Three things you might have missed about Venture Capitalists
VCs are easy to vilify.
Too often, they are non-responsive. They can be elitist. Aloof. Pedantic. And generally frustrating for most startups.
Many founders have spent hours and hours pursuing or meeting with investors who made no investment, offered no useful feedback, or simply refused to give them any serious consideration.
I’ll give you some secrets I have learned about VC elsewhere, but for now I thought I would share three insights to help you better understand the world of the venture capitalist.
Hopefully, this will help explain some of the off-putting behavior and give you a deeper sense of what’s going on behind the scenes.
- They run a startup (outside of the 20 biggest VCs)
People forget that venture capital firms started somewhere and many of them started recently. Stereotypically, they are just the big, bad money guys who say no to almost everybody. Right?
In truth, most of them are still struggling with their daily workflow because they started within the last ten-or-so years. One day, two or three people got together and said “We know startups. Let’s go invest in some”. Almost all of them have outside capital. Which means that they have investors they need to satisfy.
Essentially, every VC firm is a two-sided marketplace startup.
One side of the marketplace is investors who need quality deals and on the other side is startups who need quality capital.
As with any founder of a two-sided marketplace, most investors are better at one-side. Some are better with investors. Some are better with startups. Few excel at both and there are times when you need to heavily focus on one at the expense of the other.
For example, if you recently held a final closing on a new fund, you are probably scouring the market for fresh, new startups to invest with. If you are 50–60% deployed on your current fund, you are probably starting fundraising for your next fund and not focused on new deals.
In the first example, you (the entrepreneur) would be very successful in getting meetings with the VC. In the second example, you probably have no chance. And that’s not because they don’t like you or your startup. They just need to boost the investor side of their marketplace.
So get to know where a VC is with their fund (marketplace)and save yourself a bunch of wasted time.
2. Non-responsiveness is (usually) a “no”
I hear complaints pretty often from startups that “Jane Venture” isn’t responding to my calls and emails. There are a bunch of reasons for that and almost none of them means you should just bug them more.
As I just said, it might be the wrong time in the fund life for her to invest in anything. Another common occurrence is what I call “thesis deep dive.”
Remember, VCs compete for capital. To win capital (i.e. get investors for their fund) they need to show some leadership in the marketplace. That means thinking of things and executing on concepts that other VCs miss. So a VC may decide they need to make investments in vertical flight in 2019. If they are smart, they will devote the majority of their resources to finding, underwriting, and investing in vertical flight startups.
Then along you come with your awesome, once-in-a-generation computer vision startup.
Your team is best in market.
Your tech is unbeatable.
Your traction is undeniable.
Your customers are peeing their pants to give you money.
Your deck is pithy and concise.
Your pitch is clean and compelling.
And . . .
They don’t even return your email or phone call.
Because it has nothing to do with you. They are dead focused on vertical flight. Your company doesn’t do that.
It’s not an indictment on you or anything you are doing. It’s a simple misalignment of timing. Nothing evil or malicious. Just bad timing.
So, don’t take it too personally if VCs ignore you. Even if you get high-quality, warm email intros. Some people will still ignore you. (They ignore me too.)
To be fair, some people are just like that — They see a little success or make a little money and think they are too important to respond to inbound emails or calls. But most of us genuinely care about helping and meeting with startups and we just get busy with our own fundraising or pursuing our own strategies.
Still, if you are fundraising or need help from a VC, this relationship is a “no” for you. At least, it’s a “not right now”. Who knows how focus and timing shift in the future? For now, spend your time with higher probability investors and put those VCs into your “long-term relationship” bucket in your CRM.
3. They grow and evolve
Much like any other startup, a venture capital firm will grow, mature, and evolve over time. As I mentioned, they are competing with other VC firms for capital from investors. They need to show lessons-learned, future trends recognized, and other thought leadership to attract the type of capital we all want in our funds.
So, just because VC1 is focused on Seed-stage, B2B SaaS startups in the Midwest in 2019 doesn’t mean they will be in two years (or even one year, depending on fund life cycle).
After they make a few bets in B2B Midwestern SaaS and decide to diversify their portfolio a little, they might be looking at your Northwestern B2B SaaS startup. After the other VC makes a few bets on vertical flight, they may be looking at computer vision.
You never know.
And most of them don’t fully know.
Portfolio construction is a dynamic, fluid practice. And it depends heavily on outside forces. So a VC’s needs for their portfolio can change somewhat substantially from one year to another or at least from one fund to another.
Now, it’s unlikely that a Seed-stage, Midwestern B2B SaaS VC firm will be interested in late-stage, B2C startups in Asia any time soon. There needs to be some linearity to how these funds and their theses evolve. They may go one stage later or earlier (Seed to A). They may go to a broader geography (midwestern to national). They may start including hardware to compliment their software investments. Those are one-step jumps. Not radically different.
The takeaway is that these VC marketplace startups grow, pivot, and iterate as they see data and feedback from the market. Just like any other startup would. Keep tabs on these guys/gals and make sure you have a semi-recent update on their portfolio needs.
I suppose you could summarize these points as — VCs are just people creating/growing a marketplace startup and you need to put yourself in their shoes to understand/utilize them.
Emotional intelligence is both difficult and rare, but I think the wise founder will see that they will get more from their VC partners (yes, the good ones are true partners) when they can put themselves in the shoes of those VCs and really try to understand what they are going through with their marketplace startup.
