Ridiculousness of Venture Capital Advice - Babbling VC

First and foremost, I did go and check whether the word "ridiculousness" exists. It does.....phew, I can keep my blog title!

Anyway, I was shaking my head again when reading a post from Chris Dixon this morning. Now don't get me wrong. Chris is quite successful and although I don't know him, I really like what he usually writes and he seems to be a pretty cool guy from the interviews I saw posted on Techcrunch. Nevertheless, I believe he may be falling a bit into his own trap. VC's (Chris isn't really a VC so he gets a pass on this), tend to get full of themselves. Even more so, they tend to get high on their own advice. Even further, they tend to give herd advice...i.e. one VC starts a meme and the VC bloggers pile on to it. Why so? Because we all read each others blogs. You tend to get your ideas for blog posts be reacting to things you experience and read........basically exactly how I came upon the idea to write this post. We ARE biased and we all hope at least to seem smart. We are constantly in "the scene" and we tend to all take hits at the VC bong directly or via second-hand smoke. I'm not even a VC at this point and I still tend to sound like one!

So, what threw me off in Chris's post? Well I am sure he meant it differently but the irony of it struck me differently than the intent:

"A startup should raise venture capital (or ?venture-style? angel/seed funding) only if: 1) the goal is to build a billion-dollar (valuation) company, and 2) raising millions of dollars is absolutely necessary or will significantly accelerate growth."

"Unfortunately, many of these startups graft VC-friendly narratives onto their plans and raise too much money. Short term it might seem like a good idea but long term it won?t."

If you look at what Chris did with Hunch, I would argue he fell into his own trap or maybe he is just passing on what he did wrong. In total he raised ?20 million (was this absolutely necessary?) and ended up only selling for ?80 million (great return for everyone but VC's). This is an awesome WIN in my eyes (for him and his angel investors maybe) but is by far not a venture capital WIN. Further, did anyone really think Hunch was going to be a billion dollar business at the start? (Outside of when pitching it to the VC's) ?Well yeah, if you're full of yourself. You see, no one really can say when they launch a business "this will be a billion dollar business". Sure, we can want to be a billion dollar business but you're seriously smoking the wrong stuff if you launch a business announcing to the world you will be HUGE. Even if you are Chris Dixon and have Caterina Fake as a co-founder, you inherently realize the risk of what you're doing and the fact that becoming a billion dollar business is a way-long shot! I highly doubt Chris thought he was going to be a billion dollar business from day one. I am sure he hoped to become one but that's a different story.

Ultimately what I am getting at is that every business is almost as different as we all are as individuals. Somehow we are all the same yet we still have our own identities and wants and needs. Same goes for businesses and they change with time. What starts out small and bootstrapped (see Github), not needing VC, can down the road need the VC support. At the same time, many businesses which raise VC because they can, eventually realize it was a mistake. There is absolutely no cookie cutter rule for raising VC, the right time nor the amount.

Each business has to look at what it plans on doing in the future and determine what they will TRY as well as what they are willing to tolerate. Never forget that you are "trying" things out and have to adapt as you go.....to the market, to specific customers, to partners, to VC's and so forth. Also don't forget that EVERYTHING changes when an offer is on the table for $80m. You can make off like a bandit and pocket $20m but your VC's haven't even necessarily doubled their money. Vice verse you can skip VC and down the road be barely breaking even on $1m in revenues ten years into it.

There is no RIGHT or WRONG when it comes to raising money. Make sure YOU decide and don't let blog posts or the current sexiness of venture funding drive your decision making. Talk to as many people as you can and don't just read blogs or talk to people "in the scene". Go talk to the guy at the laundromat around the corner or whatever. Get a different opinion and analyze it. Ask those who have done both. Definitely get criticism as well as praise for what you want to do. If everyone is supportive of what you are doing and pushing you to VC, think twice. Zigging and zagging in another direction may just be the better choice.?

Source: http://babblingvc.typepad.com/pjozefak/2012/07/ridiculousness-of-venture-capital-advice.html

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