In the past couple of days there have been a couple of posts floating around that I really agree with: Michael Arrington's post on working hard; and the response of the quoted developer, Jamie Zawinski, who says, in essence – dont forget who really makes money from your hard work.
Are VCs really just parasites that make money off the work of entrepreneurs? Are entrepreneurs all so desperate to take that evil, evil money?
I really struggle with this. Like brain battling for hours.
Its no secret that I have a real interest in helping startups become successful and that one piece of that success often comes in the form of financing.
After letting it rattle in my brain for the past day or so, here is what I came up with:
The true measure of the VC/entrepreneur relationship is not the money. Its not about "evil" or "desperate." Its not about being taken advantage of, or who makes the most.
Yes money is the most obvious and optical representation of the VC/entrepreneur relationship, and there are many, many VCs that see their entrepreneurs simply as investments regardless of the lip service they provide.
And, yes, almost always the VC makes more on a winning liquidity event than the entrepreneur. (By the way, if you say that's because the VC is taking all the risk…fuck you. The entrepreneur is the one giving up his/her life, health and often sanity to see their dream live. Yes, the VC is taking a risk, but its his fucking job. If he is good at it, he will mitigate the risk appropriately.)
If working with a VC was ONLY about the money, then every entrepreneur that I know would never take the money, unless they desperately needed it.
But, its not about the money. Yes, its about the connections, and yes its about the social capital, and yes, in many ways, its about the ego.
But thats not it either.
Its truly about advocacy. Its about having someone in your corner that cares only about your success. (Let me also be clear here too. When I say VC/Entrepreneur, I am really referring to the CEO/VC, with the expectation that the CEO is the founder. VCs tend to not talk to the whole team, just like CEOs tend to not talk to the whole partnership. This is an important distinction.)
On the entrepreneur side its about having someone that can help provide you data to help make decisions. Big decisions. Company decisions. Vision decisions.
That's it. Its those two things: advocacy and data.
When I watch the young/first-time VCs its easy to see who will become great.
Its not that they care about entrepreneurship (I would hazard to guess that 90%+ of VCs got into the business because they believe in entrepreneurship), its that they care about entrepreneurs. Their blogs are full of information for entrepreneurs. They are accessible. They spend hours and hours with entrepreneurs — some of which they are not investors. (Its easy to see the ones that arent going to do as well – their blogs are full of bluster and they dont tire of showing how smart they are in their understanding of markets, products or companies.)
I've mentioned these guys before, but as I continue to think about what kind of VC I would be, I keep coming back to them. Josh Felser of Freestyle Capital and Jeff Clavier of Softtech VC have both passed on me — probably more than once — but I know I could reach out to either for an introduction/conversation/whatever.
I have been really impressed watching Kent Goldman at First Round (passed), Ryan Swagar and Brandon Zeuner at Venture 51 (invested) and Jonathon Triest at Ludlow Ventures (invested) grow as investors over the last year or so. I once spent about 10 hours playing Werewolf with Dave Hornik, of August Capital and while I have never pitched him or had much opportunity to spend time with him, the value he placed on people (intelligence, truth and leadership) tells me that one day I hope to do both.
My current lead investor, Blair Garrou of DFJ Mercury and I talk probably 2-3x a week. Often not about the business, but about being a better CEO and leader.
An entrepreneur spends an amazing amount of time learning about the market they are entering. They spend hours and hours pouring over metrics.
The best VCs have enough personal experience with enough companies to say "you guys are thinking about doing X. Here is what happened when companies A, B, C and D made the same decision." When I was at Lijit, Brad Feld of Foundry Group talked about the "one key metric" a startup should manage towards, and I watched Todd Vernon make real decisions around that metric and saw the company continue to focus and grow until they recently had a positive exit.
Its impossible to get that type of data from other CEOs, or from the market or Google Analytics.
As a entrepreneur there is nothing more important than advocacy and data. Nothing.
So are VCs evil? Do they make all their money on the backs of desperate entrepreneurs?
I wish it was an easy answer. What I do know, is that for me, the only type of VC I will ever work with is one that understands the value of advocacy and data, and believes its their responsibility to provide both, rather than just write a check.
- A New Deal Flow? Startup Raps For Angel Funding, Venture Firm Responds In Kind (techcrunch.com)
- Morgan: Why Entrepreneurs Should Never Meet VC's Unless They're Formally Pitching (askthevc.com)
- Are People Who Claim To Be "VC Brokers" Legit? (askthevc.com)
- Entrepreneurs Thoughts On VCs And Angels (askthevc.com)
- 500Startups: Cohort Metrics For Startups (askthevc.com)