A Few Myths About Venture Capitalists
Venture capitalists are not out to steal your company, run your company, or otherwise ruin your life. They simply want to ensure that their investment fund makes money. Yet these rather uncomplimentary impressions persist. Here, the record is set straight.
Myth 1: A more appropriate name would be “vulture capitalists”: Venture capitalists are sometimes called vulture capitalists, a nickname that has implies that VCs are opportunistic and pick meat off the bones of sick or dying businesses.
Although hedge funds exist that do approach businesses this way, most venture capitalists want to work with healthy, growing businesses to help them develop and mature. The venture capital industry is small, and it doesn’t make sense for a VC to do something that might tarnish his reputation with entrepreneurs or other VCs.
Myth 2: They want to steal your company. Another common misconception is that VCs want to own most of your company. Most VCs don’t want to take too much ownership of the entrepreneur’s company because the entrepreneur then loses motivation to make the company successful.
VCs know that they’re actually investing in the entrepreneur, and without their knowledge and energy, the company will be less likely to be successful. VCs with long-term vision understand that a fair deal is in everyone’s best interest.
Myth 3: They’re unscrupulous. Venture capitalists have a reputation of being unscrupulous because of stories that they fire companies CEO so that they can gradually take complete ownership and leave the entrepreneur with nothing.
In fact, VCs need good companies to come to them with possible deals. If a VC is unscrupulous, and founders start to tell other founders to be wary of her, then the she’s not going to be able to make investments in great companies, and her fund will fail to make money.
Most VCs want to manage a series of successive funds. To do so, they need to provide successful returns on their first funds so that they can go back to their investors the next time around.
When you’re seeking and working with VCs, be aware of your own mindset. If you go into the relationship thinking that all VCs are evil and that working with them is an unpleasant necessity of doing business, you may not notice if your VC actually is unscrupulous.
Keep your mind open so that you can better judge whether the VC you decide to work with is ethical, trustworthy, and an all-around good person; if you discover she’s not, find another VC.