This series concludes with a hard look at why we need new sources of capital for founders
The final story in our premium Medium series from author (and software company founder) Luke Kanies explores the need for alternatives to our current system of venture capital. In Kanies’ words, our system looks stable, but most companies follow the same playbook: They try to get their investments to the magic number of $1 million in annual recurring revenue (ARR), raise an A round of funding, and keep on the funding train until you go public or go bust. This system forces founders to contort their companies to fit the funding schedule rather than discovering their own destinies. Kaines believes that instead of continuing to fund disruptors, VC will itself be disrupted with a better alternative.
Our new series takes a hard look at how venture capital works, and finds positives — and plenty of negatives.
Our latest Medium Premium series from author (and software company founder) Luke Kanies delves into the details of how venture capital firms work, from how they raise and return capital to their investors, to why the best companies tend to partner with the most successful investors, causing the gains to accumulate in the top firms. The series also focuses on venture’s lack of diversity, and argues for new approaches to fix what has become a glaring deficiency.
Kanies’ work does not pull punches. He warns founders against raising capital unless they truly understand the deal they are agreeing to: You must manage your company to grow toward a highly unlikely exit, and in doing so, you will likely run your company into the ground. Venture capital, he argues, is structured in such a way as to deliver trauma to everyone involved. After all, this is an industry built around making many bets, but expecting most to fail. The first series warns that If You Take Venture Capital, You’re Forcing Your Company To Exit, while the second piece explains how the spoils of success will keep accumulating at the top. The next installment, due early next week, examines the problem of diversity in the sector.
But all is not gloom and doom in the world of venture capital. The series will soon shift to how we might build a more open market around investment and company creation. That way, venture capital can include, enrich, and benefit all parts of the economy.
As I said in the first part of this series, I’ve noticed tendencies in female founders that I think partially answer the question, Why aren’t more female founders funded? None of these tendencies are “bad,” by the way. Most contribute to our collective strengths as founders and business-builders. But they speak to a mismatch in assumptions between investors and entrepreneurs. They should not be avoided at all costs but rather noticed and accounted for when necessary.
1. Women favor functionality over cool new shit; but many investors prefer cool new shit.