How to avoid the venture capital trap

February 19, 2014: 10:31 AM ET

You might think the only path to building a successful startup is to learn to code, drop out of college, raise $50 million from venture capital firms, and sell to Google. That's not the case, at all.

By Devin Mathews

Coins on mousetrap

FORTUNE -- Over the last 20 years working with technology entrepreneurs, I have seen a dramatic increase in the influence of what I like to call the Venture Industrial Complex (VIC) -- a loose group of venture capitalists, bloggers, mentors, advisors, seed funds, accelerators, and conferences that feed the American fascination with all-or-nothing entrepreneurship for personal gain.

If you regularly consume tech news, you would think the only path to building a successful startup is to learn to code, drop out of college, raise $50 million from venture capital firms, and sell to Google (GOOG) for a huge price based on clicks, views, likes, or something other than revenue or profits. It makes for a great yarn, right? But perhaps it's not as entertaining as when the rags-to-riches tale turns into a spectacular failure.

Across many high-profile business and tech publications, these stories consume all the oxygen about entrepreneurship. And it is the path that the VIC needs to push to keep feeding its own interests. I would guess that this meta-industry generates more profits from endorsing and encouraging entrepreneurs to get on this path than the combined profits of all the startup companies following this path.

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Now, I can hear you thinking, "but you're forgetting about the lean startup model where you bootstrap, keep costs low, and tweak your way to success." My response: just look around at those who are promoting this approach. It's the same VIC crew with a new spin -- start lean until it's time to raise that big round from an institutional venture capital firm who can really show you how to grow. While starting lean usually means raising as little outside capital as possible, the truth is you shouldn't raise any outside capital to start a business if you have deep relationships in an industry and really know what customers want.

By far, most tech company founders use personal savings to fund their companies until they are profitable, but this garners little press. It's just not that exciting to read about someone who has spent two decades in an industry before starting his own company with his own money who is now running it profitably and employing a couple hundred employees in a secondary tech market like Atlanta or Dallas. But this is, in fact, the story that needs to be told more often because it is achievable, it is common, and it is companies like these that prop up the U.S. economy.

Please don't take my cynicism for the VIC as disrespect for the entrepreneurs caught up in the euphoria. Most of them don't know any better; the advisors surrounding them, the business schools teaching them, and the bloggers targeting them are built to feed this notion that theirs is the one true way. For many others, they just want to feel the heat of the bright lights on Demo Day and finally get rich like that guy they went to college with who was employee No. 10 at Facebook and just bought an island.

But entrepreneurship doesn't work that way. It is the original get-rich-slow business.

I have met thousands of successful technology entrepreneurs running large and profitable businesses without the aid of the VIC. These founders are succeeding with their own money, customer relationships, and a healthy dose of luck. Many of these entrepreneurs founded a company out of frustration from working in an industry for over a decade, spent years building their company one customer at a time, owned all the equity themselves, and had profit discipline from day one.

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Building your company this way gives you the flexibility to make mistakes along the way without the fear of your VCs pulling the plug. Sure, this way doesn't get much press but it comes with control over how fast you climb, where you place your bets, and who and when you add to your team. As the saying goes, revenue is for vanity and profit is for sanity.

But knowing the path and being suited for it are two very different things. You need deep insight into the trends driving an industry and the needs of customers in that industry, the stomach and nest egg to slog through years of uncertainty, self-awareness to change when things aren't working, confidence to surround yourself with people smarter than you are, and courage to be alone with your thoughts.

Entrepreneurs have always built businesses this way. You just don't hear much about it anymore.

Devin Mathews is a managing partner at Chicago Growth Partners. A version of this post originally appeared on pefuncast.com.

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