Dear SaaStr: What Are Some Common Misconceptions About Venture Capitalists?
My learnings, from sort of the inside:
- That they are (mostly) successful. Most VC partners don’t return 1x in cash what they invest. It’s hard! Most VCs you will meet are not successes, at least, not yet. And even if the VC firm is a success (and many firms aren’t), returns are often driven by just 1 or 2 of the partners in each firm.
- That the VCs you know are all “great guys.” Many VCs are good people. But they are in sales folks. Grin fracking is very common in VC. Don’t pick a VC based on who you like. Pick a VC based on who can help the most, and who won’t throw you under a bus.
- That they spend most of their time in pitches. Managing existing investments usually takes more time than meeting new prospects. Most VCs that have been partners for a while really become professional board members. And job #1 for most VCs is raising more money from their own investors, the LPs.
- That you, they, and everything else isn’t just a product. For the very best, more successful VCs … it can be different. But mostly, everything is a product. VC firms themselves are a product bought by LPs. You are a product. One slot of 30 or so investments per fund.
- That most VCs really care about founders. The best do, mostly. Especially if they were founders themselves. But most VCs care almost entirely about their % ownership on the cap table and the value of their stake. Elbows … sharpen. If they really cared about founders that much … it would be different. Not a lot different. But … different. At the end of the day, VCs still often view founders in a somewhat patronizing fashion, as one of many of their children. And boy, they play favorites.
- That most VCs can add value. Most can’t. And deep down, they know this. They know that all that matters is getting into deals.
- That they are all rich. VCs are very well paid indeed. But the compensation, both in fees and carry, diverges widely across partners, for many reasons.
(note: an updated SaaStr Classic answer. Top Dog image from here)
Today is @algolia’s 10 year anniversary
I was lucky enough to lead U.S. Seed in 2014, and then proud to double down:
Super pro rata in Series A
Invested big in Series B
First check into Series C
Invested at $12k MRR, today at hundreds of millions ARR
Some learnings: pic.twitter.com/hb8VCXQ5LQ
— Jason ✨Be Kind✨ Lemkin (@jasonlk) October 20, 2022