The portfolio of my potential investor is a total disaster. Would that affect my startup company?

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JASON LEMKIN

Only sometimes.

A VC with a “total disaster” portfolio will have the following challenges:

  • Will be (maybe much) harder to write you a second check in the next round, unless you are doing amazing well and it’s led by Sequoia, Andreeesesen, Benchmark, etc.  Getting a bridge check may be very challenging here.
  • May have weird dynamics if you get a “pretty good” M&A offer.  He may veto your sale because it’s his only decent company and the absolute return to him isn’t enough.  His goose is cooked if you don’t “make the fund” for him.  But this can happen with successful VCs, too.  Just, the dynamics are weirder here and can be counter-intuitive.  It’s harder to predict.
  • Won’t be able to help you raise next round.  The top seed & Series A investors can get the next round VCs to fund their best companies very easily.  All the rest can’t really get their companies funded at all.
  • Next round VCs will know and won’t give you as much credit.  Everyone in the industry knows.
  • Might not even be there forever.  Being an orphan isn’t great.  But this probably is not a real issue.  Mediocre VCs tend to hang around for a long time.   And even if they get “fired”, sometimes all that means is they don’t stay around for the next fund.  They may stay a partner in the fund that invested in you for the full 10+ years.

So … there are concerns … but … all money is green.

And if (x) you are capital efficient, and aren’t too worried about the next round, (y) aren’t giving up real control, and (z) like and trust this VC … I say, no biggie.

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Published on March 18, 2016
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