Startup founders, do you really want to raise money from a VC?
I spoke with a founder this week who deeply regretted taking money from a strategic investor. It seemed like the perfect deal, but the investor took a board seat and now is causing all kinds of problems (sadly too sensitive to share).
This isn't the first time I've encountered this.
A few years ago I had coffee with a fintech founder in Singapore. She'd taken money from one of the world's most celebrated VCs, but now wished she hadn't. The partner was demanding seemingly unattainable metrics, pushing for growth that the founder felt was unhealthy both for the company and for her team members.
A third founder I backed just dissolved his company after 10 years and 4-or-5 different funding rounds (I lost count!). They never truly found product-market fit, and while VCs kept the dream alive, they also prolonged the founder's time without a proper salary (I'd estimate the last decade cost him >$2m in lost earnings).
These founders set out to own and run their own company, yet found themselves with their hands tied, answering to analysts (who were driven by returns, not purpose) and effectively working for someone else.
One of them had a modest exit. The other two did not.
This was not how any of them drew it up.
The VC business model
The thing is... VCs work for LPs not for founders.
Thanks to "the power law" VCs believe the best way to make money is to bet on outlier companies – those with the potential to deliver returns so large that the rest of the portfolio doesn't matter.
VCs don't want 10 good companies that probably won't fail. They'd prefer 9 failures and 1 massive success. That's just the business model.
If you've identified a working solution (with favourable unit economics) to a potentially huge problem, maybe VC is for you. But for most founders, VC is the wrong route.
That's the gap we want to fill here at DQ Ventures.
How is DQventures different from a VC?
Unlike VCs, we work for our founders.
We exist solely to de-risk the entrepreneurial journey – doing everything in our power to help our founders succeed and, more importantly, not fail.
Although we may invest cash too, we're actually more like a co-founder. That's how we think – we sit alongside you on the cap table, as a minority shareholder, and we share responsibility for the company's successes and failures, putting our experience and reputations to work where it counts.
This is a completely different model to VC, and while some of our portfolio companies may go on to raise institutional rounds and become unicorns (fingers crossed), our business model is much more about avoiding failure than achieving a single breakout success.
VC is not wrong, it's just a business model that happens to be a bad fit for most founders. Still, it becomes the default goal for so many, perhaps because it generates such juicy headlines.
How DQventures compares to a typical VC
Find the right partner for your startup journey
It may not feel like it, but this isn't about bashing VCs.
We believe any business that encourages entrepreneurship should be celebrated, but founders need to be clear about their goals, and should be certain that the people they go into business with have the same objectives as they do.
Good luck to all the founders out there. And to the VCs too.