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Chapter 15. Why Taxi Drivers Don’t Take Venture Capital

Mike Carter owns Revere Taxi, a thriving cab company in Boston, MA.¹ He emailed me a few years ago² to ask for advice on how to raise venture capital to expand his business. Mike had picked up on an intriguing opportunity: a change to local ordinances meant that massive casino development was underway in the state. He was running a great business with his current fleet, but with the capital to expand, he could tap into this new market, gain share, and increase revenues and profit significantly.

For someone who lives in the startup world, VC funding for a traditional cab company sounds pretty silly. But I’m sure I’d say a lot of silly things if I were getting into the taxi business, too. So I figured I’d point him to a simple explanation of why traditional taxi companies (actually, traditional services companies in general) aren’t appropriate for VC. I searched around a bit to find him a good article. With no luck.

It turns out that the world at large does not understand what exactly VCs intend to do with their stockpiles of billions. Experience has shown me that, as a result, scores of good companies (but bad VC investments) waste precious time and energy chasing after a category of investor that is simply not going to be able to help them.

VCs look for a set of very odd, unusual things when they invest. To find them, they rule out a lot of great companies. Most of them, in fact. VC is a very specialized business. That’s ...