Discover more from Words, By Mat Sherman
Stay In Your Lane
VCs don't solve problems; they fund the problem solvers
What is a venture capitalist’s primary job? To create value for their LPs. How do they do that? By investing in founders solving hard problems with the right solution/team & and supporting them through exit.
Jason Calacanis didn’t try to figure out how to fix the Taxi industry. He funded Travis Kalanick to do it. Bill Gurley didn’t know how to figure out the data science problem within clothing recommendations, but he funded Katrina Lake to do it. Yet, when it comes funding outsiders, it always seems like the answer by the startup sector is that it’s on the investors to solve this problem (VCs and LPs included).
Trust me, I get it. LPs invest in outsider VCs, who invest in outsider founders, which will lead to pouring wealth into non-typical communities upon exit, leading to prosperity and more investment around the globe, creating a flywheel of wealth creation. Although it sounds good in theory, is this really the best solution we have to tackle the funding disparity problem between insiders and outsiders? Likely not. Why? Because although it seems like an obvious solution, great VCs rarely back the obvious solution themselves. In addition, while VCs have money to invest, they also have capital constraints limiting the scale they can reach. Startups have no constraints and can therefore get to a scale fast enough to change the industry in a timely manner. No capital, no constraints. Could there be a paradigm shift waiting to happen much sooner if we let a startup solve this problem instead of investors? Yes.
My advice to VCs is to spend less time thinking about investing in outsiders and hoping the rest of the industry “does its part”, and instead, look to invest in startups working on the funding disparity problem. Aside from constraints, VCs didn’t get into this business to solve the problems. They did it to work with the problem solvers. So I humbly ask any VC reading this to stick to investing/helping and to stay in your lane so the founders can work. Thank you 🙏