Your funding partner could actually kill your company. Here’s why.
BY FAISAL HOQUE | May 16, 2014
Given the buzz about funding from VCs, angels, and other sources, it may be counterintuitive to say that your funding partner could actually kill your company.
I know this painfully well from my own mistakes and failures. In the late ’90s, I founded EC Cubed, a B2B e-commerce software platform company. Like many other founders, the proverbial door hit me on the you-know-what at the hands of the VCs who invested $50 million to rapidly grow the company. While that was extremely difficult, what was even more painful was watching the company collapse soon after my departure, despite the capital infusion.
Consider the following facts:
Harvard Business School senior lecturer Shikhar Gosh‘s research indicates that as many as 75% of venture-backed companies fail. His findings are based on research of more than 2,000 venture-backed companies that raised at least $1 million.
In 2012, the Kaufman Foundation’s “WE HAVE MET THE ENEMY… AND HE IS US” reported, “Venture capital (VC) has delivered poor returns for more than a decade. Speculation among industry insiders is that the VC model is broken, despite occasional high-profile successes in recent years.”
Vinod Khosla, the famed founder of Khosla Ventures, at a TechCrunch event said that 70%-80% of VCs add negative value. According to him, most VCs “haven’t done shit” to know what to tell startups going through difficult times.
For other types of investors, such as high net worth investors, family offices, and private equity, similar conclusions about their success could be drawn.
There are many reasons why ventures fail. However, logically thinking, the success rate of post-funded companies should be a lot higher.
Funding and investors in a company should help increase the value of the company, not reduce it. So the question is, where is the disconnect?
Read the full article @BusinessInsider.