Does venture capital have an image problem, or possibly even a fundamental business model problem? It might, based on what was in a recent story in The New York Times, titled “More Start-Ups Have an Unfamiliar Message for Venture Capitalists: Get Lost.” Here’s More Proof That Venture Capital Isn’t for Every Founder. A few lines to digest:
The VC business model:
“The V.C. business model, on which much of the modern tech industry was built, is simple: Start-ups raise piles of money from investors, and then use the cash to grow aggressively — faster than the competition, faster than regulators, faster than most normal businesses would consider sane. Larger and larger rounds of funding follow.“The end goal is to sell or go public, producing astonishing returns for early investors. The setup has spawned household names like Facebook, Google and Uber, as well as hundreds of other so-called unicorn companies valued at more than $1 billion.”
What Founders are starting to understand about it:
“But for every unicorn, there are countless other start-ups that grew too fast, burned through investors’ money and died — possibly unnecessarily. Start-up business plans are designed for the rosiest possible outcome, and the money intensifies both successes and failures. Social media is littered with tales of companies that withered under the pressure of hypergrowth, were crushed by so-called ‘toxic V.C.s’ or were forced to raise too much venture capital — something known as the ‘foie gras effect.’”“Now a counter movement, led by entrepreneurs who are jaded by the traditional playbook, is rejecting that model. While still a small part of the start-up community, these founders have become more vocal in the last year as they connect venture capitalists’ insatiable appetite for growth to the tech industry’s myriad crises.”Read the full storyAt Bigfoot Capital, we aren’t anti-VC at all. We believe that funding options like venture capital absolutely have their place in the market and can help certain companies do great things, in some cases, things that actually shake up our cultures and societies, hopefully for the better.What we are opposed to is the pervasive narrative that venture capital is the perfect (only?) fit for ambitious Founders. The venture capital industry has seemingly mastered marketing as this has been the narrative for at least the past 20 years,.This narrative is a dangerous one that sends Founders barking up the wrong tree, feeling like they’re doing a shitty job when they can’t get VC money invested into their company and potentially derailing what could be successful businesses.Thankfully this is changing.The fact is, not every startup is a good fit for VC. Actually, I’d go further: VC is a bad fit for most startups.Some companies just aren’t designed to grow fast enough for venture investments to make sense. The VC growth model of “triple, triple, double, double, double” (or T2D3) to get to a $1 billion exit potential in five years is the ultimate outlier, which is what they’re looking for, hence the Unicorn moniker.Not every SaaS solution is going to be Salesforce. Not every app is going to turn into Uber. Sometimes (I’d argue most of the time), slower, steadier growth is not only better, but it’s more sustainable. It builds better companies.We built Bigfoot to help those founders.Ready to learn more? Get in touch.