If you got a startup with a brilliant idea and you think that all you need is a bit of VC money to get off the ground, think again. According to a recent study, about 41% of startups believe that they qualify for venture capital money. At the same time, VCs indicate that they go through about a hundred of business plans to make one deal. That is, fewer than 1% of startups are considered as venture worthy by the money people.
In other words, the businesses grossly overestimate their ability to raise capital. “Grossly overestimate” is probably not good enough to describe the 41% vs 1% discrepancy.
And if you are not an average native Silicon Valley grad (like me), the chances are even worse. Says Vivek Wadhwa, former entrepreneur: Despite having co-founded a software company that we took from startup to $120m in revenue; profitability; and IPO in a record five years, I couldn’t get Research Triangle Park (RTP) VCs to even return my phone calls when I was ready to start my second venture. I later found out why: “my people” <Indians> were great at mathematics and made great engineers, but didn’t make great CEOs — “we” didn’t have the necessary management skills, didn’t like diluting our equity ownership by raising venture capital, and couldn’t “fit” into the rough-and-tough American business-management culture. That’s what one RTP VC told me over lunch, to explain why his firm wasn’t inviting me to pitch my business plan. They were very busy and had to be selective in who they met.