Don’t Rely on VCs by Szymon Janiak

The post was originally published in Polish on Szymon’s LinkedIn profile. Szymon kindly agreed to republish what we think is of great value to our readers.

90% of VC funds bring no value except money, and 70% do more harm than good to startups with their gilded advice. Despite this, most startups claim to go to funds for… knowledge.

Is it a matter of lacking experience in our region and is it better in the West? Probably not, given the fact that the iconoclastic statement is a paraphrase of the statement of Vinod Khosla, who invests mainly in the United States and has USD 15B under management.

For me, it is surprising that people still evaluate funds not through the prism of data and facts, but through their sales narrative. However, when this sweet bubble of stories about VC successes finally bursts, you risk getting yourself some cognitive dissonance. Suddenly, it turns out that most of them either don’t earn at all or bring returns lower than those offered by generally available financial instruments. That despite extremely selective investments in 1% of companies, a relatively large number of them still fail. That these beautiful stories, changing case by case, are the achievements of a very narrow group of funds and startups, on which the entire industry is riding, and the rest are doing very mediocrely.

To be clear – the point here is not to discredit the industry, but to approach it with caution and distance, not unlike any other. Today, an inexperienced startup often looks at a VC guy as some kind of hero. After all, they are the ones who invest hundreds of millions, they reached the top, so it’s worth listening to them, isn’t it?

Meanwhile, it may simply be someone who has a great network and the gift of persuasion and has never had any success in business themselves. In fact, the essence of their work is intermediation – to raise capital from wealthy entrepreneurs to give it to novice entrepreneurs, and if they succeed – to charge their commission. Yes, I know, this is painfully simplified. But seeing how an average VC devotes about 2 hours a month to a portfolio company, mainly asking about what’s going on – one must admit that there is something to it.

So if your startup meets the VC criteria and you are convinced that you want to follow this path – go to top funds for money. If it doesn’t work out and you only have mediocre offers on the table – think twice. The decision whether to delegate the making of key strategic decisions in your company to someone who has often never run a company in their lives and has only seen it from the level of an excel sheet can have fateful consequences. Also, stop deluding yourself that the fund will tell you how to do business – you are the one who runs the company and you are responsible for the results.

 Remember that startups can also do perfectly well without funds. However, it doesn’t work the other way around – that’s saying something.

Believe in yourself. Have courage. And get to work.

The comment section had to add:

Startups say so because that’s what VCs like to hear.

– Anna Streżyńska, CEO at MC2 Innovations, Chairperson of Quantum Technologies Committee at the Polish Chamber of Commerce, ex-Minister of Digital Transformation of Poland

A mature personality does not notoriously go to their neighbor to borrow sugar for tea. They will rather drink sugar-free tea. An immature personality likes sweet tea and likes to borrow sugar wherever possible. They even forget about their own sugar bowl. The world of business built on the sugar analogy is predominantly a world of disillusionment and discovering false, immature, but clever people. This is pure psychology of counting money, as well as handling it. And many people do have a serious problem with handling money. The clever make money on the naïve, not on adding value. We need psychology with business. Healthy psychology, not the psychology of lies and advertising that tell fairy tales for adults.

– Zenon Waldemar Dudek, President at ERANOS Foundation Institute of Psychology and Culture

The 70% is not surprising at all, seeing how most fund representatives are people with no experience in building companies and certainly without experience in finding product-market fit or scaling. 

Unfortunately, for the same reason, funds prefer to invest in ‘cheap’ youth teams – because several people in history have achieved gigantic successes starting a business at university. And then such ‘green’ teams have no idea what to do with this money, so they ask funds for guidance, hoping that it will reduce the dimension of dissatisfaction at the moment of inevitable defeat.

– Piotr Żygadło, CEO at Orome AI