The venture capital conundrum

This one is from the gut.

Eight years ago, I did some modest consulting for an entrepreneur. One thing led to another, I invested and then became his mentor/adviser/shadow consigliere.

Two weeks ago, the board fired him, the common stockholders (I am one) will be wiped out, and the venture investor cronies that run the company may get out with their shirts but probably not with the buttons. A tale that is so common it is painful. 

Every CEO founder knows that the risk of being removed is ever present. Depending on what you read, it happens at least 35 to 40% of the time. But take heart and remember the VC investment mantra. They are making their bet because they believe in you, the founder.  Yeah, but often it is more like a honeymoon with no prenup.

I am angry because the fellow was a good leader, had high integrity and solid domain expertise in the vertical. If he had one failing, it would be that at the very beginning, he was polite and unwilling to stand up to the VC and demand no more interference, no more protective provisions, no more setting him up for failure.  

But he needed the money. The field of dead dreams is littered with that sentence.

The venture business is fascinating. I have taken ventures for half my deals, so I know the devil well. Here is the Cicada 3301 puzzle. The VC raises money from pension funds and investors with the story that they can produce better returns than you could on your own.  They have the network, they know the secret handshake. OK, I get it.  There are dozens of clubs that would never have me as a member. (Check Groucho here).  

The venture companies have told their investors that they are going to comb the fields looking for the diamonds, that they are going to relentlessly seek out the best and brightest founders. 

However, go ahead, try to get a meeting with a venture firm. They don’t have phone numbers and no direct emails. Go ahead, lob in your business plan. They claim they are looking for you, but they are wearing virtual reality googles, and you’re an avatar.  

If you do penetrate the veil of darkness, it is likely you will get a junior associate whose job is to bring deals to the partners that they can reject,

This is a business?

A true story. I reach out to a big VC complimenting an article they wrote, and surprise, I get a smart, young woman to call me back. Wow. So I tell her about my little AI company. Well of course, we are too early blah blah. Then in a moment of wonder, she tells me that there are three developers at the firm trying to build an AI private RAG solution. I tell her, funny you should say. That is exactly what we have built. Can we show it to you? The next week, she calls and says no. The developers do not want to even see your solution. We will build it ourselves. For the record, it took our company a year and $1 million, not exactly a walk in the park. 

We get an inbound inquiry from a large VC. Somehow, they have heard about us. We set up a meeting. The associate is impressed, but says we are too early. (You are always too early, until they’re too late). Then I ask, so what AI is the firm using? He says, “ChatGPT,” but he confesses that they don’t load any private, confidential documents. Doesn’t trust the LLM’s privacy claim.

Funny you should say that, I tell him we have exactly what you are looking for. Try it for free, can’t kill you. I mean, after all, you are a $90 billion under management venture fund, and your current AI use case is to draft emails. Silence.

Insanity is doing the same thing over and over, hoping for a different result. Yes, we need the money, just like my founder did. But we are going to try to resist the temptation. I’ve already been fired twice by venture investors. Three-time loser, they lock you up and throw away the key.

Rule No. 809: “Nothing is real,” The Beatles’ “Strawberry Fields Forever.”Senturia is a serial entrepreneur who invests in startups. Please email ideas to neil@askturing.ai