Rob, I agree with your points although I do believe that some good businesses have been run into the ground because the VCs and founders were chasing too big of a dream. Too many entrepreneurs get stars in their eyes and convince themselves they *must* raise capital from only the biggest and best VCs but they do not understand that they are forcing their company to have a very binary outcome - huge success or crater in the ground. There is a lot of prestige to raising tons of cash from high profile venture capitalists, but it sometimes makes more business sense to take capital from groups or individuals who are more closely aligned with the business' potential. Even if it doesn't give you the bragging rights that a KP partner on the board does.
robchogo
· 1 month ago
Totally agree - that's the spirit behind my second point. You need to match the financing with the business.
Jonas
· 1 month ago
The seeming solution to this issue is old fashioned bootstrapping... ...however, I think that leaves open the potential for many problems similar in kind to those you detailed; that is, expansion of the business into revenue generating, but non-target areas "now introducing: Starbucks beer!"
SBA Loans can be a useful workaround, I think - though plowing through the onerous paperwork, and understanding the requirements, can be a real pain.
leehower
· 1 month ago
Good points. As you point out, investment strategy and size of funds may be changing somewhat in the VC world... look at groups like First Round Capital. The definition of "big enough" may be different for a $500M fund than for a $100M or $50M fund.
But separate from just the fund size question, I think there's two dynamics at play. First some entrepreneurs simply don't have a great grasp on what a "venture scale" company is and why VC's focus exclusively on these opportunities. It's our responsibility as VCs to continue trying to clearly and effectively communicate this to the entrepreneurial world.
The second dynamic is when things are at a very early stage. An entrepreneur may be absolutely convinced that their company can in fact achieve "venture scale" but may be unable to persuade VCs of this based on current traction, team, immaturity of market, etc. Some portion of these companies could indeed become venture scale eventually if they had modest initial funding, if they execute superbly, if the market develops as anticipated. But many might never achieve that scale as you suggest.
robchogo
· 1 month ago
Thanks Lee. One of the frustrating thigns for entrepreneurs is how to convince a VC that venture scale is attainable when the product is obviously going to be at its very early stages. I really liked Charlie O Donnel's post on this morning - especially the section on having a good product strategy: http://bit.ly/uxH9j
Desmond Pieri
· 1 month ago
Rob, I appreciate the link to Charlie O Donnel's post. A great wealth of info
All Comments
SBA Loans can be a useful workaround, I think - though plowing through the onerous paperwork, and understanding the requirements, can be a real pain.
But separate from just the fund size question, I think there's two dynamics at play. First some entrepreneurs simply don't have a great grasp on what a "venture scale" company is and why VC's focus exclusively on these opportunities. It's our responsibility as VCs to continue trying to clearly and effectively communicate this to the entrepreneurial world.
The second dynamic is when things are at a very early stage. An entrepreneur may be absolutely convinced that their company can in fact achieve "venture scale" but may be unable to persuade VCs of this based on current traction, team, immaturity of market, etc. Some portion of these companies could indeed become venture scale eventually if they had modest initial funding, if they execute superbly, if the market develops as anticipated. But many might never achieve that scale as you suggest.