Saturday 15th March 2025

On venture capital.

Disclaimer: I have worked in, and presently consult with, VC-backed companies. I also currently run a bootstrapped company that generates a LOT less revenue than most VC-backed companies, so I'm aware of my position in the grand scheme of things. To take this as a bash on VC-backed companies, or to retort with "But xyz took VC funding and they are super successful/way more successful than you" would be to misconstrue my argument. If you take anything away from this, it should be that getting funded does not equal success, and in certain circumstances, VC funding can accelerate failure.

All of my other posts are quite short, and I'll try to keep this one short too. I'll make two points: firstly, that VC funding or "having a company that is VC-backed" is not (contrary to popular belief) a sign of success or capability of the founder(s) and secondly, that a lot of companies who raise VC funding end up terribly inefficient because of pressure to deploy funds, compounded by a belief that startups can be run like the big household name megacorp that a lot of people who raise VC have come from.

You don't get VC funding from being good at your job, you get it from being able to sell your idea to a VC. Most companies VC's invest in fail (I'll save you the breakdown of a VC business model, but it's basically a lottery), so already the chance of being successful is pretty slim. If you just bought a lottery ticket with, say, a 1% chance of winning, would your next move to be do whatever you could to get on a Forbes list? Probably not. Why then, do we see so many VC backed founders filling out the Forbes 30 under 30 list? I mean, maybe you could argue that it's a good way to get your name out there, and it is! Well, it is if you want to rub shoulders with people who have committed quite a lot of massive fraud.
If you contrast this to a lot of bootstrapped founders, or people who run brick and mortar businesses, you see people who make profit (unlike a lot of VC-backed companies) and pay themselves a more modest salary (again, unlike a lot of VC-backed founders). I understand the tradeoff here - VC-backed companies can grow faster, have more revenue, and can worry about profit later (hmmm...), but I fail to see why getting VC funding is seen as a marker of success, and make the point that it's generally more impressive to see someone build a profitable bootstrapped business than a VC-backed one.

A lot, but not all, people who fund companies that get VC funding have impressive backgrounds. This is cool, and I'm sure it helps to raise VC if you have "ex-BigConsultingCo", "ex-FAANG" in your LinkedIn profile, but I've seen it a lot where founders come from those jobs, raise a lot of VC, and then realise that running a 10 person startup is a lot different to being an employee in a 5000 person company. If you feel attacked by what I just said, don't be. It's not an ad hominem attack, instead I say that because the skillset between being an employee in a big company is entirely at odds with the skillset required to run a startup.
Not only that, but the old "network" from these jobs often causes more harm than good (well, for the company at least) because it is a relatively common occurrence to see founders who have been given a lot of money to spend to go and hire a bunch of people they used to work with from their old job, as "managers of managers" and "managers of managers of managers", call them VP of something with a salary to match, and then act surprised when they realise that they just do the "leadership stuff" and they need a team of 10 people below them to do the actual work. Bootstrapped companies cannot do this, yet some become very successful and have amazing revenue:employee ratios.
This artificially created level in the hierarchy of the company is a problem. It's a problem because it creates bloat, and it creates a culture where the individual contributors are not the ones who are rewarded. An easy way to strawman this would be to say that I'm advocating for a flat organisation, but I'm not. Have some managers if you like to sheild the shit from the IC's! Just don't create jobs like "managers of managers". What I am advocating for is a company that is efficient, and that is run mostly by people who know how to do the actual work.

I do not think that VC funding is bad and I do not think badly of people who raise VC funding. In fact, there are some that I love working with dearly. This post is not an attack on VC-backed companies or founders, but rather a critique of the culture that surrounds them that paints raising funding as a marker of success and that pressure to use the money they've been given often is the cause of inefficiency. There are plenty of VC-backed companies who this critique does not apply to, but if you think about it, you can probably find a couple where the shoe might fit pretty well. But what do I know? If someone gave me $Xm in funding, I'd just probably spend it on Facebook ads.