Venture Capital Myths pt 2: VC Funding is Free Money

The second myth debunk is that VC funding is free money.

Please, it is not. It's more expensive than debt. It's more expensive than the money from your customers. As a wise woman once said, the founder of SheCluded actually was the first woman to say this, the sweetest money you will ever know is the money from your customers.

Why? Because you don't have to pay it back. Because as soon as you exchange the product and you get the cash, It's finished. It's your money. The problem with venture capital money is we give you a dollar and we don't expect a dollar back. We'll give you time to make the returns. 5 years, 10 years to give us money back. We're not expecting $1 or even $2 or even $10.

I want 1,000 times my money starting. Venture capital funds, the way that it's structured is we anticipate most all of our companies to fail or return 1x or 2x. Those are not the performers. Those are not the ones that we are targeting in the fund.

What we are looking for are The outliers. The ones we give a dollar to and they give us 1,000 back. How do you think the investors in Uber, in Airbnb, in Paystack - what our return was from Paystack? We didn't give them a check and just ask for principal. What we expect every time we deploy capital in a company is that they can return the entire vehicle that we have for investment.

Our first fund was $10 million. Each company that we invested in from that vehicle, we expected to return $10 million. Listen very well and think about this before you take VC money. If you can build a profitable business without raising outside capital. Every dollar you get to keep is yours and yours alone.

The ownership, when you decide to sell that company, is yours and yours alone. You get to keep the whole thing. With debt, whatever interest rate you agree on, that's the only money that you have to pay outside of principal. But with venture capital, you pay ownership in the business upon exit. So if your company exits at a billion dollars or your company exits at a hundred million dollars, whatever percentage that investor has is the percentage you have to return back to them.

And it's permanent capital. These are people who are fixed inside of your business until you sell their position until they agree to sell their position.

No say, I not sell you ooo.