Why VCs Don’t Start Companies
Here’s a simple question: Venture Capitalists spend all their time examining new opportunities and new companies, and have the money to make these new ventures fly. Why then do they not start their own companies (which they can plan out in advance and own entirely) but instead invest in other people’s companies and share the wealth?Part of it is risk management, but that could be mitigated if necessary through sufficient diversification. The reality is that VCs suffer from the same problem that most MBA graduates face: “Jack of All Trades” Syndrome. Put simply, they know a little about a lot but lack real depth when it comes to a particular field. Starting a successful company involves solving a critical problem for a targeted group of customers. To be able to do that, you have to understand the customer extremely well, and be an expert in their interests, needs and problems.
Gonzalo G. Cotorruelo on December 6th, 2005 11:18 am
That’s the same reason why consultants are not the ones who should advise a company in hard fields, isn’t it?
Aravind on December 7th, 2005 1:14 am
I do agree with you. I am a manufacturer of specific pollution control equipment for engineering industries and whenever i talk to some VC for funding, because of their limited exposure to technicalities, they hesitate to offer assistance and appreciate the scope of the businesss even if we assure the rate of return is going to be really worth investing.
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