What business is a VC in?

Published on Author Zach WareLeave a comment

I stumbled onto this question on Quora:

My startup has traction, revenue ($600k/year), and profit!

It is a scalable model in a multibillion dollar industry.

We are based in the US, with 2 co-founders (CEO/CTO), mid-30s.

We approached 87 potential investors. Even with a soft introduction, we don’t even get an answer.

What’s missing?

This was my answer. I want to print it on a t-shirt.

There’s a common misperception about the business VCs are actually in. This doesn’t apply to angel investors and people who invest because they want things to exist.

VCs are as much in business as you are. They find investors to give them capital to invest. Their business is finding companies that will have outsized returns as a result of venture capital investment.

In evaluating whether to invest, the questions VCs ponder aren’t limited to whether they think a business is fundamentally strong (a bootstrapped, profitable business absolutely is). VCs have to assess, as best they can, how quickly the business can grow to critical mass where the marketshare and/or product is attractive at a high valuation to a potential acquirer.

There are investors who love businesses like yours. On a personal level I am one of them.
You wouldn’t feel slighted by an airline gate agent if he/she didn’t invest. That’s because it’s not their job. And VCs have a job.

Look for investors investing their own capital who have a track record of investing for the long-term in businesses they think *should* exist. And be prepared to show how 1 dollar in leads to X dollars in return for the business.

A great story to google is from the founder of grasshopper (who just started a fund to focus on these types of businesses, btw). Look it up.

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This post originally appeared at Zach Ware's Notebook.

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