Venture Capital is Broken...
“Hopes and dreams” are not a strategy; that’s at least what I repeated to myself on a weekly basis as I was building my first business. It turned into my signature phrase for every entrepreneur I’ve coached since. Hope is helpful, but it’s not a back-able or investable strategy. However, VC funds in particular continue to deploy “Hope” as their foundational strategy for investable business success. And it is widely accepted by institutional LP’s as a valid strategy in the Venture world. And it’s crazy, wasteful and not a good investment idea - even with portfolio theory at play.
Every Founder’s Pitch
Lying or Stupid?
I’ve sat in rooms where founders tell me they will 100x my money due to their “AI” (or whatever the flavor of the year is) idea. However, statistics show that only 1 of every 20 startups will successfully make it to a series A. So are they lying? Are they just stupid? Or, are they simply relying on “hopes and dreams”? Yet, traditional VC’s continue to deploy LP’s hard earned dollars to support the pipe dream of being the next Facebook, Uber, Tesla, you name the success story. I promise you, though, hope was NOT their strategy.
Basic business fundamentals are generally missing from these seed “hope” oriented ventures, yet overlooked by traditional VCs in the name of “We bet on the jockey, not the horse” or worse yet “we don’t do much diligence because we count on Portfolio Theory and only need 1 of 10 investments to hit 100x big”. But most businesses generally fail due to the lack of a well informed strategy aligned to exquisite execution on a week in and week out basis, which at its core is fundamental to operating a businesses and can’t be overlooked when deploying capital. Yet it is, by imploring the strategy of “Hope” aligned with “Dreams”. And it’s ubiquitous. Once you see it, you can’t unsee it and just shake your head.
4 of 5 founders are replaced
Founders Syndrome
Business schools such as Harvard University teach case studies on this. It’s called Founders Syndrome. It is super rare to find a founder who has a vision and who can also organize people, process and product to effectively execute on their vision. And it’s even rarer have them do it from startup all the way through scale. The transition from strategy to execution is fundamentally broken. And if by chance the founder is lucky enough to progress to some level of product / market fit and generate some revenue (and rarely profit) they progress to the next chapter of investment in Series A, B, etc.
Managers Dilemma
This is where Private Equity picks up. From here, it’s just as rare that the Founder remains the CEO. Typically, Managers Dilemma kicks in where the leadership team (if there is even one in place) struggles with too many competing priorities and not enough money to deploy. And, they struggle for growth and then for their next round of money.
Moneyball
At BambuVentures, we think it’s time to employ PE principles to the VC space. Stop spraying and praying that it will all work out and focus on singles, doubles and triples to borrow from Michael Lewis Moneyball and Billy Bean’s Athletic A’s. Focus on ensuring 100% of your investments at least hit a single. Maybe a double or triple, but don’t swing for the fences. Even Babe Ruth was one of the highest strike out artists ever. Begin with the end in mind, but focus on the in between steps. PreSeed. Seed. Series A, B. Focus on the things that get movement, not just motion.
BambuVentures
BambuVentures takes an unbiased approach to evaluating businesses on things that actually matter opposed to an Eccentric CEO, or a hype product.
Invest in Craftsmanship over Ideas
Craftsmanship
But.. VC is broken. Most VC investments fail because of the idea disease. Steve Jobs describes the idea disease well in this short video. The idea ignores the craftsmanship necessary to execute on building the product and taking it to market in a way that delights customers. “there is just a tremendous amount of craftsmanship in between a great idea and a great product”
BambuVentures focuses on the craftsmanship required and installs it where necessary.
Happy investing!!!