If you believe the mainstream business press, getting venture capital funding is the ticket to Nirvahna, right?
Wrong, it appears. An article in the Wall Street Journal on September 20 reported that three of every four venture capitalized firms fail. These stats were put together by The National Venture Capital Association, and covered firms receiving $1 million or more in funding.
In their study, ‘failure’ was defined as investors losing all their money. If ‘failure’ includes not making the money back plus a return, then 95% of the v.c. backed firms failed.
This is about the same rate as non venture capital backed firms: 40% of them fail in three years, and only 35% survive to ten years.
The question is why, and we think we’ve got some ideas:
1. Lack of adequate market research on the product or service. (They didn’t take our package of four courses for $99 that tells you how to research, how to launch, how to figure cash flow, etc.)
2. Slower growth than expected, so the venture runs out of money and can’t get a second round, because the first round didn’t work as well as the business plan said it would.
3. Poor management, by both the people running the company and the venture investors who presumably guide it. Why are the v.c. people poor? We suspect it’s because many of them made their money with a single brilliant product or service, and were never tested as leaders for their companies.
So, the moral is, if you don’t need v.c. backing, don’t take it….they’re no better at running things than you are. If you have venture capital funding, try to keep it below 50%, because you can do as well as they can in running your dream