Sometime back I was talking to a friend who is a venture capitalist, and pointed out about how one of the companies he has invested in has a great opportunity for diversifying their opportunities (I had a vested interest, for I wanted to get involved in the said diversification). This guy (the VC) wasn’t too pleased, and he said that while an opportunity existed, he wasn’t in favour of the company pursuing this opportunity.
Talking to other friends who are in the VC industry since then, I understand that in general, venture capitalists are loathe to let their portfolio companies diversify. I had never really understood why, until I discovered it for myself when I was writing this post on whether you should go to market with a focussed offering or offer a bouquet of related products. In this post on LinkedIn, I write:
..if you have venture funding, your investors will not want you to expand scope. Venture capitalists are extremely loathsome about their portfolio companies diversifying – for it makes it harder for the VCs to flip the company at a later date (the VCs themselves achieve their diversification through their portfolio, so they don’t need a particular company in the portfolio to diversify).
Bingo! There’s no surprise that VCs hate their portfolios to diversify!
Anyway, while I was editing the above post, I realised that there are some instances where I’ve written stuff that can potentially have double meaning. Since I had written those lines when I was in the flow of writing the post and I wrote them with the best intentions and no puns intended, I let them remain. Here is possibly the best (worst?) of them:
Secondly, expanding after you’ve penetrated is hard on several counts
Read the whole post!