A startup’s journey is risky just like a rocket’s. So many things have to go right for a startup to succeed.
As founders, we need to remember that venture capitalists are not in the innovation business. They are in the investment business taking bets on innovative companies.
It is their job to invest their investors’ money prudently in companies that are most likely to deliver phenomenal returns. It is our job to convince them that our company is a great investment with an ambitious goal and a high likelihood of success.
Venture capital economics dictate that VCs will want companies that can have a huge economic impact. If they think our rocket is going to Mars or beyond, we have their interest. However, we need to be aware that venture investments come with expectations of incredible returns. A few failed investments are fine as long as some do very well.
Venture investment is jet fuel and it will make companies go faster in the direction in which they are already headed. We need to be absolutely sure our rocket is headed in the right direction before we ask for more fuel.
Venture capital also has limited investment opportunities due to their small team size and operating model. This means they will be extremely picky about the companies where they will invest. Demonstrating that a startup is not a risky investment is a great way to get them interested. Venture firms also have different risk profiles based on their philosophies, fund size, stage in which they invest, partner experience, and other factors. Some will want to jump in if they see an ambitious plan. Others will want to invest after a successful launch. Yet others will come in only after a startup demonstrates sustainable success. It is easy for founders to blame investors but it is our job to understand the risk appetite of different firms and approach those who are right for our stage.