If you haven’t yet seen it, Newsweek put out a pretty controversial piece last week. Controversial in the sense that it just made a lot of people angry (specifically around the cover). I read the piece. The cover doesn’t do the piece justice (it is for the most part fairly well done, or at least better than their previous Bitcoin stuff which was a hot mess). But I’m not here to talk about the article, I am not knowledgeable enough on the topic of Silicon Valley and women, I’ve only been to SF a handful of times so I don’t know what really goes on (although I don’t think it is good). What I am here to write about is the biggest misconception about venture capital that I saw happen when I read the Newsweek article.



So what’s the misconception, you ask?

The misconception is that people think venture capitalists are in the business to invest in any company that will be successful. THEY ARE NOT. The truth is that venture capitalists are in the business to invest in companies that are successful AND make BILLIONS in revenue. This is a very important distinction.

I read the following quote from one of the founders of GlassBreakers in the Newsweek article:

“Glassbreakers is a $100 million-a-year opportunity for investors…”

Glassbreakers could be a really great business and investors might make a lot of money, but when your pitch is that you are a $100 million-a-year opportunity you immediately CANNOT raise venture capital. You’ve just boxed yourself out. Venture capitalists invest in billions-a-year opportunities, 100M-a-year doesn’t cut it.

And that’s the thing. VC rejection isn’t usually personal. VC rejection is straight up, they are looking for crazy billion dollar opportunities. A big amount of the investments they make will not end up being billion dollar companies, HOWEVER, the companies that pitch and raise money are at minimum positioning themselves as potential billion dollar companies (not million dollar companies). Usually a small group of successful investments make up for the companies that don’t make the billion dollar jump.

I think the misconception comes from the fact that many of the companies end up not being billion dollar companies, so people assume, ah well, venture capitalists are investing in companies that sold for 100M, so maybe they want to invest in my business that has the potential to be 100M. It is just wrong and a big misconception. Whatever race, gender, ethnicity you are - you need to learn how to play the game - unless your pitch positions you as a potential billion dollar company (and try to justify why you can get there), you are immediately shit out of luck.

This isn’t me saying that sexism or ageism or racism isn’t happening. I’m sure it is. I’ve seen it. What I am saying is that raising venture capital is a very specific game. Learning the game goes hand in hand with raising venture capital. If you really want to raise venture capital, learn how they actually look to invest. And if they aren’t biting for your business it means you need to either rethink how you are pitching yourself, the market you are going after or go for money from different routes in the meantime until you can prove it more (crowd-funding, high-net worth individuals, bank loans, etc.)

What are other misconceptions about venture capital that you find?

P.S. This post isn’t meaning to excuse bad behavior from VC’s but rather try to add some clarity on the game of raising Venture Capital.