Wednesday, November 11, 2009

Can VC and entrepreneurs just get along?

I've been thinking about the discontent between entrepreneurs and VCs. The story goes like this:

Entrepreneur (E), VC (V)

E: The venture capital model is dead. I'm working on a hot company that's going to change the world. VCs don't understand my business.
V: What's the correlation between dead VC model and your inability to raise VC money? Bring on the VC-fundable idea and team, and we'll write a check.
E: We have a target market with no competition and great idea.
V: No competition? If it's an attractive market, there's gotta be someone else competing against you in that market. No product? Too early for us.
E: The reason that we are the only one is that it's a $100M market opportunity.
V: $100M market? Too small. Can't justify the investment return in the end.
E: We have a business model and product that can dominate this market.
V: Interesting. Maybe I'm interested.
E: Good. We're looking for VCs with operating experience. We're not going after just money. We want value-adds.
V: I have been investing for 20 years right after MBA. I invested in company A, B, and C all of which exited successfully. My partners have operational experience in your sectors.

and it goes on and on....obviously, overly simplified but the gist should be there.

Who's right and/or wrong? Nobody. But entrepreneurs and VCs make a big fuss about the stuff above.

Can we just get along and stop blaming each other?
  • There are ideas that are VC-fundable and bootstrapping.
  • There are successful VCs with operating experience or just management experience.
  • There are big market opportunities and small ones.
  • Entrepreneurs' job is to create and capture value in any market opportunities.
  • VCs are in the business of maximizing returns to their investors (a.k.a. LPs). This may be a controversial statement, but I'm going to say it. Entrepreneurs are NOT VCs' customers. LPs are.
  • Remember VCs are value-adds, not a must-haves in business.
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