Venture capital only works for specific types of businesses at a particular stage
Working with a lot of young founders (and some not so young, too), I’m always encouraged by their enthusiasm and innovation. But at the same time, I get frustrated that everyone seems to think that venture capital (VCs and angels) is the only way to get their business off the ground.
Last month I wrote an article listing a few basic prerequisites a startup needs to meet before investors will listen seriously to their pitch. At the top of that list was having a working product instead of an idea or outline. That received a lot of feedback, much of it angry, asking how venture investors were going to tackle major problems if we insist on only investing in market-ready products.
Finding money to develop the product is indeed the Catch-22 of startups, especially hardtech startups that require a lot of time and money to create. How can you develop the product if VCs only write checks after the product is ready?
How will scientists invent fusion energy and solve the world’s sustainability problems if venture capital won’t fund its development? How about carbon sequestration, a cure for cancer, or a way to produce steel and concrete without burning coal?
Let’s look at history. How many of the biggest innovations of our era were funded by venture capital?
Internet — nope, that was invented by university researchers funded by grants from the US military’s DARPA organization.Cell phone — nope, that was mostly AT&T Bell Labs and MotorolaSmart phone — nope, that was Apple after they were already a big public companyComputer — nope, AT&T Bell Labs again, with Texas Instruments and Fairchild Semiconductor inventing the integrated circuit.Li-ion battery that makes possible laptop computers, smart phones, and EVs possible? Toshiba and Asahi Kasei.Cure for obesity — Novo Nordisk and Eli Lilly
So what has venture capital given us? Facebook, PayPal, and Google. Uber and AirBnB. Beyond Meat and Blue Apron. Rent the…