VCs are not Degenerate Risk Takers (plus GEM and GolfServ)

Overview: One of the most prevalent mistakes early stage entrepreneurs make is to totally and completely miscalculate the role of venture capital in their business aspirations. This column looks at current trends in venture capital, profile some Chicago-area companies, and get the inside skinny from Chicago-area investors. Speaking of early stage entrepreneurs and venture capital, the Global Entrepreneur Monitor (GEM) surveyed 37 nations, and reported that some 286 million people in these 37 countries are involved with some sort of entrepreneurial pursuit. The reality is that venture capitalists are not degenerate risk takers. They do not invest in early stage (e.g., pre-revenue) companies. They do not take risk so much as they manage, mitigate, and frankly, avoid, risk. Unfortunately, too many entrepreneurs do not know this. Perhaps these entrepreneurs have bumped their heads and they think they live in Sweden. They seem to have developed a horrible sense of entitlement. The bitter reality aspirant entrepreneurs need to face is that venture capitalists are returning money to their limited partners. While venture capital deals are graded on a very steep curve, being the best of a sub par group will not yield investment. If the choice is investing in lesser companies or returning money to investors, venture capitalists choose the latter. The success-story of GolfServ is described in this article.

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Format: HTML | Date: May 2003 | Pages: 1