Money to Grow

The quote from Shane's book yesterday could be taken to imply that somehow it is the venture capitalists that create jobs. Correlation, not causation. As the title tried to convey, it is growth companies that create jobs, and since venture capitalists try to invest in growth companies, their investments are a good proxy for growth companies as a whole.

Internet startups these days don't need much money. It's generally believed that web companies can get to beta for a few hundred thousand dollars max. As a result venture capitalists perceive deals differently: if the startup needs next to nothing to get going, they are eager to put a couple of million dollars in; if it needs a couple of million dollars, they pass. The old canard about bankers--they'll only lend you money if you don't need it--has become true of VCs.

That said, I think the VCs are still a critical player in creating successful growth companies. Even though there are notable examples to the contrary, almost all growth companies need to raise a substantial amount of money at some point in their life-cycle to scale.

The only thing about my angel investments that keeps me awake at night is whether--when they need the bigger institutional round--the VCs will be in the mood to step up.