Venture Capital Myths pt 3: VCs will Indefinitely Fund Startups

So the third myth that I need to debunk about venture capital funds is that VCs just keep giving money.

Once you raise a first check, they'll indefinitely fund you. The thing that you need to know about this is, fortunately, unfortunately, that's not the case.

I say fortunately, because VCs have a finite amount of money. And that means, when they're going to invest it or deploy, it needs to be in an opportunity that they anticipate can return the fund. And it's fortunate because it keeps everyone highly competitive, trying their best and pushing forward the ecosystem toward innovation. If everyone just got money, no matter what they did, we probably would not have some very good businesses.

The other thing about why it is NOT the case that VCs will indefinitely fund a startup is because, as I mentioned before, we have this finite pool of capital where we exchange ownership and companies for cash until we're out of this pool of capital. And then we continue and can sustain by when we sell those equity positions and startups for cash back, and distribute those to our limited partners. When they get good returns, we can raise another fund.

The thing is, we need to be investing in high-growth businesses that can actually return the fund, in order to give our limited partners their money back and in order to have a sustainable business ourself. It's not a non-profit. We're doing this for cash. We're doing this to remain in business just like you.

And it is of a benefit to the founders because it keeps everyone performing at their best knowing that nothing is guaranteed. That every new day, regardless of the personal relationship, regardless of how good of friends you are with the venture capital funds, with the LPs, etc.

You need to keep doing your best and you need to keep your company ahead of it.