100 Reasons Why Venture Capital is Dead

Jul 11, 2018 · 12 min read
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Join the discussions and debate on the future of VCs

Are you ready to say #ByeByeVCs? Those who have experience with VCs and struggled to make it work will align with our thinking here at Metamorph.

Previously, we re-imagined the world without VCs and mentioned 3 aspects of the business community which would be improved if we eliminated this big player from the financial market. Still, these are only 3 drops in the deep ocean. So we decided to go even further and expand this list to 100 reasons why the traditional venture model is broken and the end of VCs is nigh.

  1. 90% of startups fail in the first 5 years. (Forbes)
  2. In the case of VC funding, 65% of startups fail to return from 0 to 1x capital, while only 0.4% of them return 50x capital. (CorrelationVentures)
  3. Only 0.9% of small businesses in the USA are funded by VCs — this means thousands if not millions (worldwide) of startups that deserve funding don’t get it. (Statista)
  4. Women get only 2% of the venture funding. (Fortune)
  5. VC are structured to build unicorns — the companies valued at over $1B, extremely successful and rare ventures. (PitchBook)
  6. Venture capitalists don’t invest less than $1–2M. However, many innovative startups don’t need so much money to grow. (Businessplantemplate)
  7. 42% of startups fail because the global market doesn’t need them. VCs usually fund only companies from which they can reap personal benefits. (CBInsights)
  8. Most VCs are focused only on the particular industries. The most popular for now are software (36.2%), biotechnology (17.3%), and healthcare (7.1%) sectors. If your company doesn’t fall within this categories, it will likely go unnoticed. (Weforum)
  9. VCs are hungry for fast-growing companies. They often push their wards to scale at a frantic pace. Too fast growth hurts businesses in a long-term perspective and usually doesn’t bring any societal benefit. As a result, a company burns down. (Ycombinator)
  10. Venture capital fund has become a lottery system where a few make unbelievable fortunes. As we mentioned above, the chance to receive a venture investment is very low and can be equated to the chance to win the jackpot in the casino. That’s why we have “lucky” giants like Uber, Pinterest, and WeWork along with thousands of “losers”.
  11. VC firms like to invest in trends and fads. It might be good if they funded trends at their dawn, but they prefer investing in fads that have already boomed. Thus, no promised innovation is expected.
  12. VC investors often have fewer skills and business knowledge than entrepreneurs. So their decisions are based on their own beliefs rather than on relevant needs of society. (BusinessInsider)
  13. Being in the never-ending pursuit of high ROI (not less than 60% of your private equity), venture capitalists frequently take control of your business. Your role as an owner become less significant (Profitableventure)
  14. 4% of all VC companies reaped over 65% of the rewards when companies they backed sold shares to the public. (Forbes)
  15. Only 5% of VCs achieve 3x return on their investments. 3x return is considered to be a successful increment, everything below is not. (Money Talks)
  16. Investors want 20–25% of start-up’s profits after funding them. That’s a bit greedy.
  17. The process of VC funding hasn’t changed since the 70s: it still requires numerous meetings and negotiations and may last for up to 9 months. Not every start-up owner can allow themselves to wait so long.
  18. The deal flow sucks for VC’s, even they are frustrated — only 1 deal out of 101 will be closed, according to the statistics. (ChicagoBooth)
  19. Only 13% of VC’s place their greatest focus on your product, the majority of them (47%) consider your management team the most important factor. Raising capital is often less about how good an idea is, and more about who the founders know and how well they present. (ChicagoBooth)
  20. It’s not profitable for VC’s to fund small businesses — they need to have companies that will be worth and sell not less than $500 million. Otherwise, the venture capital firm will struggle to make ends meet. (TechCrunch)
  21. Vinod Khosla, the famed founder of Khosla Ventures, said at a TechCrunch event that 70%-80% of VCs add negative value. (Businessinsider)
  22. Limited partners and VC firms aren’t aligned. VCs are always get paid: even if the ROI is poor, they get 2 and 20% of the fund size: the salary for the management team and compensation for the liquidation event respectively. LP get their money only if VCs succeed. (TechCrunch)
  23. The decisions of the venture capitalist are usually irrational and based on biases. The majority of owners who got a check from VCs look like VCs. That’s why women and people of color are the overwhelming minority of those who received an investment. (Bloomberg)
  24. The number of female venture capitalists has decreased from 10% to 6% since 1999. (Forbes)
  25. VC’s believe women need to work twice as hard getting capital vs. men — angel investor Masha Drokova even compiled the list of recommendations that might help businesswomen to win this foul play.
  26. Biases affect not only women. Physically attractive men are 36% more likely to get funding from VCs than less attractive men, even if their idea is the same. (Fastcompany)
  27. SME’s are the backbone of society and account for 70% of the GDP but they are being ignored by VCs.
  28. Only 3 states of the USA (California, New York, and Massachusetts) receive 78% of all funding. The other 47 are fighting against each other to receive another 22%. (Fastcompany)
  29. VC funding is like an old boys club — closed and exclusive. Because of this, the demographics of venture capitalists are so undiversified.
  30. Alex Niehenke, a Principal at Scale Venture Partners, accepted that VCs are lonely: they do most of the job alone. The fierce competition both inside and outside the firm is another downside of being VC: they can be partners today, but rivals tomorrow. (Scale Venture Partners)
  31. There is an assumption: nobody loves VCs because they don’t love us. A lot of entrepreneurs consider VCs egoistic and autocratic after dealing with them. (Reuters)
  32. The number of active VC firms decreased from 744 to 526 in the period of 2001–2011. This is a fair sign they couldn’t nourish themselves. (HBR)
  33. The same applies to the amount of raised venture capital which has fallen from $39B to $19B since 2001. However, less private equity firms don’t mean fewer start-ups. On the contrary, the other sources such as crowdfunding, ICO funding, and business angels are rising. (HBR)
  34. Venture capitalists are being positioned such as bold individuals who risk with their own money. This is a myth: they risk with their investors’ capital, not their own. Only 1% of VC fund belongs to the VC firm. (HBR)
  35. There is a lack of visible performance data for VCs as well as other kinds of data. This means that the current industry’s revenue model is far from being transparent, unlike revenue of blockchain-based platforms and startups. (HBR)
  36. Even though VC was a win-win model in the a few decades ago, it has stopped to scale well since the 2001. (HBR)
  37. Only 1% of funding goes to people of color. (Fastcompany)
  38. Almost everyone in the modern world pays attention to your skills, not a diploma. But not VCs: 10% of worldwide venture capital investment are received by Stanford, Harvard, Berkeley, MIT, NYU, and the University of Pennsylvania. Again: probably because the investors also graduated from this educational establishments. (Fastcompany)
  39. The size of investments went to CA, NY and MA = the size of investments went to the rest of the world. (Fastcompany)
  40. VCs invest in companies that are located not far than 150 miles from their houses. The average distance from VC to startup is 80 miles. VC firms consider businesses located nearby more valuable than those located across the country or overseas. Why? The answer is simple: they care about their own benefits, not about the benefits for the whole society. (Fastcompany)
  41. There is another proof of the previous reason: VCs rejected transformative projects like Airbnb and BorrowMyDoggy, enabling a better and more connected society. (StartupGrind)
  42. Some of the companies that drive innovation today were unfundable from the point of VC at their very start. The bright example is Tesla. (Hummingbirdinvestors)
  43. Most private equity firms are owned by 1% of individuals that have 50% of the world’s wealth. This situation only contributes to economic inequality.
  44. The reformation of VC’s model is impossible until its owners renounce the further accumulation of insane riches. (Hackernoon)
  45. The traditional venture fund process is not suitable for early-stage investing, although it works great for later stage deals.
  46. The amount of venture investment in blockchain vs. ICO fundraising comprised $0.55B vs. $0.25B in 2016. However, the numbers drastically changed in 2017: venture investment of blockchain is $0.95B now, while ICO fundraising rose to $5.50B. This increase of more than 450% clearly shows that VCs are much less effective than ICOs. (VisualCapitalist)
  47. A number of VC’s closed deals has been trending downward since 2015. In 2015 we had more than 14,000 deals, in 2017 — less than 10,000. (VisualCapitalist)
  48. Talking about Europe, more than 50% of all funding goes to the UK and France. The rest of European countries fight for another half. (Angelinvestmentnetwork)
  49. The VC industry regularly reports that of all companies back by venture capital, 30–40% fail, 30–40% return the original capital and 10–20% produce outsized returns. (Hummingbirdinvestors)
  50. VC-backed startups have 1.28% chance of becoming a unicorn. And this is the highest odds: in 2014, only 0.14% of small businesses funded at a seed stage became unicorns. (CBInsights)
  51. In Q1 of 2016, zero technology IPOs was funded by VCs. (StartupGrind)
  52. Most investors won’t look favorably on funding companies that take years of research.
  53. Until recently, Y-Combinator refused to consider investing in companies that weren’t a 30-minute drive from their office. (VentureBeat)
  54. VCs are bored of being pitched the same ideas again and again. Even they aren’t exactly confident in their own business model.
  55. VC goals are expressed in numbers, they don’t really care about visible results and societal profits. (Hummingbirdinvestors)
  56. VC funding is being surpassed by modern methods of fundraising. For instance, crowdfunding outgrew VCs in 2015 and is tend to rise further, while VC is in decline. (EuropeanCEO)
  57. The timeframe for exit in venture investment model is traditionally 5 to 7 years when only an open-ended timeframe seems to be suitable in the present realities. (Hummingbirdinvestors)
  58. You can raise even more than you need with VCs. It can cause some problems in the next stages. “If you raise too much money, you have to swing for the fences,” Micah Rosenbloom, a venture partner at Founders Collective, said. (Techrepublic)
  59. The other proof that VCs don’t contribute to societal changes is the absence of a track record of creating that value. There is no transparency in the industry — how many VCs can show the real data?
  60. John Mullins, associate professor at London Business School, admits that seeking help from venture capitalists is a waste of time and is a distraction from doing business. Companies should focus on the development and positioning of their product, not funding. (NapkinBetaBeyond)
  61. VCs won’t admit the problem. They are in a VC bubble which is going to burst. (Inc.)
  62. VCs need to continually raise new funds to invest in the next generation of early-stage companies. And they use money which belongs to other people.
  63. Andy Dunn, a founder of 500 Startups, confesses: “[W]e SUCK at EXACTLY the thing we’re supposed to help entrepreneurs do — build BIG, SCALABLE companies.” (NapkinBetaBeyond)
  64. VCs often make you sign away a large stake in your business at the early stages. So who is the real owner? (NapkinBetaBeyond)
  65. VC firms are highly selective: they invest only in 2–3 startups per year. Just imagine how many good companies die before they are born. (TheHustle)
  66. Hyper-growth often promoted by VCs can harm your startup by increasing a burn rate, preventing small problems from being fixed, investing much more money than was made. It may be compared to cancer — this is probably the one thing that grows this fast and goes well. (TheHustle)
  67. 70% of VCs have worse returns than the stock market. (TheHustle)
  68. An average unicorn raises $284M on average from VCs. However, there are a lot of examples of companies which raised much less but are equally successful. Service Now raised only $83M but has a market capitalization of over $32B. (TheHustle)
  69. Venture capitalists who are not part of the exclusive insider oligopoly must evolve or die — there is a lot of fear out there at the moment.
  70. VCs are gamblers: all they do is convince the bigger investors to give them money to bet on startups. (TheStartup)
  71. Entrepreneurs often complain about VC’s unresponsiveness. (AsktheVC)
  72. Yes, VCs are often jerks. This is not their fault, but that’s how the majority of business people feel about them. And they are not hiding this fact: “We’re not jerks. We just live in a white privilege filter bubble.” — says Charlie O’Donnell. Obviously, we can’t blame them, but this interferes with the idea of equality. (Thisisgoingtobebig)
  73. Future starts with a 3 “Ds”: democratization, decentralization, diversification. People and their needs become the center of this model, while the center of the VC startup model is still capital.
  74. VCs harm average people: they don’t take into consideration their demands, only the demands of those who are in that “white privilege filter bubble”.
  75. Valuation structures create a misaligned incentive model.
  76. VC has been great at optimizing our leisure activity. (FB, Twitter, Uber, etc.) but not a real change in how we live our lives — not designed for moonshots.
  77. As you know, not a lot of innovators in art and culture are making money. The same applies to business and technology: an innovative idea needs time to be raised. VCs love making money, that’s why they stifle creativity and innovation. (Onstartups)
  78. The modern market is rapidly changing, but VCs fail to keep pace. (Businessinsider)
  79. An average ROI for tokens reaches 1373%. That’s almost a 14x return. VCs lag well behind… (TheNextWeb)
  80. The investment return on $1000 for ICOs comprises almost $14000 when VCs make only $5000 or less. (TheNextWeb)
  81. VC dilutes your stake, while ICO will not. (TheNextWeb)
  82. Typical IPOs curated by venture capitalists oblige owners to provide returns to the equity shareholders, while ICOs are not. Because of this, you can focus on the main goals of your startup instead of dealing with shareholders. (TheNextWeb)
  83. VCs lack empathy for the pain founders experience.
  84. In the US, SF accounts for more than ⅓ of all venture venturing in 2016. (CityLab)
  85. ICOs might kill VC unless they adopt a new model of investment. (TheNextWeb)
  86. VCs are intermediaries between companies and investors. The role of the intermediary is about to cease after the invention of the blockchain. (Cryptovest)
  87. Only those venture capital firms that will climb aboard the crypto spaceship will be able to survive. (Cryptovest)
  88. Even though the overall number of deals is down, we observe the record amounts of cash flowing to VC firms. Where will they invest these treasures, if the number of deals decreases? Only God knows. (VentureBeat)
  89. This is another evidence that VCs are far from innovation: they tend to become a private hedge fund industry by investing more money in fewer companies. These companies are late-stage and have already past the innovation stage. (VentureBeat)
  90. Only such venture capitalists as Sequoia, Andreessen Horowitz, and Kleiner invest in high-value companies at an early stage. The rest of VCs avoid them. Moreover, Andreessen Horowitz is very interested in blockchain-based startups, so that is what makes his company live. (VentureBeat)
  91. Startups no longer need huge amounts of money offered by VCs. We live in the era of high technology and have fewer expenditures on physical resources. (VentureBeat)
  92. More than just biases: female entrepreneurs report venture capitalists considered them sexual opportunities instead of investment opportunities. A sexual harassment is a real problem in a Silicon Valley. (Hbr)
  93. Male venture capitalists suffer from a “real man” syndrome which can be destructive not only for women but also for men. Let alone that excessive masculinity is not the main priority in modern society. (Hbr)
  94. ⅓ of companies in Sweden are run by women. Still, they receive much less funding than they had to receive: only 13–18% instead of 33%. The other money goes to companies ruled by men. (Hbr)
  95. VCs call male entrepreneurs “young and promising” when their female counterparts with the same experience are described as “young but inexperienced”. (Hbr)
  96. Statistically, female entrepreneurs get only 25% of what they ask, while men negotiate 52%. And this is in Sweden, where the gender gap is probably the smallest in Europe. (Hbr)
  97. In fact, venture funding is a hard job, that’s why venture capitalists seem to be in a dilemma. (Vcdium)
  98. First Round Capital reported that female-founded businesses in their portfolio outperformed male-founded businesses by 63%. That’s not surprising: women try harder because they have no privilege. (PitchBook)
  99. A lot of venture capitalists micromanage founders under the guise of mentorship. Want to deal with annoying “mentor” who often knows less about entrepreneurship than you? Then strive to get VC funding. (Investopedia)
  100. VC can be a real threat for you business. For example, founders of eLink, one of the most promising start-ups in Washington, were replaced by its funders because of being “young and inexperienced”. (Investopedia)

These 100 reasons tore the myth that “VCs perform just right” to shreds. Even though it could do well in the past, we live in new world where their models aren’t relevant anymore. On the contrary, it can hurt your start up in its infancy. Would you let them spoil your idea and kick you out as an “empty shell”? Would you continue desperately proving that you are worth their money? Now there is another solution.

You don’t need to prove anything, just present your idea to the community and let average people like you (not that guys with wallets full of other people’s money) assess your start-up. Does this resemble your own values and beliefs? Let’s continue the discussion on our Catalyst forum here about the future of VCs and venture building.

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