Common Misconceptions About Venture Capital

In the world of entrepreneurship, raising venture capital money is often looked at as a success in and of itself. It’s the glitziest form of investment that gets the most attention and most play in the press because many VCs have become mini celebrities and the dollar amounts invested can be quite large.

However, venture investment isn’t right for the vast majority of companies and many brand new entrepreneurs have a lot of misconceptions that will hold them back as they attempt to build their new businesses.

The first misconception is that an unknown entrepreneur with no track-record of building successful businesses, no traction – or sometimes not even a product yet, and no VC connections is going to be able to easily get funding if their idea is good enough. Has this ever happened? Of course. Is it likely to happen? Definitely not.  Venture capitalists don’t hand out cash – or often even take a meeting with you – if there is no reason to believe you’ll succeed because they don’t know you, you don’t have a track record, and you can’t prove demand for your product because most new businesses fail.

Another common misconception is that you will still be in control of your business after taking on a VC investment. When you take an equity investment from a VC you’ve given up ownership and you’ve usually also given up board seats. This means you’re no longer in complete control. Additionally, you’ve committed to striving for a quick exit, whether or not that would have been your management strategy if you didn’t take on the money. You’re now beholden to your investors instead of a freedom-filled entrepreneur.

The third misconception is that VCs will be interested in anything less than exponential growth. You may have a great idea for a business that will experience modest growth and make great money for you, but that’s not a business a VC will be interested. VCs invest in bunches of companies and most of them fail, so they need their winners to carry the returns for their whole fund. That means that if your business doesn’t present the possibility for insanely rapid growth and 100x returns, you’re not looking in the right place if you’re looking for VC money.

Finally, the misconception I find most frustrating, is the idea that you can start looking for investment today and have a check by the end of the month. Raising venture capital is a long process that takes a lot of time and a lot of effort. You’re typically looking at an absolute minimum of 4 to 6 months to get an investment, usually longer. If you’re going to seek out venture capital you need to do so far in advance of when you need the cash. You can’t wait until the last minute and expect a VC to swoop in and save you without any time for evaluation and due diligence on his end.

Don’t be discouraged though. Just because VC might not be the right source of capital for your startup does not mean your business dreams are dead in the water. There are a number of other sources of capital that can get you going. Take a look back at my old funding sources video to get an idea of what might be a better fit for you and your business.

Now I want to hear from you. What other common misconceptions about raising venture capital have you heard? How did you fund your business? What was the toughest part of raising capital for you and how did you overcome it? Share your stories with us in the comments section below.

Also, if you liked what you heard or you think someone you know could benefit from this discussion, please like and share! 

Tips for Pitching Your Startup or Small Business to Investors

Many an entrepreneur dreams of raising money from a prominent venture capital firm or angel investor, but this type of funding is hard to come by. If your company is suitable for an equity investment and you’ve been lucky enough to land an audience with some investors, it’s important that you don’t blow your pitch if you want to make a good impression and get the funding you need.

Today’s video gives you some quick tips to make sure that your pitch impresses your potential investors so that you can get money you need to build your dream startup.

Mexico’s Entrepreneurial Ecosystem Interview 1 – Jorge Madrigal: Founder & CEO, Aventura

When I started to research the entrepreneurship scene in Mexico I immediately discovered Jorge Madrigal. He’s the Founder and CEO of Aventura, runs numerous startup events in Mexico City including Apptualizate and Tech Startup Nights, and has been interviewed for and contributed to The Next Web. Lucky for me, he’s also a friend of a friend of mine. When I asked for an intro from that friend I was informed that,

“Jorge is entrepreneurship in Mexico,”

so I was extremely excited that he agreed to let me pick his brain about the Mexican startup scene.

Naturally, the first thing I wanted to know was how Jorge got into the startup scene in Mexico in the first place. Born and raised in Mexico, Jorge went to the U.S. for college where he joined his school’s entrepreneurship club. The faculty adviser often spoke about how international students come to the U.S. and then never return to their home countries to “fix things.” Jorge didn’t want to be one of those people and believed that Mexico had a lot of potential, so he returned to Mexico looking for a job in private equity but ended up at an angel fund instead. Here he says he learned how far behind entrepreneurs in Mexico really were as compared to their counterparts in the U.S.

As Jorge sees it, Mexico has plenty of people with a lot of money, but they don’t necessarily want to invest it in helping someone else build a company. At the same time, U.S.-based investors are open to investment in Mexican companies, but there just isn’t enough deal flow to make them sit up and notice. Despite all of the hype about access to capital as a key issue, Jorge sees it differently. He says,

“If you have 20,50, 100 companies doing interesting things, money will come.”

When Jorge asks investors to come to Mexico City to work with his startups they’re happy to, but they ask him to deliver a certain number of interesting companies/potential deals for them within their investment niche and he simply can’t do it.

And the #1 reason there isn’t enough deal flow? According to Jorge, the most important thing lacking is a community of entrepreneurs and support for their endeavors. He doesn’t see people sharing and developing a sense of community despite major investment from the government including the creation of clusters, incubators, accelerators, etc. As Jorge sees it, these efforts are falling short because the government is attempting to copy other countries’ models but,

“Mexico has Mexican problems [to overcome] – not Chinese problems or U.S. problems – problems that are innate to Mexico. The biggest mistake,” according to Jorge,” is trying to do things exactly as they’re done in other countries.”

One of those “Mexican issues” that Jorge identifies is that entrepreneurship is not accepted as a legitimate career choice. In fact, it’s often seen as a euphemism for not having a job. This is partly because there are not enough Mexican entrepreneurs serving as role models to show how you can actually make a great living through entrepreneurship and partly because the Mexican family is more economically dependent on all of its members across multiple generations than in, say, the United States, so the decision to try a startup will likely affect an entire family, not just the individual entrepreneur. Plus, when a young person is still living with his/her parents (which, different from the U.S., is often true until s/he gets married) it can be much tougher to break from this disapproval and give a startup a chance.

Another issue that Jorge points out is the greater socio-economic stratification present in Mexican society. The networking opportunities, education, or money to be able to take the first steps into entrepreneurship aren’t readily available to everyone. This is one reason that all of the events Jorge hosts for current and aspiring entrepreneurs are free. A typical event like his, but hosted by another organization, would cost 700 – 1,000 pesos, he says. That’s less than $100 USD (at the high end), but for a young person making maybe $500-$700 USD per month, it’s a big expense if they’re not yet sure if entrepreneurship is right for them. In fact, Jorge says,

“For me, this whole entrepreneurship thing is really about creating more social mobility in Mexico.”

His efforts are certainly working. When Jorge began hosting events less than 2 years ago he was able to pull in just 45 attendees in a metropolitan area of well over 20 million people. Now, he’s able to attract more than 200 attendees per month. He’s also successfully helped students at 3 universities start entrepreneurship clubs to start getting young people thinking and talking about entrepreneurship and building the next generation of the entrepreneurship community.

So, with all of the efforts that Jorge and others are making to develop Mexico’s entrepreneurship community and all of the potential that the country has, where does he see the Mexico City startup scene in 5 – 10 years? “I don’t know,” he says.

“The thing I fear the most is …that our tech entrepreneurship community doesn’t get to the point that if the current promoters quit or leave the whole thing won’t die.”

But for now anyway, Jorge will hold down the fort in Mexico City trying to build a more robust tech startup ecosystem and to develop the next generation of Mexican entrepreneurs.


Do you have experience in the Mexico City startup scene? If so, please let me know your thoughts on what Jorge had to say in the comments sections below. Our next interview will be with Joshua Ford of Endeavor Mexico.