Why Venture Capital Investors Are Usually Wrong About Startups
If an investor has passed on investing in your startup, it’s probably for one of these reasons:
- Your startup isn’t investable.
- Your business doesn’t fit their investment thesis.
- There’s only so much room in their portfolio.
But often, the reasons they pass are less clear. And sometimes, they’re making a mistake.
Let’s take a look at where Venture Capital investors sometimes get it wrong.
Why investors make mistakes
According to basic VC math, investors have about a 1 in 10 success rate.
They make mistakes. They dump millions of dollars into companies that don’t make money, and in some cases never will never be profitable. They pass on early opportunities to invest in the next Google, Amazon, or Facebook. They sign up for one thing, then immediately expect another.
Investors aren’t stupid. Despite what reality television might lead you to believe, it’s hard to be stupid and get rich. It’s even harder to be stupid and remain rich.
No investor is immune to making mistakes. Successful entrepreneurs-turned-investors make the same mistakes as their former counterparts. Grizzled old managing partners make the same mistakes as fresh-out-of-MBA-school associates. Investors with sterling track records can hit a losing streak, a dry spell, a rut.
How is any of that possible in an industry filled with so much advanced technology, quantifiable history, and so many metrics?
It’s because success in startup has never been directly correlated to the kinds of data used to make investments in startups. As a 20-year entrepreneur, mostly working on solutions born out of data collection and analysis, I can tell you that any time the data isn’t an accurate predictor of results, it’s because we don’t know what we don’t know.
For lack of a better term, it’s the intangibles.
When you try to quantify intangibles, you open up a Pandora’s box of misinformation. When you use this…