Q: How can you identify weaknesses of Venture Capital organizations? Where do they come from?
Is an interesting question — what makes a “weak” VC firm, from a founder’s perspective? Or a “weak” partner at a firm?
What does a founder want from a VC, let’s make a list:
- Money, today.
- Money, for future needs, and in future rounds (people don’t think about this enough).
- Positive brand equity — so other VCs will want to follow them in the next round, the next fundraising. To inspire recruits. To inspire the existing team.
- Not getting in my way too much.
- Ideally, help.
VCs can be “weak” then in several ways:
- Money today: they can’t write a big enough check today. But you’ll figure this out pre-term sheet, so it’s not a huge issue. Bear in mind as you meet with VCs, though, most don’t want to invest more than 2% of their fund in a “first check”. So if you are asking for $10m from an $80m fund … it’s probably not going to happen. Check how big their last fund was, and make sure you at least sort of fit into their model.
- Money tomorrow: they can’t write you a second check. This is more nuanced. But, Famous, Successful Partners can pretty much always write a second check. John Doerr can fund anything he wants. But that new partner that just joined? She may need to convince everyone else to write you a second check unless there is an amazing lead. That’s a higher bar. Also, again, the smaller the firm, the harder it is to write a larger second (or third) check. It just becomes too large a % of the fund.
- No one wants to follow them in the next round. This is subtle, but if you have a “weak” VC, no one at other firms will want to write the next check unless you are totally killing it. If you have a VC people want to follow … then at least, everyone will want to meet you. And will give you a bit of the benefit of the doubt.
- Getting in your way. In my experience, the most successful VCs get in your way the least. They may push you like crazy. But after a few decacorns, they know the pattern. Anyhow, weak VCs that have no successes under their belt and are in weak positions in the firm (e.g, no wins after 2-3 years) … they really get in your way. All. The. Time.
- Ideally, help. Yes, strong VCs can actually help. They can open the rolodex. Get you VPs. Get you customers. Make sure you don’t screw up the hiring. Help you build the operating plan. Whatever it is. But most can’t. Not really.
So look for:
- Your “sense”. You will sort of “know” if they are a Hot VC. Really, you will. You don’t know everyone. Don’t take Twitter and all that too seriously. But … you’re not wrong.
- Success. Both before they were a VC, and as a VC.
- Process and Group Body Language. Ask them what it takes for them to get a deal done. The less it takes, really, the less weak they are. Ask them (thanks ). If you have to do 3 rounds of partner meetings before “pitching” the partners as a group — that’s OK. But that partner (if she really is a partner) may be fairly “weak”.
Anyhow a Weak VC is much, much better than no capital 🙂 So don’t sweat it or over analyze it. But all things being equal … take a Strong VC.
Because if you are doing OK, but you miss the plan, and you have a Weak VC … it may be a lot tougher than if you had a Strong VC. A lot tougher.