Venture capital can come at a high cost
DRAGON’S Den might make entertaining television, but it delivers a warped view of venture capitalism. A new paper from Coutts, The Price of Growth, suggests entrepreneurs have a much more distant relationship with venture capital than the one portrayed by the media.
The standout findings are:
■ 72 per cent of entrepreneurs do not believe venture capital is the best way for a business to realise its growth prospects
■ Only 19 per cent believe venture capital delivers sustainable growth
■ 24 per cent believe venture capital investment increases the risk of business failure
■ Only 37 per cent believe venture capital investors are interested in or understand entrepreneurs
■ Only 22 per cent of entrepreneurs believe that venture capital investors have a good reputation
Both entrepreneurs with experience of venture capital, as well as those without, prefer to grow their business through cash flow/profit. And for good reason. The interests of venture capitalists aren’t always completely aligned with the entrepreneur. The former might favour rapid over sustainable growth.
Nick Wheeler (profile right) has taken no outside investment, growing Charles Tyrwhitt through profit. He think “it’s longer and harder, but ultimately better, because you don’t end up being told what to do by a venture capitalist, which can happen.” Of course, venture capital can work wonders. Silicon Valley would be nothing without the risk capital available to scale up new tech ideas. But taking outside money can come at a cost and even if it’s on the table, it’s rational for many entrepreneurs to turn it down.
Twitter: Philip_Salter