As more and more people are dropping whatever they are doing to start their own company, established Venture Capital process is becoming eerily similar to college admissions. While I was lucky enough to survive the gauntlet that is university applications, I didn’t make it out completely unscathed. Most students who go through the overly stressful process agree that applying to schools has become much more than trying to figure out where you will continue your education. What I’m afraid of, is that a very similar thing is happening with VC firms.
On their most basic level, both top VC’s and top universities promise to give people the resources and mentorship necessary for them reach their full potential. Each one offers a slightly different environment and way of providing their candidates what they need. In return, they are hoping that the people they “accept” will do amazingly well and in turn bring money back to the institution (via the rising value of equity/donations back to the school). Both also proudly boost frighteningly low admittance rates. But overall, both VC’s and top universities do provide a lot of value to the people they end up taking in (this might be up for debate).
The problem is that both of these institutions are starting to take on other roles as well. As they both have become increasingly popular and prestigious, their names start to hold a lot of value. Having dealt with hundreds of “where are you going to school?” questions as well as constantly dealing with people that order their college list according to US News’ ranking, I’ve seen first hand how universities have become a label. It is one of the first (and sometimes only) things that people use to evaluate and judge you, and that has unfortunately encouraged many people to seek the affirmation of a top university.
Although not nearly as intense, I feel like I’m starting to see a similar trend in startups. To prove an idea’s worth people feel like they need to plaster the logo’s of the the investors that back them on their webpages (like the kid that has to constantly wear the apparel of his ivy league school) or use the names of their backers as often as possible (like the college name dropper everyone hates). Some even feel the need to get funding from an awesome VC, even if they don’t need money (I do acknowledge that VC’s provide a lot of other resources besides funding as well). Observers are affected in a similar way. One of the first things a person might look at when applying to work at a startup is who has backed it. Even I’ll admit, when I see that a company is funded by Sequoia or AH I’ll start to think its a cooler project than previously thought.
In part, its because we trust the opinions of partners/admissions officers at top universities. They probably have a pretty good idea of what they are doing and have picked a lot of successful people. But at the same time, we need to make sure that they don’t become a seal of approval that universally determines whether a person/idea is capable.
And even though venture funding is probably one of the best paths to getting your startup off the ground (crowdfunding might give it a run for its money), we should hesitate before putting too much belief in the VC system. A lot people think that Peter Thiel’s argument that there is a bubble in higher education is going slightly overboard. But, there is definitely something too it. Maybe a similar problem is happening in the case of venture firms i.e. it is seen as the best institution for most cases, when in fact many people would benefit by taking a different route (debt, bootstrapping, etc). This might be one of the (several) reasons that venture capital is broken, which has been argued here, here, and most famously here.
And while I know that the VC process will never become close to as bad as university admissions, I hope that something prevents it from beginning to go down the same path.