What are the unspoken downsides of being a VC or angel investor?

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JASON LEMKIN

Look the downsides are small folks. As a founder, you are often days away from total failure. This basically never happens for VCs, and even when it does, it happens over a decade+ (life of a fund).

But. Some non-obvious ones to outsiders:

  • You’re just a number. As a founder, success matters, but on many levels. On how happy your customers are. Your team. Your impact on the market. As a VC, one number matters. Your returns.
  • It’s kinda catty and gossipy. Not a big deal if you are top decile. But there’s quite a bit of gossip around who can’t raise a fund, who did bad deals, etc. etc.
  • Partner disalignment is unavoidable. At most bigger, older firms, the partners are a cumulative assemblage of individuals over many years that probably wouldn’t assemble this way today. It’s just a byproduct of layered partnerships and how VC firms come together over decades and source LP capital. It’s just … different. Than being co-founders.
  • Power law behavior. Once a fund is much larger than $100m-$150m or so, you need Unicorns to make real money. More on why that is here: Why VCs Need Unicorns Just to Survive This sort of de-sensitizes you to startups that can’t become Unicorns, and to any of their sub-Unicorn concerns.
  • It’s “small”. Most smaller VC firms just have a couple of investing professionals. Maybe even one. It’s not necessarily lonely, because you tend to co-invest with other investors and that can be a lot of fun, because it’s a share journey. But most VC firms are “smaller” than even the smallest start-ups.
  • Lots and lots and lots and lots of meetings. This can be hard for founder/CEOs going into venture. Meeting with great founders is always great. But the other 20 meetings. Not so much.
  • Harder to start your own firm than you’d think. There is a recent explosion of micro-VCs and new firms, but most of them, the principals already have strong track records and brands. It’s much harder to start even a very small new VC firm than you’d think. And the economic returns of very small funds aren’t always all that attractive.
  • Deal flow is stressful, and weird. Almost every VC, even the very best, lacks a surplus of A++ level investment candidates. Every investor can meet with an infinite number of B+ start-ups, and even, plenty of A- ones. But the true A+’s … there are only so many. And if you don’t want to lower the bar just a smidge … it’s hard. And if you don’t have a strong brand AND source of founder intros … how do you really get the best ones? You know. You don’t. And even if you do. There aren’t enough of them. It’s sort of low-level, constant, semi-latent stress here. Not daily stress. But constant low-level stress.

Beyond all this, one thing to keep in mind. VC can look lucrative when you are a first-time founder without any savings in the bank. It did to me. More on that here: Why if You are a VC You Should be Insanely Rich

But … the very best founders, the very best ones … can make much more money. With a bigger and better team. And more control. Just being founders.

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Published on June 7, 2016
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