Many entrepreneurs and founders see venture capitalists as the bigwigs of their industries. This is no surprise because of the exponential growth witnessed in the venture capital industry and the incessant funding and investments pushed into startups in recent years. Every startup dreams being singled out by VCs for funding. However, debunking common misconceptions about VCs is critical for new business owners to get the best out of partnering with them. Here are six common myths you might have heard about venture capitalists. Hopefully, this will help you see VCs from a new perspective.
Myth 1: VCs are the primary funding source for all new businesses and startups
Venture capital business financing is not the main or end-all of funding for startups. In fact, only 0.05% of startups raise venture capital. Many startups and new business owners get their initial funding from various sources such as loans, friends & family, crowdfunding, angel investors, etc.
Myth 2: All VC-funded businesses are set up for success
No, not all VC-funded businesses are set up for success. In fact, a large percentage (about 75%) of venture-backed startups fail, while under 50% make it to their fifth year, and only 40% turn a profit. In essence, a VC’s reputation does not make your company successful.
Myth 3: Investment is easy to come by
Many entrepreneurs with supposedly great ideas start a business with the mindset that finding a venture capitalist who buys into their idea will be easy. That’s not always the situation. The venture capital industry is very competitive. VCs do not just invest in every startup that approaches them, but only those they believe will yield a desirable return.
Myth 4: The best venture capitalists are former entrepreneurs
Many founders believe that the best venture capitalist for their startup is a former entrepreneur. They assume someone who has passed through the same journey will understand their need for investment opportunities. That’s not always the case. The skill sets required to be a great entrepreneur differs from that of a venture capitalist.
Myth 5: The success or failure of an investee will affect the financial health of a VC
More often than not, VCs do not put their own money into startups. Hence, the success or failure of an investee rarely affects their financial health. All venture capitalists understand that not every investment guarantees a return. If anything, they make profits if the business scales up, and if it fails, the VC’s bet is proven false.
Myth 6: A VC turning you down means something is not right about your business
A VC turning you down does not necessarily mean something is wrong with your business or your idea is unprofitable. There are several reasons a VC might not invest in your business other than thinking it won’t scale. If a VC does not fully understand your industry, strategy, or market, there is a higher probability you will be turned down. Also, if your business fits into a part of the VC’s portfolio that is already filled, the VC may not be able to allocate more funds.
References or sources: review42, Failory, Zippia,
