Venture capital is the worst form of funding, except all the others

Edward Norton is one of my favorite actors, but his comments at Brilliant Minds, as shared by Lise and Caroline, about the old VC model of spray and pray and high growth not working for meaningful companies has lingered in my mind since reading it earlier today.

For cash-poor founders Silicon Valley-style venture capital is the worst form of funding, except all the others. It is a funding type that fits a specific type of companies (that can be meaningful), but for that type of companies it is 10x better for founders.

Venture capital sometimes is held up as an example of something that isn’t working. That critique is sometimes fair, not least as venture capital is not a fit for many companies (three reasons being perceived as a small company, growing slowly and being very capital intensive). However, something that is small and is growing slowly is unfortunately unlikely to make a significant positive impact on the world.

Sometimes the critique is given by someone who is selling a new style of investment to investors and is using the weaknesses of traditional venture capital as examples of the status quo that needs to be changed.

However, one should remember that venture capital has an amazing track record of funding companies that have made a significant positive impact on the world at scale. And doing so in a way that has made money for founders, employees and fund investors like pension funds, foundations and endowments. And I think it will continue to do so.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

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