If you’re looking for a loaded question this is it. I’ve heard it from a bunch of people, some that I’ve been courting to join the team, classmates that I’m just looking to bounce ideas off of, and experienced folks I’m tapping for advice.
Here’s my read of this question: it’s 20% curiosity about the potential capital structure of the organization and 80% delegated diligence. Venture Capital is meant to accelerate high-potential startups and is clearly needed in situations where you need to reach mass for network-effect reasons or you need a long runway to become cash flow positive but it seems to have become the defacto standard for determining if a startup is going to be acquired for big bucks or do something particularly exciting.
Heuristics are great, they let us build quick models to shuffle the crap off our plate to make room for the good stuff but this is a risky one. Look, we’ve got a take-over-the-world strategy just like most startups and if we wanted to go after it right now money would definitely be required but that doesn’t feel very pragmatic. Our initial “product” will solve a real need with real companies in a niche that hasn’t drawn too much attention yet and we *could* generate real money but not quite that $100M in annual revenue that VCs tend to look at. But the great thing is, this initial business is Phase-1 not the end game. Sure, it will take time to build and the landscape will shift as we go potentially impacting our long-term strategy but hey if we reach year 4 with $50M in revenue we’ll still have plenty of options – plus I like to think that my team and I will be smart enough to sniff out new opportunities along the way.
Of course, maybe I’m way off the mark and the 80% is really just people wondering where their salary would come from.
P.S. if you or someone you know is interested in investing in a startup whose principals are full-time MBA students, let me know.