The notion that VCs back the riskiest of ventures that are creating entirely new industries is not true. VCs are cherry pickers.
A post at Tim Berry’s blog Up and Running, which reviews an interview with investor Naval Ravikant, highlights the conservative nature of VCs:
“I look for two things that are paramount above all:
- Great team. It’s obvious. It’s a tautology. Everybody says it. You have to be working with some of the best people in the industry you’re in.
- Huge market. Niche markets just don’t work because the first idea never works. You always have to change the idea, so you need room to maneuver in a big market.
Berry rightly took exception with the comment about niche markets:
Ravikant has more authority on this than I do, but his reference to niche markets bothers me a bit. I like niche markets in a world that is constantly splintering and dividing itself into finer and finer pieces. Some of the biggest markets there are started as niches: Facebook, for example, focused first on a few university campuses. Yahoo was a niche-the Internet-when it started. Starbucks was once a niche (gourmet coffee, affordable luxury) in the Northwest.
I also like innovative niches. But generally VCs do not. The truth is that VCs generally want proven people in proven markets — and really big markets, at that. This is neither good nor bad. It is just how VCs go about their business.
I just hate to see when entrepreneurs who do not meet these criteria waste time and energy chasing money that is probably out of their reach.
(Thanks to James Shewmaker for passing this along).