Venture capital is frequently portrayed as the “superhero” behind the success stories of Google, Yahoo, eBay, Facebook and other internet companies that today are now worth billions. But what about all of the other failures? What about all of the companies that never went anywhere, had crazy valuations, and were nothing but giant flops?
Why does it seem like I am the only one asking the questions: “Why were these companies failures?” “How can we do things better?” How can an industry learn from its mistakes?”
This is why I pose the question: “Is venture capital broken?”
Venture capital traditionally is known as the highest risk money there is. Investors know that there are no guaranteed returns. It’s an industry full of people who risk big for the potential of incredibly large rewards.
Venture capital is not something that can be taught. If it were, colleges would be teaching it. It’s gut instinct and real-life operational experience that make VC companies such as Sequoia and Kliener Perkins the success stories they are.
But venture capital is an industry that hasn’t changes for over 20 years. The model has been the same. It’s been a “let’s throw a bunch of deals against the wall and hope that one sticks. If one out of ten companies is a success and one out of 100 is a big win, then we are doing great!”
Well, basic psychology will tell you that most humans will only achieve the “expectation”. So why not make the expectation higher? Why can’t a new model of venture capital make two out of ten companies successful? Or why can’t we go back to basics and the fundamentals of building successful companies, and implement a real process to establishing and growing sustainable businesses?
Entrepreneurs and VCs have gotten greedy and it’s time for a legacy industry to evolve.
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