The venture capital model is under fire again. Founders complain about dilution and loss of control. Commentators question whether VCs create real value or just inflate valuations. Aspiring entrepreneurs wonder if bootstrapping isn’t the more honest path after all.
I’ve heard these criticisms for years — as a founder, angel investor, LP, and now as a GP at Eleven Ventures. And while some concerns are valid, most stem from a fundamental misunderstanding of what venture capital is designed to do, and more importantly, what kind of companies it’s designed for.
So let me address the most common misconceptions directly, using what I’ve learned from 15+ years on every side of the venture table.
Judging rockets like bakeries
The core problem with most VC criticism is that people apply the wrong expectations to the wrong type of company.
A bakery and a rocket company don’t operate under the same rules. One optimizes for steady cash flow, local market share, and predictable growth. The other bets on breakthrough technology, massive scale, and winner-takes-most dynamics. You wouldn’t judge a bakery for failing to reach orbit – so why judge a rocket company for not turning a profit in year two?
Venture-backed startups are rocket companies. They’re built for exponential growth in markets where being second or third often means being irrelevant. That requires a different kind of fuel, a different risk tolerance, and a different definition of success.
When critics say “most VC-backed startups fail,” they’re right. But they’re missing the point. Venture capital doesn’t aim for a high batting average, it aims for asymmetric outcomes. And that’s not a flaw, it’s the entire design of the asset class.
How venture returns actually work
Let me break down the math, because this is where the confusion starts.
A typical VC fund invests in 20-30 companies over several years. Of those:
- 50-60% will fail or return less than the invested capital,
- 30-40% will return 1-3x the investment (modest successes),
- 5-10% will return 5-10x or more (the winners that carry the fund),
- 1-2% might return 20x, 50x, or even 100x (the outliers that define a generation).
This distribution aligns well with a notoriously famous saying: it is a feature, not a bug. Venture capital exists precisely because traditional financing models (banks, private equity, revenue-based lending) cannot support this kind of risk profile.
Banks need collateral and predictable repayment schedules. Private equity needs steady cash flows and near-term exits. Venture capital accepts that most bets will fail because the few that succeed can compensate for all the losses and still generate outsized returns.
If you’re building a company that can predictably grow 20-30% per year with strong unit economics from day one, you don’t need venture capital. You need a bank loan or a patient bootstrap strategy. But if you’re building something that requires years of R&D, network effects, or market education before it generates revenue — something that could be worth €500M or nothing — then venture capital might be your only option.
What good VCs actually do beyond writing checks
Here’s another misconception: that VCs are just passive capital providers who show up for board meetings and collect returns.
In reality, the best venture investors act as coaches, thought partners, and pressure-testers – especially during the hardest moments. They’ve seen dozens of companies navigate similar challenges. They know which patterns lead to breakthroughs and which lead to dead ends. And they’re incentivized to help, because their returns depend entirely on your success.
When we built Telerik, our early investors didn’t just provide capital — they challenged our assumptions, connected us to customers and talent, and helped us think through strategic pivots that ultimately shaped our acquisition by Progress in 2014. Now, as a GP at Eleven Ventures, I see the same dynamic play out with our portfolio companies. Founders approach us not just when they need money, but when they need clarity. Should we enter this new market? How do we structure our sales team? What’s the right time to raise our next round? These aren’t questions you ask your accountant or your lawyer. You ask someone who’s been through it before.
Many companies approach us even when they’re profitable, not because they need cash, but because they want this partnership. That tells you something important about what good venture capital actually provides.
Bootstrapping vs. VC: A strategic choice, not a moral one
Let me be clear: bootstrapping is not morally superior to raising venture capital. And raising VC is not a shortcut for lazy founders.
These are strategic choices that depend entirely on the type of company you’re building and the ambitions you have for it.
Bootstrapping works brilliantly when:
- You’re building in a market with clear demand and fast payback periods
- You want to retain full control and ownership
- You’re optimizing for profitability and sustainable growth
- You can reach scale without massive upfront investment
Venture capital makes sense when:
- You’re building something that requires years of investment before product-market fit
- Speed to market is existential
- Network effects or winner-takes-most dynamics dominate your market
- You need to build infrastructure, R&D, or a team before revenue materializes
Neither path is easier. Bootstrapped founders face constant resource constraints and slower growth. VC-backed founders face dilution, investor expectations, and the pressure to grow faster than might feel comfortable.The key is choosing the model that matches your ambition, your market, and your risk tolerance.
Why LPs invest in Venture Capital (and why it matters)
Here’s a question most critics don’t ask: if venture capital is so flawed, why do sophisticated institutional investors (pension funds, hedge funds, family offices) keep allocating billions to the asset class?
The answer is portfolio theory. LPs don’t invest in venture capital because it’s safe or predictable. They invest because it’s uncorrelated with other asset classes and offers asymmetric upside.
A diversified LP portfolio typically includes public equities, bonds, real estate, venture capital. Venture capital plays a specific role in this mix: it’s the high-risk, high-reward counterweight that can generate 3-5x fund returns over 10 years when done well. And because VC returns aren’t correlated with public markets, they provide diversification benefits that improve the overall risk-adjusted performance of the portfolio.
This is why venture capital exists as an asset class. Not because every fund succeeds (many don’t), but because the ones that do can generate returns that no other asset class can match.
What happens to ecosystems without early-stage risk capital
Beyond financial returns, venture capital plays a broader role that often gets overlooked: it enables innovation that wouldn’t happen otherwise.
Think about Payhawk, OfficeRnD, Dronamics, FindMeCure. These companies didn’t start with revenue. They started with bold ideas, technical risk, and long development cycles:
- Payhawk needed years to build a financial infrastructure platform before it could scale.
- Dronamics required massive R&D investment to develop cargo drones.
- FindMeCure was solving a problem that had no obvious business model at first.
Without early-stage venture capital, these companies wouldn’t exist. And without them, our ecosystem would be poorer — not just financially, but in terms of ambition, talent development, and the signal we send to the next generation of founders.
