As some of you know, recently I founded a new start-up as an entrepreneur, a co-founder, together with my friends Jeff Pulver and Tal Givoly. It’s been quite a few years since I sat firmly on the entrepreneur side of the table. It is refreshing, exciting, and exhausting. All at the same time.
And this past week we started in the ritual of funding our start-up. It is a really big idea, which will require a lot more money than any of us want to risk – and I have learnt over time that there is an industry set up to support people like us – and we should take advantage of it. I refer to the venture capital industry, which stands on the brink of frothiness after first the private market valuations (and fundraising rounds) of Groupon, Twitter, Facebook, et al., and now the public markets frenzy around LinkedIn.
Remember, the VC fund industry is largely teams of people who have convinced other people to commit money in basically a blind fashion. The Managers of the VC fund are supposed to find good deals, and at times also try to help the deals succeed.
Money that is committed to VC funds is high-high risk money. It is that small percentage of a portfolio that if lost will not greatly affect anything, if successful will provide that lift above “standard” returns. And if you are really lucky, VC fund ends up investing in a Google or Facebook, and then you make massive profits.
The key element here is risk – VC fund managers are being given money and paid to TAKE RISK. Of course they themselves need to manage that risk – but they are not being paid to make safe investments.
Part of the fundraising ritual is the founders of a given start-up will present the idea, have a short discussion, and then the VC will either follow-up with request for another meeting, or will say that they decided not to move forward. Almost never do VCs give a reason for not moving forward in the process, and the reasons are quite understandable – they might not have liked the entrepreneurs on personal level (this is a people business), might have disagreed with key aspects of technology and/or business model, etc.
But was our first “no” of our still nascent fundraising journey was a bit of a surprise, a VC told us he liked us, thought the vision was really interesting, but decided not to move forward because to succeed, he felt, would be difficult and complicated. Uh, yeah.
If it wasn’t “difficult and complicated” to do what we are doing than it would be far less exciting and rewarding. If it were easy to do what we are doing – why invest? The barrier to entry would be too low.
Difficult and complicated is music to my ears – it is precisely the kind of uphill challenge every true entrepreneur thrives on. And I believe it is the role of a venture capitalist to back visions that are difficult and complicated to execute on. I fear that this particular VC manager has lost his mojo. I just hope the rest of the industry has not.