Is Venture Capital, Very Cancelled?
Updated: Mar 9
We’re taking a look at the burgeoning counterculture of the ‘VC is dead’ founder, exploring the motivations behind the movement, and totally weighing in 💪🏽
But first — warm up with some self employment centric links we think you’ll like…
VC is Broke(en)
The financing innovation model behind Venture Capital is antiquated, and not in the way that’s nostalgic and desirable. In this link, Nextbillion.net offers facts and stats around VC investment behavior, and suggests solutions for a desperately overdue makeover💄
PS — we were pretty shocked to learn that in Africa, 90 percent of startup investment goes to expats. Yikes.
We can’t really pay — join us anyway😁
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It’s all about the fit.
A Business Accelerator can be tremendously advantageous for your startup, and Forbes is out here helping you maximize your return on the time, equity, program fees, etc., you’ll invest in one💰
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Is Venture Capital, Cancelled?
The New York Times stepped into the second week of 2019 with a provocative front page message for venture capitalists: “Get lost”. Turns out startup founders are moving away from venture backing, and turning their attention to alternate sources of funding — and we are not surprised.
The #venturecapitalisdead movement is real — ignited by the crypto crowd and fueled by masses of fed-up founders who are no longer with the shit. I mean, it’s pretty common knowledge that traditional VC behavior has the persona of a wealthy old guy who refuses to hire POC and women😐 Only now, there’s a rumble in the proverbial back of the bus — one that’s being made by underrepresented founders — women, POC, and LGBQT folks who have grown great businesses and are tired of being marginalized, and victimized, when looking to VCs for funding.
Why are we so obsessed w VC, anyway?
While securing the VC bag has long been considered the “we made it” goal of small business founders, the statistics around VC investment behavior doesn’t seem to support the sentiment — even for ‘overly represented’ founders. According to a 2016 report released by the Small Business Administration, around 220,000 businesses are started in the USA quarterly. That’s about 880,000 startups per year. Now let’s hold that against the 8,076 businesses funded by VC in 2017. While this volume and coinciding allocations are kind of an all time high for VC investment, comparable to the dot-com era, even — these inflated volume and allocation numbers are mainly driven by large funding rounds for later-stage companies with proven track records. Translation: most startups are on the ‘down’ side of the VC version of trickle down economics — leaving underrepresented founders especially dehydrated😦
For the fortunate startups who do manage to attract VC funding, the pressure is on 😳
Likely somewhere between accepting terribly unfavorable terms or closing their doors, founders will submit to common — toxic — industry practices in order to survive. And funds know it. These terms can include accepting board members (from the fund) who likely don’t know a thing about the company’s product or business, let alone share their vision — leaving them vulnerable to decision making conflicts at best, and removal, at worst. Funds are also notorious for forcing early-stagers to scale too quickly — which has pushed more startups off a cliff than founder fall-outs.
And to avoid being held accountable, many VCs rely upon abysmal startup success rates to justify their behavior as risk mitigation. But while they’re quick to remind us that “75% of startups fail” — we should be quicker to remind them that these failure rates can be at least partially be attributed to fund misrepresentations around support and follow on — another pretty common industry practice.
In a world of our imaginations, a positive shift in VC investment behavior would be the manifestation of a collective, organic spiritual awakening on the part of the investment community — yet, we know better😕 If any change is to occur it will be in concert with the global position of intolerance for bias, inequality and abuses; in response to founders having access to alternate forms of funding in markets like accelerators with cohort investment programs, and crowdfunding — and in accordance with global adoption of transformational technologies…
AI is the answer, after all 🏀😉
As legacy financial services providers feel the Fintech pressure to re evaluate their behaviors and business tools to adjust and survive — the investment industry would benefit from following the herd. A meaningful step in the direction of actually mitigating their risk and eliminating bias would be to spread some, a lot, of the current innovation focus in the industry from portfolio management, to cohort selection. After all, math is a more consistently accurate indicator of probability, than a feeling, a hunch, or a birthright💅
“There are maybe 1,500 hundred companies starting every day… it is impossible to assess that number of businesses.” — Andreas Thorstensson, Partner EQT Ventures
Selection focused investment AI is being adopted, for now, primarily by forward thinking companies with diversity at the forefront of their company culture. Stockholm based EQT Ventures is one of the few VCs currently implementing algorithm driven selection analysis in their process — and we’re here for it. They’re setting the example that by eliminating traditional barriers to and for venture capital, like geography and access to volume, VCs can touch potential investments — potential returns — previously beyond their reach; creating a border-less investment ecosystem model that’s beneficial for startups, too.
Similarly, algorithms can, and should be trained not to consider gender and ethnicity. This will eliminate bias against underrepresented founders and teams — you know, like the ones who used the NY Times to tell VCs “Get lost” 😉
And as these founders continue to take their business elsewhere, literally, VCs will be forced to adapt and adopt — or continue to deprive the country, and our economy, of more than 1.1 million minority-owned businesses, more than 9 million potential jobs, and $300 billion in collective national income. (and that data is from 2016😳)
We don’t think VC is cancelled, or dead. We do think it’s long overdue for some tech driven, inclusion focused, reform — because the exclusive, predatory ways in which the industry has become comfortable conducting business, for decades — should be dead.
Written by the Lightship Capital team, for Found. 🙌🏽