VC Propaganda vs the Wise Entrepreneur

Since the new Web 2.0 dot boom (yes… boom) I’ve noticed a new strain of entrepreneurs who’ve taken the new strategy of bootstrapping and avoiding VC at all costs.

Tailrank is one of them. Both Spinn3r and Tailrank are actually profitable companies who have customers who love our services (in this case our web crawling APIs)

We’ve been around for about two years now. During that time there have been a number of implosions in the tech industry including the recent problems at Podtech and Edgeio and now Feedster.

In fact – most honest VCs will give you advice to avoid them at all costs. Venture Capital is the MOST expensive money you can take. Much better to raise your cash from actual customers.

Now, apparently, creating a startup without raising VC, and focusing on actually building a profitable and stable company is a bad idea:

Generally speaking, experience counts for something. So you’d expect entrepreneurs who’ve been through the ups and downs of a tech startup to have an advantage over the newcomers. Or at least have an equal chance at success. But in fact the opposite may be true. A number of venture capitalists I’ve spoken with have said that too many “old guard” entrepreneurs are not being bold enough in their business decisions, and it’s hurting their startups.

The first VC to bring this up to me was CRV’s Saar Gur at a recent conference. Since then I’ve brought it up with a number of other VCs. Across the board they agree – many entrepreneurs from the first bubble are overly cautious, and hurting their businesses.

I’ll be the first to admit that raising a VC round can be the right thing for certain companies. However, there are a lot of companies that are crushed as soon as they take VC.

There’s a major conflict of interest here. Most VCs are convinced that that they want to invest in a Facebook or a YouTube. They’re not going to put $5M into a company for just a $50M exit. They need the CEOs they’re funding to take risks or they won’t make any cash.

So the major question is whether the numbers here actually hold up or whether the VCs are bitter that they can’t manipulate entrepreneurs into jumping of the cliff in the hope of catching flight and becoming the new Facebook.

  1. They have their ups and downs, but VCs serve a useful role for a lot of companies. There just happen to be a lot of companies who can’t execute.

  2. Yup…. I agree they can be very useful for a lot of companies.

    The problem is that VCs increase the probability that a company can’t executed.

    From what I hear Podtech was actually making some $$$ before they took funding.

    When you have to have a $1B exit it’s a hail marry and you either sink or swim.

  3. Udi

    I wrote about this a little while back:

    Although now I kinda wish I had some cash to throw around :)

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