Not VC
Not VC Series >> Building a Conscious VC Fund
Off to a slow & intentional start to the year 2024. For a while, I have not penned down an article; I felt there was some writer’s block. By the way, I am not a writer in any way.
I have been contemplating a lot about the venture capital industry as an admirer of entrepreneurship and conscious capitalism, capitalism that is deep-rooted in building a humane world and profit that benefits people, the planet, and animals.
The more I dig in, the more I realize I don’t get the general VC industry; it is not deep-rooted in fundamentals, purely based on hype and work on a concept similar to a glorified Ponzi scheme. It is a shame that the VC industry that can help reimagine capitalism doesn’t reflect its practices.
We need venture capital that is in sync with the sound principles of investing, business building, compounding, and patience. The short-sightedness in the VC industry suffocates me as it is not just harming the planet Earth, but also the basic tenets of sound investing principles are missing.
The biggest issues with VCs I see are»
Circle of Competency » I see generalist funds that neither have a defined, focused thesis nor focus on a specific stage are generally making the same mistake as what they point out to entrepreneurs - lack of focus. Yes, certain huge sector/stage agnostic funds like Sequoia are more like a conglomerate.
The other issue I have seen concerning the circle of competence is that funds that start relatively small end up raising multiple funds, and with every new fund they raise, they increase the size of the fund by a large margin, which, to me, they miss their sweet spot as well as they miss their core competency.Flawed theories of startup success » This is probably one of the biggest problems I see with many mainstream VCs and partners; they don’t see the basic building blocks of building a sound business that lasts forever. There are no shortcuts and hacks; there are ways to do things wisely, but shortcuts & so-called hacks lead to greed & Ponzi schemes. Suppose you spend time reading Charlie Munger, Benjamin Franklin, Coco Chanel, Michael Bloomberg, and several other great businessmen/women. In that case, you will realize they were fanatics of building businesses, not selling a Ponzi scheme of who pays the highest value.
“Many successful venture capitalists observe directional patterns. “Every time I have succeeded,” they might think, “I’ve backed an ‘A team’ that has targeted a hot market space.” There’s no doubt that’s true, but that is a statement of correlation, not causality.”
Is Venture Capital Broken by Scott D. Anthony, Harvard Business Review
Not patient » structural challenges like 10+1+1 fund structure create wrong incentives for VCs and entrepreneurs to be involved in building businesses that are not built to last. VCs want high returns in a defined timeframe, and hence, many founders prioritize building their company for quick exits, which is not sound business practice. A friend told me that VCs are nothing but traders. I prefer Chalie Munger's strategy of "sit-on-your-ass investing."
"There are huge advantages for an individual to get into a position where you make a few great investments and just sit on your ass: You are paying less to brokers. You are listening to less nonsense."
Worldly Wisdom by Charlie Munger 1995 - 1998
Not scalable » The hard truth, I believe, is that the VC model is not scalable, and it doesn’t need to be. Having several 100-person teams (associates, analysts, etc.) who have no relationship with LPs and don’t have similar incentives as GPs, it is hard to digest why we need them. This industry should hire fewer people, and GPs/Partners should roll up their sleeves.
Hype-driven » I am allergic to the hype and being a conformist. Most VCs who think they are non-conform or at least try to create a market perception end up being the most conform people on planet Earth. They are like sheep; if one invests, the other invests, and we create hype out of thin air; it sounds so much like crypto, printing money out of thin air. I firmly believe we need to create more value for people, the planet, and animals and, in exchange, create financial value, not from thin air because it is just a Ponzi scheme.
I am in VC, and I consider myself Not VC. I am glad to have colleagues as Partners who are mature, experienced, and have similar thoughts. Hence, I am cautious about how I look at companies, and I even feel skeptical of going to just VC events where all the VCs hang out to sell their Ponzi schemes to each other.
“I think we desperately need finance to be humanized. That’s part of the problem today: People perceive it as a complex topic that is not accessible.”
Mihir Desai
Sign-off for humanity,
Sagar
Follow me on LinkedIn» https://www.linkedin.com/in/sagartandon/
Mail me at » sagar@firstfollowers.co / sagar@beyondimpact.vc
Stay humble, stay curious 🌟🌟🌟!
Note: These are my personal opinion.
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