life, you want options and the ability to make the best decision for you and your business.

  • A small percentage of startups ever get VC funding. There’s room for many different ways to grow your business. Not every business is looking to scale and exit. Not every business can scale and exit.

    I think it’s somewhat of a misrepresentation that VC firms are pushing businesses to fail. They lose money when businesses fail. They don’t like that.

    They’re pushing businesses to grow extremely rapidly. There’s a lot of risk involved. But they take that risk with an expectation that it will work

    A small percentage of startups ever get VC funding. There’s room for many different ways to grow your business. Not every business is looking to scale and exit. Not every business can scale and exit.

    I think it’s somewhat of a misrepresentation that VC firms are pushing businesses to fail. They lose money when businesses fail. They don’t like that.

    They’re pushing businesses to grow extremely rapidly. There’s a lot of risk involved. But they take that risk with an expectation that it will work. They’re simply not putting money into organizations they don’t think can make it. There are a lot more organizations looking for VC money than there are organizations turning away VC money. Don’t expect that to change anytime soon.

  • Sustainable > cancerous growth

    Would be nice to aim for a lifestyle business in the same league as MailChimp, 37 Signals, and Craigslist, with the level of impact of Wikipedia.

    These are all examples of organizations that have thrived and provided benefit to the world without needing steroids.

    Yep, VC provides steroids, not jet fuel.

    Some people don’t want to become massively swole through steroids. 🤷🏻‍♀️

  • More startup founders are starting to consider the trade-offs in building a sustainable business vs. growing aggressively at all cost that could jeopardize the foundation of the company. This is a good discussion topic, and one size doesn’t fit all. #startup #founder

  • There are two pieces of context worth noting here:

    1) the role of VCs in the startup world peaked in 2000. Angels — led by the PayPal Mafia — leveraged the Lean Startup model to drive the Web 2.0 cycle. So in that sense, the story is 16 years late.

    2) defying convention has limits. Conventions usually reflect a path of least resistance. There are times when choosing your own path works brilliantly, but more often it makes sense to reduce complexity and stay on a traditional path.

    To be clear, there

    There are two pieces of context worth noting here:

    1) the role of VCs in the startup world peaked in 2000. Angels — led by the PayPal Mafia — leveraged the Lean Startup model to drive the Web 2.0 cycle. So in that sense, the story is 16 years late.

    2) defying convention has limits. Conventions usually reflect a path of least resistance. There are times when choosing your own path works brilliantly, but more often it makes sense to reduce complexity and stay on a traditional path.

    To be clear, there are lots of substitutes for VCs ... and many businesses where the opportunity does not require or justify the engagement of a VC. The elements every startup requires include a great idea, near perfect timing and and execution, and an ability to communicate well enough to attract capital and customers. VCs can contribute to success, but they cannot guarantee it ... and sometimes undermine it.

  • The VC model works on picking rare events that scale in a big way; a future about which there’s very little information. This is almost random luck at the outset, so how an entrepreneur works with an investor over time is part of success or failure, not just money.

    An important part of a VC’s value is information about an unforecastable future. Statistically speaking, if you are an entrepreneur talking to a VC it’s highly unlikely they will make money on your company. It’s also highly unlikely

    The VC model works on picking rare events that scale in a big way; a future about which there’s very little information. This is almost random luck at the outset, so how an entrepreneur works with an investor over time is part of success or failure, not just money.

    An important part of a VC’s value is information about an unforecastable future. Statistically speaking, if you are an entrepreneur talking to a VC it’s highly unlikely they will make money on your company. It’s also highly unlikely they will lose money because it’s unlikely they will invest. If you’re fortunate enough to get a meeting with a top tier VC, adopt a discoverer’s mindset and don’t do all the talking. They spend a huge amount of time gathering insight from a ton of entrepreneurs just like you and, as a result, they see patterns and niches that aren’t apparent unless this is what you do all day.

    A good VC will give you invaluable feedback because they’ll see things you don’t. Doesn’t mean they’re right, doesn’t mean their model fits, doesn’t mean you’ll like them, doesn’t mean they’d make you successful.

  • It's great to see alternative funding options and people putting thought into being profitable from day one.

    As someone who started two companies in Brazil with no investment from others and during hyper inflation and crazy currency fluctuations, one quickly learns that cash flow is king and "other people's money" will always need a "liquidity event"... So the only way to remain free to pivot and control your destiny is to be profitable from the outset. And that is really hard and takes a lot of

    It's great to see alternative funding options and people putting thought into being profitable from day one.

    As someone who started two companies in Brazil with no investment from others and during hyper inflation and crazy currency fluctuations, one quickly learns that cash flow is king and "other people's money" will always need a "liquidity event"... So the only way to remain free to pivot and control your destiny is to be profitable from the outset. And that is really hard and takes a lot of patience.

    I don't see an issue with VC, I think the article touches on the key point of friction: the misalignment of expectations and incentives. I'm not sure I agree that the whole VC industry and process is broken and the article seems to imply.

    It's a very healthy process for founders to think through the trade-offs of "buying jet fuel" and its caveats. Just as it should be if taking on debt. Profit makes your company attractive, but what are you willing to do?

  • Similar to artists opting to stay independent instead of signing a record deal, this route is traditional by no means but comes with its own set of unique pitfalls.

  • Great article that stresses you have to start a new venture with the end in mind of what you wish to achieve. If you can win on your own terms and create a sustainable business model, why not?

  • Assuming that the relationship between VC valuation and startup growth is perfectly linear, this article makes sense.

    Some startups are designed to grow really, really fast from their inception. These types of companies (think Google, Uber) and their respective products/services are normally aimed at appealing to a large swath of the population. In order to get themselves off the ground quickly (and thereby rapidly acquire new customers) the VC model works really well for them.

    The vast majority

    Assuming that the relationship between VC valuation and startup growth is perfectly linear, this article makes sense.

    Some startups are designed to grow really, really fast from their inception. These types of companies (think Google, Uber) and their respective products/services are normally aimed at appealing to a large swath of the population. In order to get themselves off the ground quickly (and thereby rapidly acquire new customers) the VC model works really well for them.

    The vast majority of new companies, however, don’t necessarily offer a product or service that tens of millions of people want. For these folks, why even bother going to an institutional investor? It’s a total waste of time and resources. Budding entrepreneurs should be aware of this before getting into the ‘VC-game’.

    I’m really glad to see these folks changing the atmosphere around raising money. It’s something that new entrepreneurs need to be aware of :-)

  • I’m a startup founder. The media has skewed our idea of success so much that we believe raising venture capital, getting peer endorsements, and media recognition defines our ambition. VCs are so quick to dismiss entrepreneurs who “just want to build a lifestyle business”, making them feel inadequate while so many of them haven’t built a business of their own. Between zero and unicorn there are many successful businesses and entrepreneurs need to understand that the definition of success is actually

    I’m a startup founder. The media has skewed our idea of success so much that we believe raising venture capital, getting peer endorsements, and media recognition defines our ambition. VCs are so quick to dismiss entrepreneurs who “just want to build a lifestyle business”, making them feel inadequate while so many of them haven’t built a business of their own. Between zero and unicorn there are many successful businesses and entrepreneurs need to understand that the definition of success is actually a very personal thing. With all the noise and social pressure it’s easy to fall into the trap of letting others define that for us. What entrepreneurs need to ask themselves is - what kind of life do I want to lead? So many people who chase the VC path don’t really understand that their business and their choices will no longer be fully theirs. If we can listen to what we truly want and focus on the path to get there, all the noise becomes irrelevant.

  • I work with a lot of venture-back startups and while there are trade offs, VCs can offer tremendous experience, great connections and frankly funding levels (and ability to meet payroll) beyond friends and family. While there are some can be a bit aggressive, like anything, it’s about building a relationship and finding a team who believes in your company. Message here - don’t paint them all with the same brush.

  • As a start-up founder who doesn’t fit the cookie cutter image of what an investor typically funds, I’m cheering this movement. The VC model is so broken and one-sided.

  • Sanity. Finally.

  • Start & build real businesses that make $ is back :)

  • I'm glad to see this happening more often. To do some things right, one must play the long game from the start. There's also much to be gained from a focus on one's paying customers over the investors. It is the customers that sustain a business past the startup phase, and provide for continuing growth.

  • Given the right alignment of idea and vision, there is nothing like a great VC to fuel your company and have your back. But alignment isn’t always there and alternatives may be better options. For instance, if we were to raise capital for my company, some options mentioned in this article like converts (Indie.vc) and revenue-based financing (Lighter Capital) might be good alternatives to equity financing since we’re profitable and can get aligned with the investment goals.

  • Startups should be cautious - its like dating. You can’t compromise your business for cash. It’s like selling your soul. And if you do, there are consequences.

  • This is an interesting point of view, definitely something to think about if you are starting a new venture. What I get from this is to always think outside the box to really see what your options are.

  • “More Startups Have an Unfamiliar Message for Venture Capitalists: Get Lost”

  • As a co-founder of a Startup in Japan, Venture Capitalists are more important than ever before. The economy situation has changed in Japan. Of course, startups have to take more care of which partners they are with.

  • Be wary of VC money and how they want to control your company. VC’s aren’t called Vulture Capitalists for nothing. It’s your dream and you need to decide what works best and how you will grow your company. Too many entrepreneurs are looking for a quick buck without putting in the hard work and due diligence to build their company.

  • The Whole Foods founder was onto this early... "Venture capitalists are like hitchhikers – hitchhikers with credit cards – and as long as you take them where they want to go, they’ll pay for the gas. But, if you don’t… they will try to hijack the car and they will hire a new driver and throw you out on the road.”

  • The real problem stems from the compensation model that VC’s (and Private equity funds for that matter) generally follow. They get a maintenance fee from their investors, generally 2% of invested capital, that they use for their day to day expenses, salaries and the like. Then, they get 20% of any increase in capital that they manage to return to their investors upon sale of the investments in their fund. The rainbow they pursue is the 20% payoff. But you can never get that payoff if you continue

    The real problem stems from the compensation model that VC’s (and Private equity funds for that matter) generally follow. They get a maintenance fee from their investors, generally 2% of invested capital, that they use for their day to day expenses, salaries and the like. Then, they get 20% of any increase in capital that they manage to return to their investors upon sale of the investments in their fund. The rainbow they pursue is the 20% payoff. But you can never get that payoff if you continue to hold the investment so the VC’s are forced, or choose voluntarily, to force fast growth and a quick sale or IPO. Then, like crazy mice turning a drum, they go out to new investors or the same ones and raise more money to do it again, invest in new things, get the 2% management fee and maybe get a big hit 20 % payoffs, again forcing impetuous growth. Why couldn’t a model be structured that allows them to keep the investments for longer and assist in the development of more sustainable businesses?

  • Interesting shout out to Buffer.

  • It‘s utterly important to open up some middle ground.

  • Wow love all your girls comeing see your Darmes king in MN ?

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