Reprint: R1305E
As the director of private equity for the Kauffman Foundation and a former venture capitalist, Mulcahy has observed the industry closely. In 2012 she and two Kauffman colleagues published a report titled “We Have Met the Enemy…and He Is Us,” based on a comprehensive analysis of the foundation’s more than 20 years of experience investing in nearly 100 VC funds. Her research and experience led her to advise aspiring entrepreneurs against falling victim to these common myths about venture capital:
1. It’s the primary source of start-up funding. (Actually, angel investors fund 16 times as many companies, and in 2012 more than 18,000 entrepreneurs raised nearly $320 million through a single crowdfunding site.)
2. VCs take big risks with start-ups. (Often they’re insulated against risk by hefty annual fee streams.)
3. Most VCs offer great advice and mentoring. (To avoid disappointment on this front, ask the CEOs of other portfolio companies how they’d rate the firm.)
4. VC generates spectacular returns. (Since 1997 less cash has been returned to VC investors than they have invested.)
5. Bigger is better. (Research shows that fund performance declines as fund size increases above $250 million.)
6. VCs are innovators. (Apparently not. The innovation is coming from online platforms such as AngelList and SecondMarket.)
