Revitalizing the VC Business Model: Strategies for Enhanced Support and Success
In a recent interview on 20VC with one of The General Partnership Founders Phin Barnes, the broken venture capital (VC) business model was discussed, highlighting the need for change and proposing potential solutions. The conversation delved into the limitations of the traditional VC model and the reasons why it fails to fully support entrepreneurs. Based on the insights shared, here are some key takeaways and potential solutions to fix the broken VC business model.
Lack of Focus and Niche Expertise
One of the primary issues with the VC model is its lack of focus and niche expertise. Many VC firms try to cover a wide range of industries and stages, diluting their effectiveness and limiting their ability to truly understand and support founders. The interview emphasized the power of focusing on a niche and becoming an expert in that specific area. By narrowing their focus, VCs can better understand the needs of founders in that industry, provide tailored guidance, and make more informed investment decisions.
I don’t personally see this first hand but I do feel this as a Product Manager because the Product Team is usually the one that picks up the pieces when the strategic direction of the company doesn’t meet industry standards. When this happens the Product Team usually brings up gaps in the product direction and risks to leadership teams. This is probably why most startups lean so heavily on Product Managers for their growth. This is a fine strategy but it requires you to find rockstar PMs which are rare.
Overemphasis on Growth and Short-Term Returns
The interview also touched upon the overemphasis on growth and short-term returns in the VC industry. This often leads to a focus on quick exits and unsustainable growth, neglecting the long-term success and sustainability of startups. Phin stressed the importance of building a life that integrates work and personal values, rather than solely chasing financial gains. VCs should prioritize supporting founders in creating balanced and meaningful lives, where work is not the sole defining factor of success.
When I’ve worked for startups I’ve felt this as a Product Manger and this has caused the lack of emphasis on customer obsession and retention and an overemphasis on vanity metrics like installs and revenue which causes short sighted strategy and leads to problematic infrastructure and upset customers.
The Power of Founder Detection
Founder detection emerged as a critical aspect of successful VC investing. The interview highlighted the importance of understanding a founder's priorities, motivations, and operating style. By asking the right questions and delving into the founder's mindset, VCs can gain valuable insights into their ability to navigate challenges and lead their companies effectively. This deeper understanding can help VCs make more informed investment decisions and build stronger partnerships with founders.
As a PM interviewing or working for a startup it’s vitally important you understand what a good founder looks like because you will be impacted more than others on their competancy executing and delivering customer value. If they don’t have that skillset it will be your responsibility to help fill that gap as a PM as it’s critical for growth and finding product market fit.
Solutions to Fix the VC Business Model
Focus on Niche Expertise: VC firms should consider narrowing their focus to specific industries or stages, allowing them to become true experts in those areas. This specialization enables them to provide more tailored support and make better-informed investment decisions.
Long-Term Success Over Short-Term Gains: VCs should shift their focus from immediate returns to the long-term success and sustainability of startups. This requires supporting founders in building balanced lives and meaningful businesses, rather than solely chasing rapid growth and quick exits.
Founder-Centric Approach: Founder detection should be a core focus for VCs. By understanding a founder's priorities, motivations, and operating style, VCs can align their support and make more effective investment decisions. Investing in the right founders can significantly increase the chances of success for both the startup and the VC firm.
Collaboration and Partnership: VCs should aim to build strong partnerships with founders, emphasizing collaboration and long-term support. This involves providing not only financial capital but also mentorship, guidance, and access to networks and resources to help founders navigate challenges and scale their businesses.
By adopting these solutions, the broken VC business model can be transformed into a more founder-centric, sustainable, and effective ecosystem. VCs that prioritize niche expertise, long-term success, founder detection, and collaborative partnerships will have a greater impact on the success of startups and contribute to the overall growth and innovation of the venture capital industry.
