Starting up is hard. Most new businesses are bootstrapping but greater percentage of them will need cash infusion at some point. Is VC funding worth it? Is the risk worth the pursuit? Almost every entrepreneur is on a crusade to raise venture capital.
Venture capital may seem like a savvy choice for financing your startup, but it’s probably wrong for you. Look into all the options at your disposal.
Smaller ventures sometimes rely on family funding, loans from friends, personal bank loans or even crowdfunding. For more ambitious projects, VC money is inevitable.
VCs support startup growth from seed to much later stages when projects require millions for maximum growth. Unlike angel investors, who typically write checks between $10,000 to $100,000.
VCs look for huge payouts. You can’t blame them. They take enormous risks in many startups. And few of them actually win big.
These are experiences and lessons (edited) from one entrepreneur, jorazzle (a reddit user) who raised money from a VC for his startup. He originally shared this on reddit.
I’ve raised about $20M in top tier VC.
The more I raise, the less I want and like VC. Most inexperienced entrepreneurs treat it like a prize or goal. I teach founders to think of the default as NOT raising VC, and you should only override that default with clear compelling evidence that justifies taking on the cost of VC.
“VC Value Add” is mostly a myth. Over 90% of capital out there provides little to no value above the cash, and maybe 2/3rds do active harm to the company.
Some VCs can definitely be helpful. In practice, most aren’t. But this is why the top VCs are consistently in the top results brackets, rather than randomized luck.
I didn’t raise $20M in one round, it was cumulative. However most founder CEOs are not making a CEO market salary if you define the market among all private co CEOs.
Secondaries / taking some off the table has become much more normal, which I think is a very good and healthy thing, but it’s not a given. In my case, I did not take money off the table during financing rounds.
The right VC can get you access in meaningful ways. I’ve had sit downs with F500 CEOs that would have been much harder without the famous VC brokering it.
The real problem is VCs trying to flex their muscles when they have no real world experience or empathy to do so. They get paid a lot of money and want to prop up the image of value add, so they talk and give advice that is mostly worthless or harmful.
The #1 factor of whether or not a VC is good is whether they’ve been a founder/operator before.
As for salary… in the later days before acquisition, I was at 175. Not market salary.
I was just giving this advice to someone last night who has term sheets from strategic investors:
My biggest advice on them is to really poke and prod on the internal incentives and mandates. With normal VCs, you know what their goal is.
With strategics, it can vary. Some will have a corp mandate to only invest in things that can be useful vendors within 12-18 months, which can be very limiting and cause tension if in that time you decide to pivot based on whats best for the business – but the strategic VC is pissed off because you’re out of mandate.
I was always looking for funding, which was a mistake.
Again, the default should be “not raising institutional money” until there is clear evidence that you must. “I need money” is NOT enough of a reason – all new businesses have a catch 22 with capital.
Follow the discussion on the experiences of VC-backed founders on reddit here.