• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint

Pressure to Spend

In America, why did so many VCs press the get-big-fast model on entrepreneurs? Were they not aware of its limitations? That's unlikely. For decades, venture firms and investment banks had cautioned entrepreneurs about trying to do too much too fast, had doled out money sparingly, and imposed long waiting for access to the public market, in order to limit the natural ambition of entrepreneurs. But suddenly this all changed. In the mid-1990s when entrepreneurs went in to see venture firms, they often found themselves being told that they were far too modest in their requests for funding and in the pacing of their business plans. One reason for this is that as VCs raised larger funds—much of the money flowing in from corporate and public employee pension funds—they wanted to put larger investments into the same number of deals, and for this reason pressed spend-a-lot-fast programs on entrepreneurs.

I recall a meeting I attended in 1998 between some young entrepreneurs and a partner of a major venture firm. The entrepreneur, who was a seasoned executive from high technology, took in a business plan for an Internet training company calling for an initial investment of $3 million, and providing carefully measured growth for the company so that it would have time to perfect its business model. The venture partner replied that this was the wrong way to do the start-up, and insisted that he himself knew how it should be done. The entrepreneur should take $40 million in investment immediately, spending 80 percent of it on mass media advertising to build brand recognition; the remainder should be used to ramp up the organization much more quickly than the existing plan. The strategy the VC was promoting was simple and soon became very well-known to entrepreneurs—it was get-big-fast.


PREVIEW

                                                                          

Not a subscriber?

Start A Free Trial


  
  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint