Dear SaaStr: How Many Deals a Year Do VCs at Bigger VC Funds Do a Year?
Not as many as you’d think.
This is a really important question because it creates so many non-obvious VC-founder dynamics. There are some partners that do more but the number is generally 1-2 per year at most traditional Series A/B/C VC firms, maybe 3–4 at pre-seed funds, and the partners do start to slow investment down after 7–10 board seats. {Some newer firms seem to find a way to do a lot more, I suspect by buying less in each deal and still taking about the same number of board seats, more or less.}
We all think VCs are more diversified, and active in more deals, than they really are. In fact, as individual investors, they are relatively concentrated (if, of course, less so than a founder). The deeper diversification, such as it is, is across the firm.
What are some of the implications of just 1-2 deals a year per partner? Both as a founder and someone who’s made 30 venture investments and worked with 100+ venture-backed startups over the years … my observations are:
- “Why Won’t Someone Just Take a Risk on Me?” You hear this from great entrepreneurs with incomplete teams or slightly off-center start-ups all the time. As great as they are as individuals, or thinkers, their 85% complete team or company just can’t get anyone to take a chance on them at any valuation. Well, maybe a VC would if they did 10 deals a year. Take more of a flyer on 1 or 2 out of 10, more like angel investors do. But if you only do 1-2 a year … you gotta feel that each deal is on-target …
- Why VCs Outbid Each Other. It’s so hard to get venture capital, statistically speaking. But if you get 1 term sheet, you may be able to get 2 or 3. And if there’s competition, VCs will outbid each other in a heartbeat. I think if you did 10 deals a year (like an angel), you might move on. But if you can only do 1-2 deals a year, and there’s one in your crosshairs … you want to close it at all costs.
- Why There’s So Much Drama on Exits and at Board Meetings. If you’ve ever been through M&A and/or IPO you know … there’s a lot of drama. And Board Meetings seem to have way too much drama if you ask me. Perhaps it’s like if you have 10 kids vs. just 1-2 I think. With 1 kid, every decision is scrutinized. If you had 10, I can only imagine, you barely can just keep your head above water and make general decisions. At 20, you’d just smile I guess, and try to remember their names.
- The Herd Mentality. I think for some VCs, the need to only do 1-2 deals per year can perhaps fuel herd mentality and groupthink. If you had to find 10-20 deals a year, you’d be constantly on the prowl for something new that no one else had ever heard of. And I’d think it would be pretty easy to convince the other partners to do almost any reasonable deal, given the volume of deals. With so few deals, with lots of partner scrutiny — I think sometimes at least, it may be easiest to just wait to do your one deal until September (after the summer break), and just invest in a hot company.
