The Venture Capital Trap

I had a funny conversation with a startup CEO this morning. We agreed that the trouble with most venture capitalists is that they don’t actually want to be venture capitalists. They actually want to be private equity investors. After all, they want completed management teams, fleshed-out product plans, material revenue, and a finished product with minimal technology risk, etc.

Trouble is, early-stage companies rarely/never have those things, so they’re re forced to settle. It pisses them off to no end — leading to all sorts of silly and protracted discussions — and then they take out their exasperation on poor investees in board meetings. Nasty.


  1. True dat.
    Had a chat with a managing partner of a VC firm last week, as we are in the fund raising process right now. Most VCs segment risk in four areas: management, financial, operational, and technology.
    They want a fully formed, proven management team, validation of the financial model, no major operating hurdles (as in solid list of clients or critical mass of users, etc.) and to believe in the technology. In a lot of ways, that sounds like a company that has already received VC funding….

  2. It all adds up to – no risk. I am involved with an innovative start-up. The head of it finally said to one potential funder, “what you want to be is called a bank.”

  3. I can see the neon sign: Kedrosky – the virtuoso behind countless witty headlines and opening senses.
    Paul, sending multiple kudos in your general direction.
    Indeed…everyone wants to be in PE, and for reasons other than risk aversion.

  4. And don’t forget, buyout guys want to run hedge funds.
    The entire universe of VC/Buyout/Hedgies feels that they are each somehow being cheated relative to the others although, by almost any measure, the vast majority of them add abosolutely no value and all are compensated far beyond the wildest dreams of 99.95% of the population.
    Frankly, most these folks add less value than my plumber.