The Venture Capital Funnel

Our VC firm’s tagline is “Venture Builders.” As Eric often says, our Mission is about helping entrepreneurs create real businesses, not just products.

The are many ways through which to make money in venture capital. One is “venture banking” where you initiate a new investment starting in later-stage rounds, once a company already has scaling and predictable revenues. It has been a lucrative part of venture capital for some time, if you can time the public markets correctly.

But, that’s not our business.

Eric and I get a lot of emotional satisfaction from what we do. Some days are very difficult, as companies struggle. Other days are very fun, as companies soar.

In spite of what mainstream media writes, being a founder of a start-up (and, an investor in one) is a hard business. There’s an interesting article on the “venture capital funnel” from CB Insights in this morning’s Twitter feed. Here’s a summary chart, which shows that only 4% of seed companies become Unicorns, whilst 75% of all seeds eventually die or become orphaned:

So, what does this mean for the entrepreneur? I think of three things:

  • Do you feel compelled to start a company? I think it’s a calling rather than a job.
  • Do you enjoy the daily journey? The oasis is so very far away, you must enjoy the day-to-day.
  • Do you find deep meaning in entrepreneurship? I think a connection to your work is highly motivating.

As for me, I have been in VC since 1998 and have seen some great days for the industry and am witnessing incredible shrinkage as the industry declines (more here). So many VCs I know have retired or have been pushed out, and I keep hearing of more and more cases.

The flip side is that I garner incredible meaning from what I do. The companies we’ve backed over two funds have generated hundreds of jobs, and to me, that is a good thing to do.

And, if it works out, it can be incredibly lucrative financially for the entrepreneur and the VC. A huge outcome creates a great deal of shareholder value, and that leads to meaningful checks going to all employees. This in turn leads to economic empowerment, whereby people no longer have to work for The Man. Wealth creates freedom.

All this is very motivating.

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