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Reducing friction in venture creation
Why we need to reflect on the fundraising process to optimize for innovation
Since so many entrepreneurs with ideas for how to solve challenges facing humanity seek out Venture Capital (VC) as a source of funding, reflecting on VC fundraising process and its inefficiencies is important if we would like to improve their odds of success. As Roelof Botha of Sequoia wrote in his announcement of Sequoia’s own transition into a permanent capital fund, “Ironically, innovations in venture capital haven’t kept pace with the companies we serve.”
Innovation, of course, requires reflection and acknowledgement of limitations. One place to get a good overview of the distortions the current VC fundraising model creates in the innovation ecosystem is a paper that basically serves as an executive summary of a book by Darek Klonowski, “How venture capitalists may impair the entrepreneurial ecosystem throughout their investment process.”
Klonowski’s main case is that the VC fundraising process is so deeply flawed due to their general lack of professional experience managing companies and R&D processes, and their short-term liquidity horizon (which he compares to “pump and dump.”) The two of these make for a toxic cocktail, since the incentive for the VC is to make decisions based on cognitive…
