Venture Capital as Start-up Olympics

What would entrepreneurship be without venture capital? Last Thursday Congressman Sandy Levin (D-Michigan) introduced the bill that venture capitalists were dreading: A higher tax on their profits. That, if it actually passes, would hardly kill venture capital, much less entrepreneurship. It might hurt. It would be bad economic policy, or perhaps more accurately, substituting demagoguery for economic policy.

I’ll be following that, but I’m not making predictions, just watching. In the meantime, it’s a reminder of the role venture capital plays. Venture capital is to start-ups what Olympics are to athletics.

In one of the venture contests I judged this Spring, the team said they were going to get $300K in  “venture capital” (VC) on their hypothetical way to business success. This is no big deal but it bothered me nonetheless. MBAs should know the difference. Very few start-ups are financed by venture capital. Most need something else.

Consider the numbers.  The National Venture Capital Association (NVCA) reports that there were only 3,591 VC deals in this country last year. They amounted to a $26 billion investment, an average of  $7.36 million per deal.  Venture capital money is invested for the money’s owners by professional investors in venture capital firms. There are about 850 of those firms in the U.S.

I do write about venture capital in this blog because the VCs are at the top of the pyramid. They point the way. Those 3,591 VC deals are the high-end of start-ups and entrepreneurship in this country. The U.S. VC community is the high-end of world venture investment, too. That’s an interesting trend, because many of the U.S. VCs are already dealing with China, Europe, and Asian opportunities as well.

I also write a lot about the rest of the start-up world, what I might call the real world of getting your business started without venture capital. There are at least 25 Alternatives To Venture Capital listed by businessfund.com last week.  Those include a lot of the more well-known ones that I write about frequently, such as angel investors and friends and family. And bootstrapping, my personal favorite.

So please don’t read this post as about that tax bill and what it means. It just reminded me about the alternatives to venture capital.