One of the hardest things in the venture business is to turn an entrepreneur down for funding, especially one that has invested time in building a relationship.It’s not fun to be on the receiving end of a “no” either, something we are reminded of when we raise capital for our funds.
Not every company should raise venture capital. Venture capital is expensive money. It comes with high expectations that can only be met with very absurdly rapid growth. And not every company can achieve hyper growth. Another way to look at it is that venture capital funds like betting on companies attacking very large and growing markets. This allows for a very high margin of error but also means that if the company is successful, that the value of the company is unbounded. Given the risk of these companies, a big payoff is the only way to get good expected values (and positive-NPV investment outcomes) from the portfolio.