I don’t know how many of you are familiar with TechCrunch, but for those of you who aren’t, it’s a wildly popular blog that reads more like an informal magazine that covers the latest internet companies. I read it fairly regularly since it is truly cutting edge in its space, and it presents a different perspective on entrepreneurship than we typically receive in the Midwest. (I don’t necessarily always agree with it, but that’s another post)

TechCrunch recently had a post about Fred Wilson of Union Square Ventures blogging about his VC’s failure rate, a statistic closely guarded by many VC firms. (Note: I realize I’m blogging about a blog blogging about a blog, and while I think that’s a bit much, I thought it necessary to credit TechCrunch for originally presenting me with the information) The interesting thing wasn’t so much the details of his investments (20% return over 17 years over 32 investments), but what he learned from his failures. One thought in particular, and again I credit TechCrunch for pulling this out:

“. . . Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold. That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business…

…Most venture backed investments fail because the venture capital is used to scale the business before the correct business plan is discovered. That scale/burn rate becomes the cancer that kills the business.”

I’m sure anyone attune to the entrepreneurship scene has witnessed a startup transform its business plan, but to see that 2/3 of the successful investments of a very successful VC transform their business plans is truly powerful. And for Wilson to go on to say that a large number of failures stem from trying to scale the business too quickly before the correct business plan is discovered, speaks strongly to the mindset of most Indiana entrepreneurs and Indiana investors.

Even though some of our Midwestern approaches are corraborated by Wilson's lessons learned, are we still too conservative? The only way to know is to see the statistics of our own VC's investments. I'll admit, I haven't tried to find them, does anyone know if they're there?