One of the joys of being a researcher is that you get to read widely. Alongside the governance and research methodology material that comes across my screen every day, I see articles about related topics like philosophy, strategic management, start-ups and leadership.
One particular article about start-ups and venture capital caught my eye today. The WSJ correspondent cited new research from Harvard Business School that three out of every four VC-backed companies fail to return their investor's capital. That's right, three out of four. And that's the good news. The failure rate of non-VC-backed companies is worse.
"Venture capitalists make high-risk investments and expect some of them to fail, and entrepreneurs who raise venture capital often draw salaries". Why is this? To my arguably naive mind, expecting a business fail is just plain dumb. Why aren't VCs more discriminating? Surely, some more effort up front, to assess an opportunity more rigorously and ensure a robust strategy is selected, would make sense? Or is that akin to asking an adrenalin junkie to avoid high-risk pursuits? Perhaps it is, but more so, perhaps it's time for the VC community to adopt a less cavalier attitude with what is often other people's money in the first place. I suspect the failure rate associated with pushing unsustainable ideas would decline. And if that happened, we'd all be better off, I'm sure.
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.