A few weeks ago I made a silly Twitter joke about starting a fund that invests $300 to make you a unicorn. 99.99% of the readers got it. A couple dozen people who showed up in my DMs and pitched me seriously did not. At some point I even asked what they’d do with $300 and one guy said “maybe buy a ticket to an investor meeting”.
This isn’t good. Not only because it reeks of desperation, but because it signifies a fundamental misunderstanding of venture capital funding and how to use it. I see two reasons for this misunderstanding: founders internalizing the constructed narrative around VC funding as the panacea for tech startups, and VC partners’ branding as enlightened king makers. Both are wrong.
Not enough people talk about VC funding being a tool in a tool box, and those who do often talk their niche position rather than make a general argument on how companies can grow. Companies flush with cash also tend to make a lot of noise (then mostly die with a whimper) on “tech blogs”, the startup world’s Instagram. In addition, many founders have been mostly in school, where you study in a constrained system and get graded by someone, so the North Star metric of funds raised seems appealing.
This is insane. It creates crazy situations. I don’t talk to many early stage founders and I’ve already come across people who are trying to raise millions to fund products that 1000 users could pay for. A two-digit team with only one developer and no one else even learning to code. A team of “business founders” unable to recruit a single developer, raising money to employ contractors. If this sounds like your company, stop raising right now. You’re already failing, and if by miracle you manage to raise funding you’ll just fail slower.
The other issue is the VC narrative. Most VC partners are smart and talented people who mean well and try to do right by everyone. They are also virtually indistinguishable; much like buyout firms correctly think every technology company tastes like chicken (Robert Smith WSJ story here), most VC funds are commoditized agents, pulling money from common resources and deploying it into an undifferentiated deal flow. As commoditized agents do, they invest a lot of time in branding, focusing on outsized successes (infrequent) and conveniently tucking away failures (the norm). Founders fall in that trap like many others do, and hope to be the next anointed genius, talking about “investors who can help us” with starry eyed devotion. It doesn’t last. VCs usually can’t really help you. It is not the VC’s fault and they’re not the bad people here. It’s just reality.
If you’re starting a company, especially if doing so for the first time, you owe it to yourself to understand all the tools available to you. You have to think clearly what success means, and plan accordingly. See yourself, investors, customers and other players for what they are – imperfect players playing a game. Don’t lose yourself in it.