The Entrepreneur in a Venture Capital World
Imagine a food connoisseur has a vision of opening a restaurant. Selling a carefully crafted list of delicacies, whose preparation has taken years to refine. This aficionado has thought of everything. The cutlery that would highlight the preparations, what the entrance to the restaurant would be like, the kind of chefs he or should would need. Everything.
Now imagine, you, as a customer, visit that restaurant. No guarantees you’ll like the food there. Or you might have preferred a better selection on the food menu. Now let’s say you, and your friends or family who have accompanied you, get to have a say in what the menu should be. Just because you’ll be paying the bill. Or simply because a local bank or relative bankrolled the entrepreneur’s dreams, they want to have a say in what food should be served.
Isn’t this the case with the venture capital investment ecosystem? They take a seemingly great idea, imagined by a dreamer. And after some funding, in an urge to “scale” it, they put it on steroids. Often at the cost of the original dream and vision. And with the VC community, their return timelines are shrinking, so their portfolio mutation is growing rapidly. They don’t care about profits. As long as there is sufficient sales and buzz, they’re on track. As opposed to keeping fund and investment choices a little more practical. So as to build a more, bottom-heavy business. On a steady foundation.
In a way, it would compare with a risk in the investment ecosystem called Maturity Mismatch Risk. This is a capital management situation that can disrupt business cash flows. It’s seen when assets held to meet future liabilities are not well aligned from a maturity time point of view. Short term assets should deployed for projects with quick returns. Otherwise, they could cause a financial crunch in the short term. ‘Entrepreneur-Investor’ relationship could be looked at in a similar way. Where an investor who is only there for a few years, sometimes changes the entrepreneurs long term strategy to suit their investment goals.
Now this might seem to contradict my VC related post from earlier this week. One where I said that the VC space seems to have more left-brained, finance, cold-numbers people, and less right-brained, creative ones who would appreciate a good, world-changing vision and back it up in a way that it really changes the world permanently. However, they are two sides of the same coin. Business models do take the world forward. But that doesn’t mean every other potential idea must first blow up with over-funding and investor control, and then explode! And all the while, the disinterested, minority stake-holding promoter is busy with other startups he or she has invested in.
Imagine a great idea and promoter being backed by an investor who actually sees the impact of the idea from the promoter’s perspective. That means, not just scaling an idea, but rather, letting it grow to have the impact it was intended to. Then maybe some of the great entrepreneurs wouldn’t actively shun investors and patiently bootstrap their way to world-change.
It isn’t just about the idea. The entrepreneur’s vision of how the idea pans out matters just as much.
I happened to see this post on LinkedIn when I was writing this post. While decisions like come on one end of the world-change spectrum, a lot of venture funded companies aspire to be on the other. In that they would like to achieve a strong global presence with the least marketing spend. And most importantly, make astronomical stakeholder returns. For the VC community, the ideal place lies somewhere between the two ends of this spectrum. Because in many cases, the entrepreneur sets out on a well-intentioned mission to fix a huge problem for a customer base.
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Again, it isn’t just about the idea. The entrepreneur’s vision of how the idea pans out matters just as much.
The title image is that of a vulture. When I worked in the venture capital space, people sometimes referred to the community as ‘vulture capital’. Nowadays, looking at some investment decisions and entrepreneurs who focus more on personal investments rather than their own ventures, looks like vulture capital is contagious.