I recently had the chance to sit down with Gil Penchina - one of the top investors and operators in the Silicon Valley. Gil is known for being critical to the early success of eBay, and was subsequently the CEO of Wikia.com and co-founder of Fastly.

Gil parlayed his success as an operator to become a pioneer in the angel investing business - he was one of the first investors on Angel List Syndicates  You can follow his  investing here.

I sat down with Gil for a very candid interview on the state of venture investing, and here is what he had to say:

Sunil Rajaraman: You are a prolific investor, but you are generally anti-taking venture capital money - why is that?

Gil Penchina: Most companies are not built to take on venture capital money. The main reason for this is that VCs will expect you to grow at an artificially high growth rate that's probably not sustainable for your business.

When you grow to fast you do unnatural things to 5x revenue every year, and that's not how 99.9 percent of businesses are built. Why would you put yourself under the gun like that as an entrepreneur?

The better way to build a business is through using actual working capital generated from actual profits.

What changes about the dynamics of a company after they take VC money?

Other things change immediately - like governance. Do you really want to have to answer to a board every single time you make a major strategic decision?

That kind of infrastructure is not meant for most entrepreneurs. Having more cooks in the kitchen is generally terrible for your business. Plus you end up with a one percent chance that you can have a huge outcome, because VCs are going to expect that you return a certain amount before you exit.

Wouldn't you, as an entrepreneur, rather have total control/grow a profitable business and make all of the money? Would you rather have a chance to be rich, or would you rather be the king of your own castle?

It's honestly not clear there is a right answer.

Is there a bubble right now?

Too much money has gone into late stage deals. There have been a ton of companies started on the premise that they can grow as venture scale businesses, but best case, they are mom and pop businesses.

Also - unit economics, a term we are hearing a lot more about now that things are tightening up - they need to be fundamentally fixed in a lot of businesses (not just on-demand companies).

Any parting thoughts?

Don't take venture capital money if you don't have to.

I urge every entrepreneur starting a business - whether it's in tech, or not, to take the decision much more seriously. You are putting yourself against the wall immediately if you take VC money on too early.

Don't make that mistake, it could fundamentally screw up your business in ways that are totally irreversible. That said - if you do, look for former entrepreneurs and angels who at least understand what you'll be going through.  Or reach out to me on LinkedIn.

Published on: Jun 30, 2016