B-schools: Don’t teach entrepreneurs to chase VC funding
A tiny portion of entrepreneurs ever receive funding from venture capitalists. That’s because VC money is invested in companies with a potential for high, perhaps spectacular, growth– businesses in such areas as the web, bio-tech, or life sciences.
But you wouldn’t know that from either most stories in the press or the slant of many entrepreneurship programs in business schools. The lion’s share of media coverage of new companies focuses on sexy, VC-backed startups. And there’s a similar emphasis in many b-schools.
Where does entrepreneurial startup money really come from? Typical startups raise initial financing from families, friends, and, possibly, a wealthy surgeon who’s dating the founder’s sister. As the companies start generating revenues, that money is then plowed back into the business. So, ultimately, most startups start by bootstrapping–a mix of the founders’ savings and being smart and efficient about how they run operations. It’s a fact of entrepreneurial life.
So, I was heartened to read this post on Forbes.com:
In fact, unless you are teaching at Stanford or MIT, or a handful of institutions with similar access to the financial community, you better come to terms with the fact that your realistic path to grooming successful entrepreneurs is through bootstrapping. So don’t mislead the students, don’t set them up with unrealistic expectations. Don’t set them up for failure.
via Why B-Schools Set Up Entrepreneurs To Fail – Forbes.com.
The author also lists about seven specific faculty at specific schools who focus on bootstrapping.
One reader also offered an interesting comment: that it’s the “financial realities of b-school” that set up entrepreneurs to fail. Students graduate with so much debt, they’re forced to seek outside capital well before they’re ready. But, that focus inevitably diverts some much-needed energy away from building the business.
The implication is that the very act of going to b-school to study entrepreneurship might set students up for failure, because they’re saddled with thousands of dollars in debt. That’s not to say entrepreneurship can’t be taught, which is another issue. But that debt is certainly something to think about before young entrepreneurial wannabes start applying to business school.
At the very least, students need to learn from the get-go about realistic ways to fund their businesses, so they can concentrate on building their companies, not chasing after VC windmills.
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I graduated from B-School (Kellogg) way, way back in 1992. So, I am sure a lot has changed since then. But clearly, based on this article, one thing has not: the utter fascination with VCs by a certain (and significant) chunk of both B-School students and faculty.
From my extremely non-scientific sampling of students back then, it appeared (and seems to still be true) that there were 2 basic types of students: those who were looking for careers through fast-tracked, high-financed, funding-du-jour-get-rich-doing-whatever, and those who wanted to understand and then spend a career developing organizations through improved managment practices.
The former group LOVED the VCs. The latter group could not have cared less.
I fell into the latter group. It was the smaller group. Duh.
I’m sure that split still exists. It’s just the preferred avenue towards fast-track get richness might differ according to the particular era during which you are in school. So, at one time it might have been starting a VC-funded dot com, at another joining a Wall Street firm and playing around with complicated high finance.
One fairly new trend, one that is perhaps a third way, is social entrepreneurship, which is pretty hot now at some schools.
Great article!
I came across this article in a blog search and found it to be very good advice useful for Startup businesses. I work with entrepreneurs on a daily basis through a company called FundingPost. We hold events and also on-line to match up entrepreneurs with Venture Capitalists. A section of our events involves a
panel of investors who speak about the “do’s and do not’s” of starting a business. I have heard the same thing, a few times, from our investor panels regarding bootstrapping your business before proceeding to Venture Capital. Not all the time, but most of the time, investors would like to see that there is
revenue already coming in before they invest in a business. Bootstrapping is the best way to get you from point A to point B.
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Thanks!
Heather Coull
Marketing Manager
FundingPost.com
617-688-0440
Twitter: http://www.twitter.com/creativelycoull
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