Ok, maybe you shouldn’t smack them, but you should give them a verbal smack for the good of the startup community in the area.
We are currently experiencing a “startup renaissance,” in Boston as described by Laura Fitton of oneforty. Great excitement is developing around small technology companies in the area. Too often, however, I hear conversation at events and on blog posts drift to the same old gripe: “VC’s in Boston don’t invest enough in young entrepreneurs.” I have written before about what I think we ought to be doing instead of whining about a lack of VC money for young entrepreneurs, and will be writing soon about why the notion that young people can’t raise money here is false. This post will make the case that this whining doesn’t just waste time, it hurts the cause of young entrepreneurs in the area.
VCs can not, should not, and absolutely, one-hundred percent, will not be more “casual” when it comes to investing in young, inexperienced entrepreneurs. Here’s a quick VC 101 class:
- VC’s invest the money of rich people, big companies, institutions, etc.
- These people expect their money back and then some. Usually in about a 10 year period.
- Something like 95% of startups “fail”, so a VC’s main job is to say no to most deals they see. Sucks, right?
- Since co’s they invest in will fail, they need to have enough money in the winners to generate enough of a return to at least make up for those that failed.
- VC’s main limitation is not capital, it is their time spent on making sure the capital invested produces winners.
- Current event update: some VC’s will now be facing problems regarding limited capital.
What this boils down to is that VC’s have to be the opposite of casual with the money they invest. While I agree that West Coast VC’s are more willing to invest in young, first-time entrepreneurs, this does not equate them to being more flippant about their capital. Every time a young entrepreneur makes the argument that VC’s in the Boston area are too uptight about their investments, it hurts all of the young entrepreneurs in the area because it signals that young’uns don’t understand how VC works, which ultimately raises questions about how well we understand the process of building a company that can scale and provide a return in the ballpark that VC’s need.
So if you are a young entrepreneur in the area, like those of us over here at Pinyadda, here’s what we need to do reverse this trend:
First, we need to change our language when discussing the investment culture in the area. Rather than arguing that VC’s are too “uptight” or “not casual enough”, we need to make a case for why it is simply bad business to not seriously consider investing in young, first-time entrepreneurs.
Second, all young entrepreneurs should educated themselves about the specific VC fund they interact with and do some math. You can pretty easily figure out how big their fund is, how much money they look to invest in each portfolio company, and how many companies they plan on investing in, which will give you a good idea of whether or not you are a match for them on a purely numbers basis.
Third, while I think it hurts the community to be calling VC’s uptight regarding their investments, I am all for a little trash talk when it comes to calling them uptight about socializing with the startup community. We are yet to have a single VC come to a Tech Hub Foosball event, which simply consists of cool people, working on cool things, playing Foosball and drinking beer. Not coming to these events is no doubt bad business! So please tweet/email this to the VC’s you know and let them know next week’s event is at Beta House, and the week after that is going to be at Oneforty’s office.
What does everybody think? Am I wrong about the virtual smack? Are VC’s just too damn uptight about investing in young entrepreneurs? Let me have it in the comments!
Chase Garbarino is the CEO and Co-founder of Pinyadda, BostInnovation’s parent company.
