I have heard stories about how VC firms tend to give little funds compared to private investors and they take everything from you and put pressure on you. Do you believe that VCs are evil in terms of investing in startups?
This question was originally asked on Quora, below is my response
VC’s don’t give a shit about you so sure, it can seem like they’re ‘evil’.
A VC isn’t paid to take care of you, they’re paid to earn a return for their investors. That’s not to say they won’t care about you - some VCs take a people-first approach, while others simply don’t believe that raping an entrepreneur is the best way to incentivise them to earn a return.
Ultimately, like any investor, it depends on the calibre of VC you’re talking about. Get a bad VC and you’re just giving up equity for cash. Get a good VC and it can mean the difference between failure and success.
One of the biggest criticisms levied against VCs is that they pressure entrepreneurs into things they wouldn’t otherwise do. But consider that sometimes pressure can be good - it forces the entrepreneurs to focus their efforts on the essence of what the VC originally invested in. If the VC invested into a Facebook-for-dogs service it’s going to take considerable thought and convincing before you can pivot into Yelp-for-cat-hotels.
VCs can often bring further funding to the table, either through their own funds or as a syndicate, pulling other funds into the fold. At subsequent rounds of funding, this can save serious time and resources.
VCs can force you to implement good business practices an entrepreneur might otherwise gloss over, or not even be aware of.
VCs can share generational knowledge gained from their portfolio companies with you, helping you avoid common pitfalls and accelerate your growth.
VCs can…you get the point.
Where conflicts emerge are typically when the goals of VCs and the entrepreneurs are not aligned. Remember VCs don’t exist to help the entrepreneur, their goal is to maximise the value of the company, in the time frame that their fund is mandated.
Thus, common misalignments come from either a difference in how to maximise said value (revenue models, target customer base, marketing strategies etc.) or from pressure to initiate a liquidity event (new round of funding, sale, IPO etc.) because the VC has to exit by a certain date, even when higher value can be obtained by having a longer term view.
None of these things are necessarily bad, they’re just things to be aware of when raising funds from VCs. Any time you raise external capital you’re taking on significant risk of an ‘evil’ actor ruining your day. But that’s true whether its an angel, VC, or corporate investor.
So no, I don’t believe that VCs as a whole are necessarily evil for startups as there are a host of benefits that can be had, in addition to capital. It’s just a matter of finding a VC that brings more than cash to the table.