Tag Archives: VC

Takeaways from “Five Reasons Not to Raise Venture Capital”

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I just read a very insightful article entitled “Five Reasons Not to Raise Venture Capital,” written by Rachel Chalmers, a technology industry analyst, former journalist and current principal with Ignition Partners. I am certain I have run across her over my past quarter century in technology marketing and PR. One thing is for sure: She is one smart cookie. Any entrepreneur looking to raise VC funding for their company should read this and understand it.

The article maps out the odds of VC-backed companies delivering on the investment for its general and limited partners. Spoiler alert: The odds are abysmal.

She reminds entrepreneurs that VCs are “optimizing for a very specific outcome. Share that alignment, or don’t take their money.” That outcome is to make money. Lots of money. Not tens of millions of dollars, which may be a positive outcome for some founders of bootstrapped businesses, but BILLIONS. Tens of millions do not often generate the returns that benefit LPs. Billions do. 

She raises compelling, no-holds-barred points about the prospects of obtaining VC funds and the downside if you do. The challenge with the (exceptionally informed) logic in the article is that many companies really *need* funding in order to survive. Building software often requires engineers, who require salaries. Doing marketing requires money. Running a business requires money. Some people have very long boot straps but many do not.

I wonder how many really, really great – and potentially lucrative – business ideas die on the vine because they do not seek funding or they do not obtain it? On the flip side, there are likely many VC-funded ideas that should never have seen the light of day and good, well-funded ideas that were not effectively executed on to generate positive, exponential returns…? I’ll bet Rachel knows the stats.

The insight I garner from this article is twofold:

1) Think of ways to build your business that do not require VC funding. How can you generate revenues that support growth and business extensions without diluting leadership and ownership?

2) If you do go after VC funding, know how to navigate and articulate your path to a billion+ dollar company across multiple industries. Know how to execute to maximize value. You will not only be more liable to get investor attention (which may or may not be advantageous), you will be more likely to be part of the magical 3% that generate returns for the investors, the ultimate – make that ONLY! – goal of VCs.

What are your takeaways from Rachel’s article?

Related Forbes.com article: “Three Colossal Mistakes Founders Make When Pitching Investors” by Seth Talbott

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