5 VC Myths, Busted聽

The world of venture capital is defined by its own carefully constructed mythology: hoodie-wearing billionaires, unicorns and Midas touch investors. But the numbers tell a very different story: Most VC firms operate on at least a .听

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A number of new, innovative VC models have cropped up in the industry, but the existing mythology has continued, to the detriment of the innovation economy that is so crucial to the United States, and beyond.听

Let鈥檚 walk through the five most prevalent myths in the VC industry, and discuss how to rewire the industry for growth that brings together financial performance, positive impact on the world, and a more inclusive sector.

Myth No. 1: Pattern recognition聽

It sounds like a good idea at first: An idea worked for you in the past, so you invest in products that look like it again.听

This is your selection bias working against you to the detriment of your own success. I hear it all the time in meetings: 鈥淚t just doesn鈥檛 remind me of anything that has worked before.鈥澛�

This isn鈥檛 to say you can鈥檛 find a niche鈥攊f an industry resonates with you, stay with it. But if your entire portfolio is led by white men or people from a specific top-tier university, it鈥檚 safe to say you have a pattern recognition problem.听

Myth No. 2: Fail forward, fail fast聽

Any entrepreneur out there has a story about a time they ran full steam ahead into a brick wall, only to dust themselves off and try again鈥攂ut what often goes unmentioned is the privilege of being able to fail and still be trusted for a venture right after.听

For most entrepreneurs, failure can destroy lives, lose money and let down communities. When the stakes are that high, wouldn鈥檛 you choose to play it safe?聽

The industry needs to provide better access to early-stage funding and portable benefits for entrepreneurs. So many entrepreneurs today are successful because of familial safety nets鈥攂ut that is simply not the case for every entrepreneur.听

Myth No. 3: Failure rates and the power law聽

Many venture capital firms operate under what is聽referred to as the 鈥減ower law.鈥� This essentially means that of 10 deals, you should expect to lose money on seven, find moderate success in two of them, and have one crown jewel that returns all of the funds.

This works for some funds. But this is no way for the entire sector to work. There are multiple versions of success within entrepreneurship. In my experience, if you can turn a $1 million investment into a $5 million investment, it鈥檚 a good day. If you do this consistently, you can build an excellent portfolio across the board, without any unicorns.听

Does this sound boring? If it does, that鈥檚 okay. While this tactic might not get you regular cover stories in Forbes, it鈥檚 a necessary shift for the industry. VC as a sector cannot rely only on the companies making splashy headlines to be successful.听

Myth No. 4: Entrepreneurs as the customer聽

Entrepreneurs, this may come as a rude awakening, but in your relationships and negotiations with venture capitalists, you are not the customer: You are the product.听

It鈥檚 easy to forget that all VC money comes from the LPs who supply the cash, and a VC鈥檚 job is to look for the entrepreneur and product that will help them return that money to the LPs.听

In most cases, this dynamic continues throughout the business relationship. Even as you gain more power and grow a successful enterprise, you are still the product鈥搄ust the one that works.听

Myth No. 5: The 鈥榠t鈥� factor聽

To the layperson, technology entrepreneurs might seem like a group of charismatic, hoodie-wearing heroes who know exactly what to do or say in any situation鈥攁nd if they show any weakness, they don鈥檛 have what it takes to succeed in business.听

When we launched our venture studio in 2009, I got feedback early on that any founder who would agree to be a part of a studio might not have 鈥渋t,鈥� because they admitted they needed additional support. The myth of the charismatic genius is dying out. Now, the most successful VCs in the industry are those who understand that even the strongest founders need support from their teams.听

The Future of VC and Entrepreneurship

We鈥檙e at a turning point in VC. We can stay stuck in the cloud of mythology surrounding the work we do on a daily basis, or we can continue growing, innovating and expanding on the types of ideas and entrepreneurs we work with.听

Some of the most important solutions to the biggest problems facing humanity as a whole come from the startup economy. We have to jump on this opportunity to do better by founders and entrepreneurs.听

is co-founder and managing partner at , a venture studio and firm that helps mission-driven founders build inspiring, valuable companies.

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