Lean Startup pioneer and Silicon Valley legend Steve Blank has some sharp advice for startups seeking funding: the minute you take money from someone else, their business model becomes your business model.
During his fireside chat with John Rampton of Entrepreneur Magazine to open Startup Grind 2016, Blank raised a word of caution for founders eager to sign term sheets. “Understand, your VCs are a business. If you can’t draw how they make money, you’re screwed."
Watch Steve Blank's fireside chat with John Rampton of Forbes, and read our highlights below.
Their Business Model is Your Business Model
With many VCs sounding the alarm that winter is coming, it may be more important than ever for companies taking venture capital to understand the real motives behind the money they are getting.
While many VCs like to say they invest in people, very few of them have a goal to change the world, Blank explained. In reality, most of them have bosses, and singular goal is to make money.
"While they might like you, you’re just part of a liquidity Ponzi scheme," he said. "Their only goal is to make you liquid or go public. They will support you to do that, but that's about it."
If you’re part of that process and don’t realize it, Blank said, you’ll be disappointed.
Besides writing three books, teaching customer development courses at Stanford and most recently hosting a radio show on SiriusXM called “Entrepreneurs are everywhere,” Blank works with many first-time entrepreneurs through some of the hardest times: throwing their idea into a sea of pitches and hoping to get funded.
Born or Bred: Tough Times Create Tough Founders
Having seen countless founders through the process of starting up, Blank compared first-time founders with artists, saying they both use passion and mission to drive through the hard times.
"Entrepreneurs and artists both hear and see things that other people don’t,” he said. "People aren’t buying their art, and they get through it. If you treat this like a job, you’re better off working at Walmart than starting a startup.”
Through the bumps in the path of entrepreneurship, he sees a similar resilience in startup founders coming from difficult family situations.
Blank has found that more than half of all Silicon Valley founders come from chaotic, dysfunctional families. “It’s the cruelest and most effective training ground for being a founder,” Blank said, "and that ability to shut out everything except for what's important for survival turns out to be exactly what you need to do to be a successful CEO."
“You need to keep your eye on the prize,” Blank said. “When I first found this out, I told my mentor Katherine Gould about it, and she said, “Steve, why do you think we funded you?”
Through this story, Blank hinted at a difficult childhood, and perhaps he’s the best example of this story. His parents, both immigrants, ran a grocery store to make ends meet. When his father left at age six, Blank was left with his mother and sister who was 12 years older than him. He recognized that while in those moments it's just about survival, there is hope.
"For those coming from those families, for the first time in your lives you have an advantage,” he said.