The dream is mesmerizing. But here’s what you need to know if you want to play the odds
Published in the San Diego Union-Tribune, March 3, 2025
by Neil Senturia
What if it is all a big con?
The whole startup, ecosystem, founder, technology, shark tank, venture capital, venture studio, venture incubator, entrepreneur, change the world, get rich along the way — what if it is all a big con?
I have a friend of many years, he is a “venture capital whisperer” — in other words, he tells the truth that no one wants to hear, because he has truly been-there-done-that and no, he did not make enough for the private jet, but he did ok.
Pitch Book stat, “The number of active investors in the US VC world, plummeted by 38% in the first three quarters of 2023 — that translates to 2725 fewer firms making deals,”
My whisperer takes me to lunch (I buy because after all, venture is not what it used to be), and he explains how the VC food chain really works. At the top of the pyramid is the VC managing partner. His worry is being able to raise the next fund. Just like a politician who starts planning to get re-elected to something else, the day after he takes whatever office he just won.
Next on the pyramid are the limited partners, the chuckleheads who gave him the money, which he promised to invest wisely so that perhaps in 8-12 years, they may actually get some of their money back — and oh, along the way, the VC takes his fees.
After all, it is not easy to go to all the meetings, panels, lunches and try to find the one outlier in a sea of look-alikes. By the way, he is among several thousand other folks looking for the outlier — and there is a distinct possibility that even if he finds an outlier, he can’t get in the deal, or even worse, the outlier is right in front of him, and he can’t see it.
Alright, we have the VC partners, and we have the limited partners. Third on the food chain are the founders who start the companies. There are about 10 to 20 of them in any given fund, and they are the expendables. The VC only needs one or two to make it and return the fund, the rest of that gang live at the bottom of the food chain (no soup for you), and the common stock holders eventually will be marked down to zero.
That is the way of the world. VC at top, fees in mind, then the limited partners, make them happy enough, long enough and hope they forget your phone number when you return 23 cents on the dollar — and then those founders, well there will always be another cohort soon enough.
I get lots of inquiries from young, bright, MBA graduates who need to get a job and they tell me, “I think I would like to get into venture.” Well, sure, why not. You know nothing, you just graduated, you have never built a company, you took two courses in finance and you can do regression analysis.
Welcome to the zoo. I am out raising some dough for my little AI company. I get an inbound pitch from a big VC fund. The “junior analyst” sets up a 15-minute call. She is a recent graduate from Stanford and her job is to make cold calls trying to find a not-yet-hatched unicorn.
I am polite. I do a couple of minutes, and it is clear there is no fit. But then reality rears its ugly head. “Truth is, she says, I am leaving the firm in March and moving back to San Francisco and starting a company.” I ask myself, what’s wrong with this picture?
If that doesn’t work, she can always teach entrepreneurship or run an incubator.
I listened recently to a VC who I think is brilliant. He was an operator first. He has seen the darkness. He explained that 90% of startups fail in the first three to five years. He knows how hard it is to find an outlier.
He says, “No one in his right mind would go into any part of this business.”
But there is no shortage of new players. The dream is mesmerizing. Do you really want to tempt the odds and challenge the gods, knowing the truth?
If the answer is yes, welcome to the wild animal kingdom.
Rule No. 842: It’s ok to feed the animals.