Venture capital interests not always in alignment with companies

Investors have a myriad of interests unrelated to individual startups.
Investors have a myriad of interests unrelated to individual startups.

Startup executives need to be careful when deciding whether to seek funding from venture capital firms. Many of these organizations will only support companies that they expect to grow significantly – experts estimate a company must make at least $25 million in the first five years – in order to even be considered for funding.

From there, the startup must prove its long-term viability, as investors are not interested in supporting projects that fail within a few years. Business leaders who work with venture capital firms should also keep in mind that venture capitalists have a entire portfolio of investments and may not necessarily place particular startups at the top of their list of priorities.

"In some ways, a venture capitalist is like a general who sends soldiers to attack a beach while hanging back himself," editor Eric Schurenberg wrote this week. "He knows that some soldiers will get shot to enable a few to get through. In this system, entrepreneurs are capitalism's cannon fodder. That's not a judgment. It's just the way it works."

Executives need to keep this fact in mind at all times, and not expect a venture capitalist to bail them out of problem areas or continue to pour funding into a floundering organization. To prevent a fractured relationship with a venture capital firm from decimating a startup, executives should try to find alternative funding sources for their companies.

By identifying multiple investors, a startup could be better shielded if they fail to receive venture capital funding or if one of these investors withdraws support for the business. Through a global executive search, managed by an executive search firm, startups may hire a creative CEO with access to or knowledge of multiple investment streams.