A Comfortable Couch

Thursday, November 18, 2004

It's like he was there

10 Reasons to Shy Away from Venture Capital

Of the ten reasons given, these were dead-on at my last company:
* The decision to chase venture capital is often a tempting distraction from the much more complex and important entrepreneurial tasks of creating something to sell and persuading someone to buy it. The pursuit of venture capital is sometimes a means by which to postpone the day of reckoning when the marketplace finally decides if the idea will fly.

* As soon as venture capitalists become involved the founder’s role shifts from critical company building functions to preparing reports, attending endless meetings, writing memos, and hand-holding impatient and/or meddlesome investors.

* An infusion of capital often shifts the founding team’s focus away from selling to spending money in an effort to placate venture capitalists who often confuse bulking-up staff and assets with real growth.

* Venture capital brings with it tremendous pressure to create a liquidity event but this frequently results in bad decisions being made to launch products too early or enter into the wrong markets.

Maybe more in the list were right, but I wasn't in a position to see lots of stuff. Of course I can't blame all our failures on the VCs. Oh what the hell yes I can. Take that you stupid bankers!

I wish I could write more about the company and all the mistakes we made but I might get sued. Anyway, the article makes me feel a little better about my own efforts now.

Via Joel


David Pitkin said...

I think Joel's list is a worst case example of what can happen when a company is mismanaged and also receives external funding from a VC. No good VC who is an investor and wants to maximize value of the firm would do any of the things listed. What I do believe that a management team along with VC firms can easily fall into all of the traps listed and the result is a company that fails. The company failing at that point is what is supposed to happen, Darwinism at work. That being said VC is very tricky and that is one reason I just went to work for a company with zero VC money.

9:16 PMlink  

Post a Comment

<< Home