It has become clear over the past few years that venture capitalists have been struggling to find new and better ways to spend their money. They seem to be more risk-averse and less innovative as they try to recover from the big economic hit that did enough damage to cause some VC firms to shut down completely. But in a strange and somewhat baffling move, some VC's have turned to "search funding"; a concept which calls for investing in young entrepreneurs straight out of college, who in many cases have absolutely no business plan or even an idea. Their only bullet point is the college degree that they wield, many from prestigious universities. But like building a house out of cards, there is inherent instability which can cause it all to come tumbling down.
I have been privy to the medical device start up world, having worked with more than 14 technology start ups, and having helped start more than 5 early stage companies. I have experienced the innovation that occurs within the walls of an organization with limited funds and even more limited resources. I have also had great pleasure in working with some really incredible college grads; smart, creative, eager to learn, curious to implement innovation and conceptual design to solve problems, always open to new ideas, and very driven young men and women.
But I have also felt the pain of dealing with young college grads who had very little more than engineering degrees, and really crappy work ethics. These were grads who wanted to become instant CEOs, and most of them were pains in the ass. So much so that the company (including myself) would spend more time keeping these kids in check, then we would developing the actual product. And in more than one instance, the devices that these college know-it-alls developed actually hurt or killed patients.
So now we get to search funding. A venture capitalist coin toss. Basically bet on a college grad, that he or she will run into an innovative idea or company that they would then buy, with help from the VC. All of this in hopes that the college kid picked the right thing. This smells to me like venture capitalists passing the buck onto someone younger with more excuses to fail. If the deal goes bad, chalk it up to the 22 year old Stanford grad who "seemed" like he had a winner. Oh well, right? What it looks like is a blind-folded dart toss at a board full of post-it notes, each one with a college grad's name scribbled on it. Is this venture capital innovation, or venture capital struggling for a win?
VC's need to refocus on the proven ways to invest in technology, risk notwithstanding. Reaching for new and different methods isn't always innovative, and in fact becomes more of a crap shoot if done haphazardly. There are many seasoned entrepreneurs out there with lots of business experience, who are creative and innovative, and sound business people. A Harvard degree does not automatically make a CEO.
I hope search funding is just a "phase" in the venture world. Turning to college kids, in lieu of leveraging those who are experienced in start up companies, is a recipe for disaster -- one that will leave a mark on future investments.
Successful companies are ultimately built on experience and innovation, not on stacks of college degrees...