Venture Capital Broken?
Gems from an article by Joel Spolsky
“There are certain fundamental assumptions about doing business in the VC world that make venture capital a bad fit with entrepreneurship...
The fundamental reason is that VCs do not have goals that are aligned with the goals of the company founders. This creates a built-in source of stress in the relationship.
Specifically, founders would prefer reasonable success with high probability, while VCs are looking for fantastic hit-it-out-of-the-ballpark success with low probability. A VC fund will invest in a lot of startups. They expect about seven of them to fail, two of them to trudge along, and one of them to be The Next Netscape ("TNN"). It's OK if seven fail, because the terms of the deal will be structured so that TNN makes them enough money to make up for all the losers...
The second part is the fact that VCs hear too many business plans, and they need to reject 999 out of 1000...When you have to say “no” 999 times for every time you say “yes,” your method becomes whack-a-mole. Find the flaw, say no. Find the flaw, say no. The faster you find flaws, the more business plans you can ding…
Here's another funny thing that's happening. VCs are reacting to the crash by demanding ever stricter conditions for investments…There are probably hundreds of software companies started every day. Of that universe, there is a small number that are actively looking for early stage investors. Of that small number, an even smaller portion is willing to go along with the current harsh deals that VCs are offering… ”
Via del.icio.us/dbayless
