Apparently, Most Entrepreneurs Don’t Understand the Real Purpose of Venture Capital

Startups are always thinking about fundraising, but very few of them spend much time thinking about whether they should.

I was meeting with a founder who’d been struggling to fundraise for a few months. His company was profitable and growing fast, and he couldn’t understand why venture capitalists weren’t interested.

Conversely, I was struggling to understand why he was fundraising.

“But we have ‘hockey stick growth’,” lamented the frustrated founder sitting on the other side of my desk. “Isn’t that what investors want? Why aren’t any interested in investing? What more can we do?”

“What do you mean by ‘hockey stick growth’?” I asked.

“You know,” he said, angling his arm vaguely upwards. “The past few months have looked like a hockey stick. We’ve got big growth.”

“What about the months before that?” I asked.

“We only launched four months ago,” he said. “We’ve been growing fast and steady since we launched.”

“That’s great,” I said, “but that’s not hockey stick growth. Hockey stick growth has the long, ‘stick’ part, and then it starts to dramatically curve up as it nears the ‘blade’.”

“So we skipped the long, slow part,” he said, adding an eye roll to further emphasize his lack of interest in what appeared to be a pedantic distinction. “Isn’t that a good thing? We’re growing fast and steady. Who cares if it’s not exactly ‘hockey stick’ growth?”

“Investors care,” I pointed out, “otherwise they’d be investing, right?”

Linear versus exponential growth

The founder thought about what I’d just said. “That’s a good point,” he replied after slowing down long enough to consider my point. “Investors don’t like the growth I’m showing. What’s wrong with it?”

“You’re showing linear growth,” I explained. “Linear growth is great. But it’s not the kind of growth startup investors are looking for. They’re looking for exponential growth, which we sometimes call ‘hockey stick growth,’ even though it’s a…