Why is VC money so alluring?

In the tech entrepreneur space there seems to be a dichotomy about raising VC money.

  1. One side seems to view raising VC money for their business as a necessity.
  2. The other sees VC money as evil.

These are of course the polar extremes to the dichotomy but you get the idea. The truth of course lies somewhere in the middle. It really depends on your goals.

Having done a few small scale startups myself I was well aware of the overly generalized statistic that 1 in 10 new business fail. Not very encouraging odds for most. However today I read an article that reshaped the argument for me:

peHUB » HBS Study Finds VCs Need Successful Serial Entrepreneurs Way More than Vice Versa

[S]uccessful entrepreneurs have a 34 percent chance of succeeding in the next venture-backed firm, compared with 23 percent who failed previously, and 22 percent chance for new venture-backed entrepreneurs.

Even first time entrepreneurs who receive VC backing basically double their odds just by taking the money.

This has a lot to do with the fact that good VC’s bring experience and lots of connections to the table with them. Yes VC money is expensive, but apparently so can going it on your own.

The article also showed some other interesting results. If you’re a successful entrepreneur going with the big VC firms doesn’t buy you any greater chance of success as going with a smaller VC firm.

If a company is started by someone with a track record of success, then that startup’s future isn’t going to be impacted one way or the other if it takes company from a top fund, or a firm in a lower tier.

The plus side here is that smaller VC firms may be more inclined to give you a better deal and you’re more likely to get attention from the top level partners as opposed to a less experienced Jr partner.

[Disclosure:] I work with Highway 12 Ventures, so I may be a little biased ;)

About Tac Anderson

Social media anthropologist. Communications strategist. Business model junkie. Chief blogger here at New Comm Biz.
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