The myth of venture capital
This lesson is probably the shortest one of the entire course. Venture Capital is a myth because most companies do not raise venture capital. They either don’t fit the model for what venture capital is looking for or they don’t want to give up so much control of their business for the money. Sometimes both.
It just seems like a lot of people raise venture capital because the media (and other entrepreneurs) like to talk about it. “Big fancy venture firm backs hot new technology for impending world domination” is a much more interesting headline than “Business toiled away in obscurity before organic growth kicked in for impending healthy operations.” Snooze.
Either way, many entrepreneurs believe that they have to raise some sort of venture financing in order to be successful. The truth is, not having a huge nest egg of cash and daily pressure of performance affects how you grow and how you operate, but at the end of the day it’s a choice you make and it does not mean you won’t be successful.
“If you can raise venture capital go for it. But customers can give you money today, and you don’t have to pay it back” — Seth Godin
Entrepreneurs who do not have “fundable models” are not at a disadvantage. They just don’t intend to operate the type of business that a venture capitalist likes to fund.
Some venture-funded businesses can leave the founders with the short end of the stick. Taking venture funding means a significant amount of control, and entrepreneurs can be pressured to grow in ways they don’t believe in or sell too early or for too little. After all, they are just one investment in a portfolio of other investments, and their investors want their money back (and then some).
Early stage venture capital can also severely stunt a fledgling company’s growth. Many early stage businesses that are venture backed will hesitate to put their early product into the market, instead opting to stay “pre-revenue” and continue to perfect it. Eventually their money dries up. Not having venture backing is an important kick in the pants that gets entrepreneurs into the market fast, because there is literally no other choice but to sell.
Sometimes we think we need to look for investors when in reality, we actually just need working capital, or some new equipment, or a salesperson. And there are lots of ways to go about obtaining these things that don’t involve giving up your company and control.
And if you happen to find the right investor, it’s a great fit, the terms are good, and you want them involved in your business (not just for the money), then go right ahead. But just know that you usually don’t need that to continue to have and grow your business.
If you are feeling like you need to have some sort of funding or financing to make things happen, ask yourself, “What would I use the money for? What would it really do for me? Is that something I could feasibly do on my own?”
This is an inspiring story about an incredible entrepreneur and a legendary company that built their business with no venture capital and became one of the biggest privately owned businesses in the country.
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