Should You Build A Profitable Business?

Posted on Fri 01 November 2024 in General.

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Originally posted on Substack August 1, 2023

...and is venture capital illegal?

That subtitle was my original title but it seemed way too clickbaity, if that’s even a thing in an email newsletter?

“Venture investing is the answer to the question of what would happen if you staffed a bank's loan department with adrenaline junkies.”

A recently written, forthcoming paper authored by two students from Yeshiva University - Benjamin N. Cardozo School of Law titled Venture Predation puts forward the case for venture capital being illegal. As best I understand the argument, some tech startups use predatory pricing to suppress competition, which is technically illegal. The direct support from VC is the only way these companies are able to execute predatory pricing.

Wow, now that’s a big leap.

Take #1

VC has a massive influence on how we believe a tech business needs to be built today, even in the case you don’t intend to raise. They dominate the narrative. It’s simply in the air. You come up with an idea, you raise some VC money and then spend, spend until you win…or something. Our entire ecosystem relies on investors to direct us, guide us on how we should build companies.

The truth is that investor interests are not always(rarely?) aligned with the company builder. In some cases they are in direct opposition.

As a result, early stage founders too often look to VC for permission and validation to build a company.

“You won’t write me a cheque today fine investor sir….but do you love me? Do you love my idea? Should I continue? Am I worthy???”

Take #2

We all need to be fully aware that…..

“Venture capitalists and the investors who put money into their funds aren't necessarily looking for a successful product (though they wouldn't turn one down). For VCs and their limited partners, the most profitable endgame is a quick exit — either selling off the company or taking it public in an IPO.”

The point of the argument isn’t that Uber, WeWork and other companies may never truly generate real returns but that the VC’s involved did!

"The single most important fact in this paper is that Benchmark put $12 million into Uber and got $5.8 billion back”

At then end of the day, VC is simply one available tool for company building. For me, whether VC is actually illegal is besides the point. What we all need to understand is that if you choose to build your company on the VC path, you need to fully understand their interests and how well aligned they are to yours.

Another challenge we have, since we live in the shadow of VCs and Silicon Valley, is that many founders don't recognize that they are following a VC path without even having raised the capital.

There are many paths to building a business. If you’re curious about what other paths there are, checkout some of these resources: