Monday, March 20th, 2006
People have asked what I think about the venture funding flooding into our fledgling industry. And would Blogads like new investors? Well, first, we’re profitable and happily expanding the business with our own cash. So no thank you. Second, we like knowing that we’ve got our customers’ best interests at heart, rather than an avaricious VC’s. Finally, academic studies suggest that while VC definitely increases your beta (wonk-speak for the ups and downs in an equity’s value), it can actually lessen a company’s chance of survival.
Why? Some hypotheses:
— considerable time/resources are sunk in meeting with VC, then jumping through their hoops. The best meetings and hoops are those held with/by customers.
— you’ve got to scramble to make lots of money fast to generate eye-popping returns on a bigger nut. It’s much harder to generate a 100X return on $10 million than on $1 million.
— many VC are sheep, so you end up selling the VC a business plan that conforms to yesterday’s zeitgeist, rather than tomorrow’s.
— because you are spending OPM, its easy to wreck your company’s bottom-line focused ethos.
— locked into “the plan” you’ve sold yourself/investors, it’s nearly impossible to attend to the subtle breezes that fortell tomorrow’s hurricanes.
— most VC focuses on home-runs, not the accretive base-hits that power long-term success. So what if half a VC’s portfolio companies flounder? The VC will double his portfolio’s size with monster returns on just a couple of investments. (Tough luck if you or your customers are in the failing half.)