Excellent article by VC Fred Wilson on why venture
backed companies fail. Some select quotes include:

So why do venture investments fail? Well if I look at the ones I’ve been involved in (including deals my partners led but where I shared the pain of loss) there are two primary reasons.

1) It was a dumb idea and we realized it early on and killed the investment. I’ve only been involved in one investment in this category personally although I’ve lived through a bunch like this over the years in the partnerships I’ve been in.

2) It was a decent idea but directionally incorrect, it was hugely overfunded, the burn rate was taken to levels way beyond reason, and it became impossible to adapt the business in a financially viable manner.

And lastly, he adds some good advice in my opinion:

Regardless of whether you have taken venture capital or not, capital efficiency and bootstrapping are critical values. You must keep your burn rate low until you can show without a shadow of a doubt that you have a business model that works, can be operated profitably and is ready to be scaled. Then and only then should you step on the gas.

For the complete article, click the link below.

 

Submitted: Nov 30, 2007    Views: 443    Comments: 0    Likes: 4   


View Article: http://www.unionsquareventures.com/2007/11/why_early_stage.html


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