Opinion: Startups should stop genuflecting for private school-educated VCs

My favourite movie genre is entrepreneurial true crime. Documentary or dramatised, I will watch every version you want to make about Fyre Festival, Nxivm, or WeWork.

I was recently watching Bitconned – a documentary about a crypto scam – and at the end, there was a panel that said:

“An estimated $4.9 billion was invested into crypto startups in 2017. Studies now show that up to 78% of these were scams.”

This backs what I’m always saying: venture capitalists don’t know shit about business. They couldn’t pick a successful venture if their lives depended on it.

Seventy-five percent of venture-backed companies never return any money to investors.

Less than 5% break even.

And less than 1% become the unicorns on pedestals.

VCs aren’t hired based on their business knowledge or ability to make funding decisions. They’re hired for their ability to cash in on their private school buddies, and mummy and daddy’s friends, in order to raise money for each funding round.

The basic funnel to get into VC looks something like this:

Go to an elite private school —–> Study finance —-> Spend years in investment banking —-> VC job.

These guys have never built a business. All of their business knowledge is analytical, garnered from MBAs and banking. As Henry Rollins says:

“Knowledge without mileage is bullshit.”

VC firms will claim there are ‘entrepreneurs’ in their ranks, but these are typically people who started their own VC firm, which then got acquired.

VCs provide very little value. They’re the middleman in a transaction. 

They’re incredibly biased and openly hostile to anyone who is different from them. VC firms will claim “oh but we’ve got women so we’re diverse!” when in reality the women who work at VC firms went to the same elite private schools. That’s not diversity – it’s the exact same way of thinking.

I’m often telling people (particularly women, people of colour, and the LGBTQI+ community) to divest from the system — but what does that look like?

Here’s an alternative process.

Step 1: Bootstrap

Bootstrapping is hard. I’ve done it for 18 years, I understand its difficulties and its wins. But the reality is that 42% of startups fail because there was never a market for their product. Getting out and proving market fit, while also making the much-needed funds to keep your business afloat, just makes sense. When (if) you do want to raise, you do so from a place of strength. You’re not begging for money for an idea.

Bootstrapping requires creativity. There are some products that require a large amount of investment before they can be sold. I’ve dealt with this a lot over the years, and there’s always a way we can come up with some kind of an offer that not only makes us money but primes an audience to buy when the product is ready to go.

The hard part of bootstrapping is that, sure, it’s work. But it can also be brutal. You’re going to get real feedback. It’s one thing for people to say they love your idea – it’s another thing for people to buy your product.

Step 2: Find your own private investors

There are definite benefits to investment but not all investors are equal. And not all investments are cash. Obviously, the investment of VC is the money, but in the best possible scenario, you’re not just getting the money you need — you’re getting a mentor who believes in your vision.

In comparison with VC failures, companies funded on Shark Tank have a 94% success rate. Love them or hate them, the entrepreneurs on Shark Tank have run businesses. They have a skillset of growing companies, not of distributing money.

You don’t have to go on Shark Tank – successful people want to give back. They’re always looking for opportunities to invest and mentor. You just have to think strategically about expanding your network in these directions.

Step 3: Equity crowdfunding

We’re seeing a lot of companies now shift towards this. Platforms like Birchal allow companies to raise money by working directly with retail and sophisticated investors.

Of course, you don’t see VCs talking about this – it’s a disruption of their industry.

Equity crowdfunding isn’t going to be appropriate for all businesses. It’s definitely more successful with mass-market products.

The largest raises to date on Birchal have been around the $3 million mark, which might not be as large as the crazy numbers we hear about with venture capital. But used correctly, that kind of money can take you a long way.

One of the biggest benefits of equity crowdfunding is that you’re not selling huge chunks of your business to a single investor whose ideas may not be the same as yours. You do have a responsibility to your group of investors, of course – but it’s a different game to being under the thumb of venture capitalists.

Step 4: Bring others with you

I cannot pass up the opportunity to hit this hard. As a woman who grew up on a housing commission estate in Brisbane, who did not go to fancy private schools, and who had to build a network from scratch when she started, I understand the battle.

I do everything I can to bring the women around me with me. Whether that’s other entrepreneurs or just amazing women I meet in my day-to-day life.

I am always looking for an opportunity to lift other women. Please. Do likewise. Because that’s the only way we change the stats. 

This idea that venture capital is required to create a great business might have been true 20 years ago when connecting with potential investors was more complicated, but in 2024 it’s a mutual hallucination — one we can opt out of at any moment.

Venture capitalists don’t have magical skills when it comes to choosing and supporting businesses – in fact the hard data tells us they’re mostly guessing, and that they can’t even do that well.

We can do better than worshipping at the altar of private school investment banking jocks. Let’s commit to building our own tables, instead of begging them for a seat at theirs. 

Leela Cosgrove is the founder and CEO of training and education company Strategic Anarchy and sales tech company Iron Cage.