Wednesday, August 27, 2008

World without VCs

Ever since I got plugged into the whole startup ecosystem both online and offline, it's amazing how much animosity exists in the entrepreneur community. This posting exemplifies one of the hatred for VC.

I understand where all the madness comes from, but let's take a pause and think about a world where VCs don't exist. Entrepreneurs should realize that money is a commodity in a world of perfectly capital efficient market... but it's just realistic. We'll leave rest of the discussion for finance academics to mull over. We live in a world somewhere between perfectly efficient and inefficient market where access to capital has different colors. Venture capital has its distinct color. VC firms have different color.

I've been talking pretty extensively about this venture capital color thing. So, the question now is... what if we live in a world without venture capital?

If I dare to oversymplify the definition of venture capital, it is a financing vehicle in which a company gets private equity capital infusion, mentorship, access, partnership, risk sharing in exchange for equity.

Yes, you can build a successful company without VCs. Yes, you can make a lot of money. Yes, you don't have to deal with all the "hassles" in dealing with mental liabilities to your investors.

BUT, how many Amazon, Google, eBay, Apple, HP, Cisco, etc. will exist without VCs. While money is a commodity, time is precious. If you have a great idea to change the world, would you rather make that happen at the end of 40 year time horizon? The biggest constraints that most of the fast-growing startups run into is the resource and time. The world without VCs, many of these startups just have very slim chance of winning in a short timeframe. That's the name of this game.

Can we live without venture capital? Yes, there can be many of these Tap Tap Tap that perhaps makes pretty good money for them. I don't know about your, but I'd rather build something much more significant than this even if it takes VC money. After all, who doesn't want to run a company with "other people's money"?