A tale of two venture capital visions. On one hand, someone at TechCrunch has argued that WeWork proves venture capital works because it's all about taking risks in the search for major rewords. On the other, the latest experience of VC-backed Peloton--or of Uber or Lyft--shows that the growth-over-all mentality fueled by venture money may not be necessarily wise.
The company's IPO opened at the high end of its target range, $29, on Thursday. The close on Friday: $25.76. A cold reception. But maybe there was a reason, with revenue that more than doubled from 2018 to 2019 accompanied by losses that jumped by more than four times.
Maybe people are decreasingly inclined to put their money on companies that seem destined to lose it because they've finally wised up to being suckers.
For the VC-inclined, that might summon forth a message of "How quaint." But, really, it's time to reconsider the direction VCs are taking companies and to consider whether your business should follow.
I recently spoke to a Silicon Valley early-stage investor who has little good to say of venture capital companies. He thinks that the madness about scaling up and driving large valuations is about their own needs to get some big hits and then cash out, leaving everyone else to pick up the pieces if things don't work out.
That is in direct contrast to the goal of entrepreneurs, which is typically to build a strong company and satisfying result.
Quick scaling problems
Creating and building a business is a difficult task already. To attempt massive scaling to push out potential competitors and attract the number of customers a VC and many growth-oriented investors demand is crazy hard.
Challenges can be good, and difficulty isn't necessarily a bad thing. But you should step back and ask yourself whether this is the type of problem that is useful or useless in the light of what you want to achieve. If you want to be fair to your customers, you have to learn how to provide adequate service and support, not just attract a lot of people.
Being decent to employees
To be a good entrepreneur means also learning how to support and reward all the people who help you attain your goal. Employees will make or break your efforts and deserve a reward for taking the chance. That is often some equity stake.
But with VCs, most everyone gets tied up when a stock goes public, which can be fine if the business is sustainable. When the shares start sliding immediately, the chances to obtain promised rewards become distant.
Bad for your rep
This may not be your only business and the results will follow you, like actors who have a flop or two and then find it more difficult to get future parts. Was the company uncomfortably close to being a pump and dump, where the push for high valuations is really intended to get the VC hop off with a profit if possible? The next time you look for money to fund an idea, it may be harder to find.