I get pitched three types of companies:
Non-starters. The founders have made some wrong assumption about the way the world works. These ideas just won't work for some technical, market or team reason.
Venture Capital Investable are the second and the rarest type. They are the ones with the potential to be huge someday. They don’t have scalability issues and have all the hallmarks of things that VCs look for. Perhaps one-half of one percent of all new businesses are in this category.
Nice Businesses. This category is where I think the investment world is really failing. These businesses are well thought through and generally have a good business model, plan, and customer. The problem is they're missing some component to become VC-investable. But, they're certainly investable businesses. Just not at VC terms.
The challenge I see today is founders of Nice Businesses aren't being educated on types of funding outside of classical VC terms. They pitch investors: "Value my business like it could be huge someday" when it fundamentally cannot.
Investors can’t make money putting investment into companies at venture capital rates if the company isn't going to return like venture capital (i.e. strong chance of a 30-50x return to a seed investor). So, the investment deal to be different.
In a future post, I'll talk about other options for Nice Businesses to get investment. In the meantime, I’ll keep telling companies they have a Nice Business, but it's not VC.