Umair is wrong: Entrepreneurs are the problem, not VCs | Hacker News Reader

Umair is wrong: Entrepreneurs are the problem, not VCs

thisisgoingtobebig.com

15 pointsastrec4 comments

pg has commented on this in the past when asked, "Why does YC almost entirely fund web 2.0 startups when there are so many other areas of technology to explore?" And his answer was, basically, "That's what we see." Though he followed up with, "And that's what we know how to judge." Specifically in the context of, why they don't fund enterprise startups, when there's so much money to be made there.

Hold on a second.

When someone says, "venture capital is broken" what they're really saying is that there is a systematic problem with the way venture capital is allocated or how risk is managed. As a financial intermediary, that's basically what a VC does: allocate capital and manage risk.

VCs have sole responsibility for investing and managing the capital that they raise for which they get paid handsomely (often 2% of AuM annually and 20% of profits, if any). Entrepreneurs have no control over and get no remuneration for allocating capital or managing risk.

So what if there are too many "me too" entrepreneurs seeking funding. So what if there are a bunch of wacko founders pitching "hover boards." So what if innovation is dead. If VCs can't allocate capital or manage risk then they should decline to invest and return the money to their limited parters.

Stop blaming entrepreneurs for something that isn't their fault. There's plenty enough to blame them for that is their fault.

Just from personal experience as an entrepreneur this comment is spot on. Actively looking for funding for most smaller startups is a waste of time - success-oriented entrepreneurs are always better off just starting the business and pushing it to profitability on their own. At that point there is not usually a scarcity of ways to get additional capital, because people will clamber over each other get a piece of a profitable growing company.

But at that point there is little sense in taking funding unless: (1) the business model expects exponential growth in costs, or (2) the founder wants to diversify risk or stop eating ramen by trading some equity for immediate cash. So self-selection is working against the interests of venture capitalists. It is bringing them into contact with people who spend significant amounts of cash to focus on getting funding instead of actually rolling out a business.

There are plenty of opportunities out there. If I can see them and the VC industry can't that is their problem and it is their job to solve. One simple case in point: how many times has a VC actively solicited pitches from people on Hacker News? I can't think of a single case. Yet the comment section on Umir's site is filled with VCs whining about the lack of decent business plans? Wow.

The issue is on both sides - there are both "lemming" entrepreneurs and "lemming" vcs who deserve not to be funded/funding others and there needs not to be finger pointing.

Reply on news.ycombinator.com