🌍 Why Venture Capital (VC) Funding Isn't the Best Option for Most Startups: A Holistic Perspective by Dr. Abdul Manaff 🌍
Dr. Abdul Manaff
Chairman @ FIRST HOLDINGS INTERNATIONAL I Forbes Council I Speaker I Mentor I Investor I Fundraising I Board Leadership
As an international investor and Chairman of First Holdings, WEDO, VWC, and SheFinance, I have witnessed firsthand the evolution of the startup ecosystem across the globe. While often glorified, venture capital (VC) funding is not a one-size-fits-all solution. Many founders dive into the allure of VC backing without understanding the potential compromises it demands, particularly for those who value sustainable growth, long-term vision, and alignment with core values.
In this newsletter, I'll explore why VC funding isn't suitable for most startups and propose a holistic investment approach that respects founders' dreams and values while fostering meaningful, sustainable progress.
Pressure for Rapid Growth
Venture capitalists operate on a model that prioritises quick returns, typically within a 5–7 year window. This timeline exerts intense pressure on startups to scale aggressively, often at the expense of operational sustainability.
For many founders, this "growth-at-all-costs" approach can be detrimental. It forces startups to prioritize revenue generation over solidifying their foundation, leading to missteps such as premature scaling, employee burnout, and compromised product quality.
Growth should be an organic process aligned with a company's readiness and the market's receptiveness. Sustainable success must be completed on time; it requires a strong, scalable foundation, which VC funding often undermines.
Profit vs. Vision Misalignment
A startup's journey is deeply personal for its founders. It's an extension of their values, passions, and aspirations. However, VC firms operate under a different ethos focused on maximizing profitability and market share.
This profit-driven mentality frequently conflicts with founders' long-term visions. A company built to solve a meaningful problem or make a social impact may be at odds with investors demanding exponential returns. This misalignment can create tension, hinder creativity, and lead to decisions that compromise the startup's mission.
True innovation thrives when founders can pursue their vision without the constant pressure to meet quarterly benchmarks.
High Expectations for Returns
VC investors typically expect a high return on investment, often seeking to multiply their capital several times over. This expectation places startups in a precarious position, as they must continuously prove their worth through aggressive growth metrics.
When these expectations are unmet, founders may face significant consequences, ranging from the withdrawal of support to drastic measures like layoffs or pivoting into uncharted territory. Such scenarios can leave startups feeling trapped, raising successive rounds of funding to keep pace with the demands of earlier investors.
This cycle often focuses on financial engineering rather than genuine value creation, leaving the company and its founders vulnerable.
Not Suitable for All Business Models
VC funding is inherently biased toward high-growth industries such as technology, biotech, and fintech. Startups in these sectors often demonstrate the exponential scalability that VCs desire.
However, not all businesses are built for explosive growth. Lifestyle businesses, niche ventures, or those with steady but slower growth trajectories are frequently overlooked or undervalued by VCs. These businesses might be highly profitable and impactful but fall outside the VC mold, leaving their founders underserved.
Such ventures deserve funding models that respect their unique pace and potential.
Cost of Fundraising
Securing VC funding is more than just financially demanding; it is also time-intensive. Founders must prepare detailed pitches, engage in prolonged negotiations, and undergo extensive due diligence.
This process often distracts founders from focusing on their core mission—building and growing the business. The energy spent courting investors could be better utilized in refining products, engaging customers, and strengthening teams.
Limited Freedom to Pivot
Startups operate in dynamic environments where flexibility is crucial. However, once a VC steps in, founders may find themselves locked into predefined growth paths.
VC investors, driven by their expectations and timelines, may resist strategic pivots—even when market conditions demand it. This rigidity can prevent startups from adapting effectively and seizing new opportunities.
Risk of Failure Due to Overfunding
Contrary to popular belief, too much capital can be as harmful as too little. Overfunding often leads to inefficiencies, mismanagement, and unsustainable scaling efforts. Startups may feel compelled to spend lavishly to justify their valuations, losing sight of the discipline needed to achieve product-market fit.
A measured, need-based approach to funding allows startups to grow responsibly, aligning their expenditure with actual market demands.
A Holistic Approach to Investment
As a sector-agnostic investor, I have always believed in aligning capital with values. At First Holdings, we champion a holistic approach to funding that empowers founders to build businesses that create genuine value while remaining true to their vision.
This approach rejects the extractive managerialism often seen in the VC landscape. Instead, it fosters partnerships emphasizing trust, sustainability, and shared goals. I align myself with a forward-thinking generation of investors who plant seeds for long-term growth rather than clear-cut for immediate gains.
As an old Greek proverb reminds us: "A society grows great when old men plant trees in whose shade they shall never sit." This wisdom is a call to action for all investors to prioritize sustainable value creation over short-term profits.
What We Can Do Together
Through initiatives like First Holdings, Start Partners Holdings UK, WEDO, VWC, and SheFinance, I am committed to empowering entrepreneurs, particularly women, to create impactful ventures. These efforts aim to:
• Provide funding that respects diverse business models and growth trajectories.
• Offer mentorship and resources to help startups achieve sustainable growth.
• Build ecosystems that prioritize long-term value creation over short-term gains.
It's time for a new narrative in the investment world—one that values impact, innovation, and inclusivity over the allure of unicorns. Together, we can steer the industry toward a future that uplifts founders and creates a better world for all.
Closing Thoughts
VC funding is not inherently bad but is not a universal solution. Founders must evaluate their goals, values, and vision before choosing a funding path. As investors, we are responsible for supporting these aspirations, not stifling them.
Let us champion a future of thoughtful investments, sustainable growth, and meaningful impact. I welcome further discussions on how we can collectively build this future.
Recommended by LinkedIn
Managing Director @ BPO Engineering
1moFantastic assessment and read. Great insight.
Director, MEA & APAC - Senior Advisor - Al, CyberSecurity, FinTech, Blockchain, Metaverse, AdTech, DeepTech, eCommerce, SaaS & Infra
1moVery insightful!! and a good take aways from your article Dr. Abdul Manaff.
Economista e insegnante di matematica
1mo“Dr. Abdul Manaff’s perspective highlights a critical conversation that many founders shy away from: the trade-offs of VC funding. As someone deeply invested in creating value-driven businesses, I believe this approach resonates with the future of entrepreneurship—balancing growth with sustainability and integrity. A must-read for anyone seeking to build more than just a business, but a lasting impact.”
State of African Diaspora (SOAD) Roving Ambassador
1moGreat advice. Profound