In 1997, I joined the founding team of Patagon.com. We sold the company three years later to Banco Santander for over $700 million. I like to joke that in the late 1990s, $700 million was still considered a lot of money.
Over the past 25 years, I’ve observed the venture capital industry as it has oscillated between periods of exuberance and phases of collapse. At PAG.law, I advise and mentor roughly 100 Latin founders each year, who, in better years, collectively raise over $1 billion from venture capitalists. Interestingly, my advice to many of these ambitious founders is to avoid raising capital from venture capital funds and to consider an alternative path to success.
I have interacted with a broad spectrum of founders: from bright-eyed beginners armed only with a business plan and a bit of seed money, often arranged by a family member who dabbles in law, to seasoned veterans who have adeptly navigated the intricate challenges of funding rounds and corporate struggles.
The Wheel of Suffering
For most founders, venture capital is a golden key for rapid acceleration and expansion. However, venture capital brings certain inevitable “karma” that puts many entrepreneurs on “The Wheel of Suffering”. This metaphor encapsulates the relentless cycle of expectations and pressure that comes once a founder raises capital from venture funds.
In Buddhism, The Wheel of Suffering—also known as the Bhavacakra or The Wheel of Life—symbolizes the continuous cycle of birth, life, death, and rebirth (samsara) experienced by all beings due to desire and attachment.
Why do many entrepreneurs get caught in the “Wheel of Suffering?” Because every 18 months or so, almost all founders find themselves back in the market, needing to raise more funds to extend their company’s “runway”.
Each successive financing round requires the company to double or even triple the previous round’s valuation—a daunting task that puts immense pressure on the founders and their team. This need to perpetually secure more capital at ever-increasing valuations can feel like a relentless grind, where a founder constantly needs to prove their worth to the next set of investors.
The irony is that many of these businesses could potentially operate under a slower, more sustainable growth model. For example, a business could gradually increase its revenues and organically reach a break-even point without a constant influx of venture capital. However, this approach lacks the ‘fast-paced startup’ allure that many founders and investors chase.
The seduction of rapid growth and large valuations often overshadows the practicality of slow and steady growth. Venture capital not only demands a continuous cycle of fundraising but also often leads to a dilution of ownership and control, leaving founders with a smaller piece of the pie that they painstakingly baked. Many founders, 3 or 4 years into their venture, realize they are essentially working for the venture capitalists.
Don’t Take the Money and Run
Venture capital is not merely a cash injection; it’s a commitment to a model of relentless growth that only some are prepared for.
Let’s remember that most founders find that their companies need to make a profit for the first five-ish years. That’s the harsh truth, despite what the initial business plan forecasts. As founders enter the venture funding cycle every 18 months, it’s a perpetual motion machine that doesn’t stop, fueled by the VCs’ expectation of constant growth and scaling.
It is critical to consider the mistakes made in the frenzy to scale—hiring too soon, spending too quickly, and planning too optimistically. These common pitfalls often trap founders because they’re not just running a business but also chasing an inflated vision sold by the promise of venture capital.
Overspending is commonplace. I’ve seen companies burn through cash on unnecessary luxuries or too-early expansions that don’t align with their current needs or market realities. And when the money runs out—you’re either stuck trying to secure more funding under immense pressure or you’re cutting costs drastically, which can include laying off the same team that was prematurely hired.
The solution isn’t glamorous: it’s prudent financial management, strategic planning, and sometimes, opting for slower, more sustainable growth over the allure of quick cash. It’s about understanding that being a founder isn’t about becoming the next headline in a tech magazine—it’s about building a viable business that serves real needs.
Realize this: every entrepreneur wants to change the world. But throwing money at a problem or a business doesn’t guarantee success. What does it guarantee? More often than not, it is an expensive lesson in economics and humility.
So, before you take that money and run toward what you think is your startup’s bright future, pause. Think about whether you’re prepared for the wheel of suffering that venture capital can become. Are you building a business for a quick exit or a lasting legacy? Remember, it’s not just about how fast you can go—it’s about how far you can go with what you have.