I'm reminded of a quote:
"Fundamentally VCs are risk adverse – they want no risk in the deal, if we could handle risk we'd be entrepreneurs."
From the New Yorker:
We live in the age of the startup. It’s never been easier to build a
product and start a company. And, thanks to the boom in angel investing
and crowdfunding, it’s never been easier for startups to raise money.
The analytics firm CB Insights logged more than seventeen hundred
seed-investment deals in the U.S. tech industry in 2012, more than three
times the number from three years earlier. But there’s a catch:
starting a company may be easier, but making it a success isn’t.
Competition is fierce, profits are scarce, and venture capitalists
aren’t generous when it comes to later stages of funding. As Gideon
Lewis-Kraus shows in “No Exit,” a new Kindle Single about startup
culture, the life of a new company is often brutish and short. Though we
may be seeing a “Cambrian explosion” of new companies, as The Economist recently put it, there’s a mass extinction going on, too.
The fact that most new businesses fail is hardly a secret. So why are so
many people gambling on ventures that are likely to end badly? A
traditional answer is that entrepreneurs are just more comfortable
taking risks than the rest of us. The eighteenth-century Irish-French
economist Richard Cantillon, who coined the term “entrepreneur,” defined
it as a “bearer of risk.” And in 1921 the economist Frank Knight argued
that the function of entrepreneurs was to “specialize in risk-taking.”
Yet studies of entrepreneurs find that, in general, they’re as
risk-averse as everyone else. Only when it comes to starting a business
are they daring. And that’s because the fundamental characteristic of
entrepreneurs isn’t risk-seeking; it’s self-confidence. A 1997 study in
the Journal of Business Venturing found that entrepreneurs are
overconfident about their ability to prevent bad outcomes. They’re also
overconfident about the prospects of their business. A 1988 study in the
same journal of some three thousand entrepreneurs found that eighty-one
per cent thought their businesses had at least a seventy-per-cent
chance of success, and a third thought there was no chance they would
fail—numbers that bear no relation to reality. A recent paper called
“Living Forever” notes that entrepreneurs are more likely than other
people to overestimate their life spans.....MORE
