Dear SaaStr: What Do VCs Offer Besides Money?

Dear SaaStr: What Do VCs Offer Besides Money?

Many VCs, in the end, only offer money and advice you often don’t need (which can be worse than no advice at all).

But the VCs most valuable to me did/do:

1. Catharsis. Beyond your co-founders, few others may be along for the whole journey. Your VCs are. Think about it — who else is so invested in your long-term success? Almost no one else. If they’ve bought 7%, 10%, 20% of your company (with no exit on the horizon) … they’re pretty invested personally. Not as much as you, of course.  Not close.  But maybe closer than almost anyone else that isn’t a founder.

2. Perspective. Anyone can be a critic. What’s much harder is to point out where you are doing better than it looks, better than the founders might think, and what that means. Where to double down, what to not worry so much about. How to see how your initial, small success will compound 3-5 years out. They get better at this the longer they work with you.

3. A Few Good Hires / Potential Hires. VCs can bring you 1-2 great hires, you wouldn’t get to otherwise. They have a good incentive to recruit almost as hard as you do, and network a lot to help you.

4. Someone to Look Out for You. The great ones, especially the early-stage ones, do this. They’re highly invested in you. They’re thinking about what will help you do even better. Be it a COO, secondary liquidity, a vacation 😉 … the good ones are thinking a lot about you and your personal success. Because it’s so critical to their success.

5. More Money. Ok, this isn’t “besides money.” But top VCs attract other VCs to want to invest. That can help.

6. Attract Talent.  A true brand name VC on your board or cap table can help attract top VPs and other candidates.  They overvalue it.  But that’s OK.  Everyone is attracted to brands.

And here’s … how they can actually hurt you a bit:

-1. Push You to Overspend.  A little bit less of an issue at the moment, but a general issue.  Big funds have a lot of money.  They want you to deploy it.  Not burn it all in a month, but to deploy it.

-2. Bad Hiring Advice.  Most VCs haven’t been CEOs and don’t really know what makes for a great VP of Sales, Marketing, or even Engineering.  They love logos.  Logos aren’t always what you need.  Especially in the early days.

-3. Make it Harder to Raise the Next Round.  If your VCs lose confidence in you, they can poison the next round.  With negative references, or even just quietly by not being supportive.

-4. Block an acquisition.  Sometimes, there are fair reasons to do it, for example, if the terms are terrible for investors.  But supportive investors have a rule — they approve any deal that makes them money.  Even if sometimes, they wished the founders would go longer.

-5. Less dilution sensitive.  No investor wants to be diluted per se, but VCs with big checkbooks are less dilution sensitive than angels, smaller investors, and often … founders.  Raise when you need to.  Raise to give yourself a buffer.  And raise when it’s cheap.  But don’t raise otherwise.  You never get those shares back.

-6.  Often disappear later if you don’t do fairly well.  VCs invest in 20+ companies at a time, and as the years go on, they want to refresh their dance cards.  If, after a while, you don’t really take off, they often … disappear.  One way or another.

A related post here:

5 Things No One Tells You About VC Firms

Published on September 6, 2022

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