During the January break, I was in the US for business, but took a couple of days out for skiing. I somehow found myself heading up a lift with some venture capitalists. One of them asked me what I did and I explained briefly about software platform. Then they immediately started asking about capital structures, investors, listings and all that crap they talk about in their line of work.
So naturally I started bagging out the whole VC industry. They seemed shocked that I had some other point of view of building a business. But putting it bluntly, the reality is that a VC will want at least a 10X return. They want a clear exit for themselves, don't give a crap about you and they only see $$$ and often don't really understand the underlying business. I said to them in no uncertain terms, most VCs are toxic and destructive to business, because they're thinking short-term and don't share the core values, beliefs and vision of the company. It's rare to discover an investor that understands your industry so well, that they complement and enhance your business, rather than artificially inflate a business with cash, only for it to implode when the Seed, Series A and Series B capital runs out and the whole ‘Ponzi scheme’ collapses.
It was interesting to gauge the response to the idea that a business should only exist when it's solving real world problems. Whilst I seemed to get an agreement out of them on this, it was more of a muted response. This is the reality of business. If you can't solve a pain point or provide a happy satisfying experience to your customer, you're not going to get any money out or them. If you don't get money out of customers, you won't be able to run and grow your business for very long. Under the VC logic, if you inject enough money in, you can keep running this profitless exercise for a much longer period of time before you run out of money, by which time some of them may have already jumped ship.
I got the impression they were under the mistaken belief that everyone wants and needs their money. I've written about this before, but it really is such an important issue, especially for new businesses starting out and it's well worth mentioning again.
VCs believe you need their money, because that's the business they're in. If they're not investing in anything, they're not doing their job. Hence, they make people feel as if they need their money, but at what cost? Do you really need finance? If you do need capital, what other finance options do you have? Explore all possibilities, as having a VC shackle themselves to you has the potential of crippling your vision and ability to effectively run your business. Humour them if you have to but evaluate the real cost of capital to you and your business. You've created something special. Don't let them bastardised it to make themselves rich.
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