11 ms·

Do VCs really add value? Founders say sometimes

184 points by imartin2k 8y ago

montrose 8y ago
"Founders rank speed as their 3rd most important criteria and VCs, in fact, ranked it as the least important one." This disconnect represents a significant opportunity for new VC firms.
- deleted 8y ago
  [deleted]
simonbarker87 8y ago
VCs (and investors in general) in my experience are money and a headache, but the money is super useful.
- mirceal 8y ago
  Hmm... I will disagree there. Yes it can be challenging but the thing to keep in mind is that a good VC will come with a lot of experience and a lot of contacts that he/she will leverage in an attempt to make you successful.
wjossey 8y ago
I’ve seen both sides of it now, and can definitely attest to having a great experience with the Flybridge team. From intros that have turned into sales, letting us crash in their office multiple days a week to save on office space, or sharing their WeWork credits so we could book some conference rooms for free. They do things the right way, and are just a really enjoyable team to be around. They’ve been instrumental in helpful us grow during our first year of existence, and we wouldn’t be as far along had we not chosen to work with them. But, the point of “sometimes” is still a valid one. So, be selective if you are looking for someone who will be more than just a check.
iseff 8y ago
Speed is one of the most underemphasized traits of a great VC for founders. While fundraising, a quick yes is the best answer, but a quick no is the second best. Investors who follow this are truly founder friendly: it's easy to stall and wait for more data, but it's actually helping the entrepreneur to just say no. Those are the investors I want to pitch again later. It's no surprise founders rank speed highly while investors don't. Find investors who care about speed and you'll find a great partner.
- jasode 8y ago
  >It's no surprise founders rank speed highly while investors don't. There may be some nuance missing in the slide.[1] Based on the article's text, that right column should actually be subtitled "what VCs think the founders rank as most important" instead of "important to VCs". The left side is self-reporting (founder's ranking). But the right side is a "Theory of Mind"[2] exercise (what VCs think founder's ranking would be). I'm not a VC but it seems to me that that "network/rolodex" should be higher rank than "speed". I wonder if founders rank speed above "rolodex" because many startups' bank accounts are near zero and they can't make payroll next week if the VCs drag their feet. Financial duress scenarios like that during fundraising may make founders overemphasize "speed of a deal" to the detriment of other more important factors. [1] https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ [2] https://en.wikipedia.org/wiki/Theory_of_mind https://en.wikipedia.org/wiki/Theory_of_mind
  - thrav 8y ago
    I think it’s as simple as, VCs want to believe Founders care about the things they’re investing in heavily. The same way we would all like to think hiring is about qualifications and skills, but really it’s almost always more heavily about relationships.
  - wpietri 8y ago
    At least anecdotally, I don't hear much from founders who are that close to zero. In my experience, speed is important because slowness drastically increased cognitive load and somewhat increases risk during fundraising. And also because fundraising is a distraction from why they got into it. One way to think about it is in terms of a graph of number of VCs they have to think about/deal with at once. They're going to start the fundraising process with a list of firms, people, etc. Let's say that each week they take on n new items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many of the conversations in different states. Complexity goes up and/or throughput goes down. It's painful. I suspect for entrepreneurs speed it also code for clarity, in that the "vc no" (and specifically the "California no" [1]) often present as slowness when it's really about something else inside the VC. [1] http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html
cwmma 8y ago
I have to wonder, about the different levels of reported contact, how much is actual VCs over estimating how much they contact they have with companies, and how much is that the VCs who actually responded to the survey were possibly atypical, like the ones who contact the companies less frequently are also less likely to fill out a survey
baxtr 8y ago
I regularly go from hating VCs (DHH style) to thinking that they are pivotal in creating categories that didn’t exist before. A charismatic founder with a strong vision and supporting VC can indeed change the world (hopefully to the better)
- mkirklions 8y ago
  I have a hard time understanding why capital is needed. For apps, a single person can build a major app in a year. For products, tooling is often between 50k-1M. Everyone here is a software engineer or similar, so that money isnt hard to make/save. Can anyone explain? Advice + support is extremely valuable, but I dont quite understand why so many startups go this route.
  - shawn 8y ago
    Among other reasons, capital allows you not to worry about turning a profit until later. See Github, for example, which was never profitable.
  - inlined 8y ago
    I suspect it's because many can't save that much early in their career and may not want to bet their life savings. Alternatively, VC interest is both a cheap experiment in market fit and a boost to your brand. Media is more likely to report on your little startup if it's a YC darling and marketing or sales are at least as important as engineering.
  - Mirioron 8y ago
    Because if you finance your idea yourself you're going all in. You're basically putting your career at stake there. If you have family then that can be a very difficult choice to make. The other reason is that if you have other people invested in it (the VCs) they will also try to help you through things like helping you get contacts etc. Also, even if you build an app that doesn't mean anything. You need to get some marketing campaign out and you need to make sure you don't violate any laws or regulations. You have to do all of this alone.
  - 8y ago
austenallred 8y ago
I think it changes a whole lot based on who you work with. In my experience it seems like 75% of VCs are neutral. They try to be helpful, aren’t really, but don’t get in the way, and their cash is green. They can email me two times a day if they want, it won’t help me any more (and will be annoying). 10% are actively harmful. Either they have really bad advice, are a distraction, or try to lead your company down bad paths. 15% are incredibly helpful (maybe the 10% and the 15% should be switched), and you should do whatever it takes to work with them. They can think through problems instantly, see 15 steps ahead, understand where you are and what you should be focusing on, know everyone, and actually put in the work. I’ve been shocked at how helpful some VCs can be in eliminating most of your biggest problems. It’s just rare that happens. That’s why I’m surprised to see how little “track record” was valued. With few exceptions that’s my #1 consideration when deciding who to take money from, or perhaps #2 begind “reputation.”
- dalbasal 8y ago
  Are you accounting for help, in the area they're supposed to be good at? Finding further investment, recruiting senior people (eg a CFO), finding exit options, finding acquisition targets, legal, accounting... Thoses aren't things you need everyday, but outside of most founder's expertise on the days they do. I mean it's great if they can help with product strategy, or technical stuff but.... they're finance people. I feel like setting this expectation might lead to no good.
  - austenallred 8y ago
    Yes. Good VCs can do the above - that’s a layup, mediocre VCs try to help at the above but are hit and miss on their helpfulness.
- cabaalis 8y ago
  I've taken some money from VCs. (~1m over 2 rounds.) In some cases they wanted to be very active in the business, in others they were more passive. The ones who wanted to be very active were problematic, mostly because the founders did not welcome their strategy contributions and there seemed to be an inherent suspicion of their intentions. When the business failed, this only amplified. It would seem to me the best situation would be a VC who actually has industry experience in your target market. I'm not talking about SaaS experience or hardware/software xp, but connections and experience in the actual industry you are trying to disrupt.
ianamartin 8y ago
For me, the value I'd get from an investor would be industry contacts. I'm self-taught, haven't worked anywhere big, and grew up in a not-very-techy part of the country. For the side-projects I have brewing that would potentially be businesses, the value of investment capital pales in comparison to getting my feet in the door to show off my work to people who might be interested. That's a data point of one, and VCs are dealing with . . . uh, everyone but me. So I'm not making a blanket statement about what value should be. But that's what I would find useful.
startupdiscuss 8y ago
The problem with this study is that there are only two agents: founders and VCs. And whatever credit does not go to VCs implicitly goes to founders. They did a study of married (heterosexual, this is an old study) couples and asked them what % of the housework each did. The percentages always added up to over 100%, and in some cases a lot over. There were many reasons why people attribute their own contributions to be greater than that of others. This just seems to be the same phenomenon on steroids. They should ask the founder how helpful the VC is compared to the banker, or the advisor on the board. They should perform other sorts of comparisons to add context. Consider that VC may be performing functions that are useful but are not properly appreciated, for instance, signalling. Edit: Also consider the VC contribution of raising money and then staying out of the way.
nicodjimenez 8y ago
One interesting thing I've learned as a technical founder is that the difference between lame business people and great business people is actually just as big as the difference between lame engineers and great engineers, if not bigger. Great business people and investors will give you actionable insights, lame business people will give you generic business advice that will waste your time.
- nikanj 8y ago
  Financials/execution/governance are surprisingly similar to programming. You have to have a solid overall design, and a bug-free implementation. A great architect creates frameworks and structures that enable less-experienced people to be productive as well, while simultaneously making many of the typical errors impossible. In a typical startup, the "business guy" is responsible for both the business insights, and the actual running of the corporation. On the other side of the fence, the technical finder is responsible for the product ownership and implementation. Both parties would benefit from reflecting on the similarities. One of the big ones for me was realizing a "business visionary" who can't create a cash flow forecast is about as useful as an enterprise architect who can't code fizz buzz. It's not exactly in the job description, but being useless at the implementation almost always makes you useless at the design too.
nigekelly 8y ago
There is severe bias in this study. Are entrepreneurs going to really come out and say what they really think? After all they need the money. Why weren't the institutional investors/LPs surveyed to see what they think of VC/GP value add? I think this would be more telling about who the good/bad VCs are ..... who's bringing home the bacon across the board consistently. A bad VC may do well with one investment, get great feedback from that founder but yet destroy investor capital on all other investments..... meaning the LPs are down on the money they put in. The Kauffman foundation produced a great study of return performance from VC/GPs back to LPs several years ago. The conclusion was that investing in VCs produced very poor returns. The Russell 2000 index was a superior investment alternative.
rdlecler1 8y ago
Most VCs are running a lifestyle businesses (ironic). I’m going to guess that some of the larger platform VCs are pulling the numbers up so remove those and the picture becomes much more bleak.
yashevde 8y ago
I wonder what the value of the Personal Chemistry factor is.. it sounds like just a meta-feature in this study that would be highly correlated/anti-correlated with the other features. I.e. if a VC isn't as strong on the Deal Terms as the entrepreneur would like, it would negatively impact the Personal Chemistry. The link between Personal Chemistry and value add isn't clear to me here
dick_sucker2 8y ago
What would the value add be of getting the money faster or with less stress vs. the value add talked about in the article? I'm thinking that perhaps security tokens may change the dynamic in the future because they allow a founder to raise seed money faster with less unfavorable conditions.
- btilly 8y ago
  Fundraising is a distraction. A founder who is engaged in fundraising finds it difficult to focus on their actual business. Being able to get back to the business quickly therefore provides a very obvious value proposition for the founder. VCs have the rather different requirements. People looking for their money is an ongoing activity for them, so there is no particular advantage in ending that dance with any particular founder. Indeed, not being in a hurry to make a deal when the other side is improves their bargaining position. (Unless someone else is faster.) And the more likely they are to hear about a showstopper that would make them decide to not invest. The result is that VCs want to drag negotiations on as long as possible..right until the moment that it is clear that some other VC is leading the investment and their possibility of getting a piece of the action is slipping away. This is why what YCombinator does works so well. They decide very fast on whether you're in a batch. They standardize terms, which makes it harder for investors to drag their feet. And on demo day, every investor knows that they are competing with other investors in an investment round that will close quickly. This forces them to make a go/no-go decision. Interestingly, the fact that founders get to raise money quickly and get back to their business improves their businesses odds of survival. Which improves the prospects for investing in them.
xivzgrev 8y ago
The article says this "VCs ranked top 3 criteria they thought the founders evaluated them on." Then the supporting chart is labelled "most important factors for partnering or making investments" Which is it? Were VCs asked about what they believe founders value, or what they find important in making investment decisions? Because the article points out track record is rated low. Which makes sense for the former but makes zero sense for latter, so I'm guessing chart was just mislabelled.
rdlecler1 8y ago
If a founder focus on terms instead of value add VCs then we shouldn’t be surprised that most VCs are not all that helpful.
deleted 8y ago
[deleted]
lpolovets 8y ago
My perspective from the VC side is similar to Austen's (https://news.ycombinator.com/item?id=17284114 https://news.ycombinator.com/item?id=17284114): a lot of VCs are neutral, some are very helpful, and others are destructive. I've seen this dynamic from both talking to founders about whether they find investors helpful, and from sitting in on board meetings where other investors are present. The best way to understand what kind of investor you're talking to is to reach out to a handful of founders they've worked with and ask them about their experiences. A few other observations from my 5-6 years so far in VC: * Founders spend 3000 hours/year focusing on their business and domain while investors spend 3000 hours/year learning about hundreds of business and hundreds of domains. As a result, >95% of the time founders know way more about their specific business than their investors. On the other hand, >95% of the time investors know more than founders about cross-business strategies and ideas. So investor advice is best when it's related to their broader perspective: what kind of recruiting channels work best for the 50 companies they work with? What are tips for negotiating a contract? What are good pricing strategies? How early do companies typically hire a VP of Eng? Most investors won't be helpful for domain-specific questions like "will power plant operators really want this feature in my SaaS product?" or "what's the best marketing channel for reaching power plant operators?" * Even for a single investor, their helpfulness will vary company to company. My guess is that if you polled the founders I've worked with, 1/3 would say I'm very helpful, 1/3 would say I'm somewhat helpful, and 1/3 would say I haven't helped much. I hope/think none of the founders would say I subtract more than I add. Sometimes it turns out I can help a lot, like if you're looking for a VP of Eng and I know a great candidate who is looking for a job. Other times I can't help at all, like if you want to be introduced to power plant owners and I don't know a single one. I do my best to help when I can and stay out of the way when I can't.
mathattack 8y ago
It’s a broad mix. My unscientific (small) sample has been that the best advice came from the most famous VCs from the largest firms. (It surprised me, but I guess their fame and fortune were well earned) I’ve also seen extremely helpful late stage strategic investors who brought great customer introductions. My view is that things deteriorate when the CEO ceases to be honest with the investors, or when the investor is out of their natural element.
pipio21 8y ago
Ohh, yeah!! The value they add is called "money". They give you it every single time(you work with them), not sometimes. If you expect them to babysitter you, mentor or friendship, from my point of view it is your expectations that are wrong. You should find emotional support elsewhere. I recommend masterminds. I am friend and colleague of old VCs of mine. But I did not expected from them in the past more than a professional relationship. This is probably what makes a good friend or a lover , not being too much needy and dependent.
cascom 8y ago
This doesn’t seem that surprising, most of these companies are “failures” - seems to stand to reason that many of these founders would cast some blame on the VCs (perhaps for not continuing to support the business when it was clear that it was not working). Also not surprising is the that VCs overestimate their value. Lastly founders probably have a much more diverse (and perhaps incorrect view - probably fostered by the VCs) of actual value add of VCs.

184 points by imartin2k 8y ago

"Founders rank speed as their 3rd most important criteria and VCs, in fact, ranked it as the least important one." This disconnect represents a significant opportunity for new VC firms.

deleted 8y ago
[deleted]

simonbarker87 8y ago

VCs (and investors in general) in my experience are money and a headache, but the money is super useful.

mirceal 8y ago
Hmm... I will disagree there. Yes it can be challenging but the thing to keep in mind is that a good VC will come with a lot of experience and a lot of contacts that he/she will leverage in an attempt to make you successful.

wjossey 8y ago

I’ve seen both sides of it now, and can definitely attest to having a great experience with the Flybridge team. From intros that have turned into sales, letting us crash in their office multiple days a week to save on office space, or sharing their WeWork credits so we could book some conference rooms for free. They do things the right way, and are just a really enjoyable team to be around. They’ve been instrumental in helpful us grow during our first year of existence, and we wouldn’t be as far along had we not chosen to work with them. But, the point of “sometimes” is still a valid one. So, be selective if you are looking for someone who will be more than just a check.

iseff 8y ago

Speed is one of the most underemphasized traits of a great VC for founders. While fundraising, a quick yes is the best answer, but a quick no is the second best. Investors who follow this are truly founder friendly: it's easy to stall and wait for more data, but it's actually helping the entrepreneur to just say no. Those are the investors I want to pitch again later. It's no surprise founders rank speed highly while investors don't. Find investors who care about speed and you'll find a great partner.

jasode 8y ago
>It's no surprise founders rank speed highly while investors don't. There may be some nuance missing in the slide.[1] Based on the article's text, that right column should actually be subtitled "what VCs think the founders rank as most important" instead of "important to VCs". The left side is self-reporting (founder's ranking). But the right side is a "Theory of Mind"[2] exercise (what VCs think founder's ranking would be). I'm not a VC but it seems to me that that "network/rolodex" should be higher rank than "speed". I wonder if founders rank speed above "rolodex" because many startups' bank accounts are near zero and they can't make payroll next week if the VCs drag their feet. Financial duress scenarios like that during fundraising may make founders overemphasize "speed of a deal" to the detriment of other more important factors. [1] https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ [2] https://en.wikipedia.org/wiki/Theory_of_mind https://en.wikipedia.org/wiki/Theory_of_mind
- thrav 8y ago
  I think it’s as simple as, VCs want to believe Founders care about the things they’re investing in heavily. The same way we would all like to think hiring is about qualifications and skills, but really it’s almost always more heavily about relationships.
- wpietri 8y ago
  At least anecdotally, I don't hear much from founders who are that close to zero. In my experience, speed is important because slowness drastically increased cognitive load and somewhat increases risk during fundraising. And also because fundraising is a distraction from why they got into it. One way to think about it is in terms of a graph of number of VCs they have to think about/deal with at once. They're going to start the fundraising process with a list of firms, people, etc. Let's say that each week they take on n new items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many of the conversations in different states. Complexity goes up and/or throughput goes down. It's painful. I suspect for entrepreneurs speed it also code for clarity, in that the "vc no" (and specifically the "California no" [1]) often present as slowness when it's really about something else inside the VC. [1] http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html

cwmma 8y ago

I have to wonder, about the different levels of reported contact, how much is actual VCs over estimating how much they contact they have with companies, and how much is that the VCs who actually responded to the survey were possibly atypical, like the ones who contact the companies less frequently are also less likely to fill out a survey

baxtr 8y ago

I regularly go from hating VCs (DHH style) to thinking that they are pivotal in creating categories that didn’t exist before. A charismatic founder with a strong vision and supporting VC can indeed change the world (hopefully to the better)

mkirklions 8y ago
I have a hard time understanding why capital is needed. For apps, a single person can build a major app in a year. For products, tooling is often between 50k-1M. Everyone here is a software engineer or similar, so that money isnt hard to make/save. Can anyone explain? Advice + support is extremely valuable, but I dont quite understand why so many startups go this route.
- shawn 8y ago
  Among other reasons, capital allows you not to worry about turning a profit until later. See Github, for example, which was never profitable.
- inlined 8y ago
  I suspect it's because many can't save that much early in their career and may not want to bet their life savings. Alternatively, VC interest is both a cheap experiment in market fit and a boost to your brand. Media is more likely to report on your little startup if it's a YC darling and marketing or sales are at least as important as engineering.
- Mirioron 8y ago
  Because if you finance your idea yourself you're going all in. You're basically putting your career at stake there. If you have family then that can be a very difficult choice to make. The other reason is that if you have other people invested in it (the VCs) they will also try to help you through things like helping you get contacts etc. Also, even if you build an app that doesn't mean anything. You need to get some marketing campaign out and you need to make sure you don't violate any laws or regulations. You have to do all of this alone.
- 8y ago

austenallred 8y ago

I think it changes a whole lot based on who you work with. In my experience it seems like 75% of VCs are neutral. They try to be helpful, aren’t really, but don’t get in the way, and their cash is green. They can email me two times a day if they want, it won’t help me any more (and will be annoying). 10% are actively harmful. Either they have really bad advice, are a distraction, or try to lead your company down bad paths. 15% are incredibly helpful (maybe the 10% and the 15% should be switched), and you should do whatever it takes to work with them. They can think through problems instantly, see 15 steps ahead, understand where you are and what you should be focusing on, know everyone, and actually put in the work. I’ve been shocked at how helpful some VCs can be in eliminating most of your biggest problems. It’s just rare that happens. That’s why I’m surprised to see how little “track record” was valued. With few exceptions that’s my #1 consideration when deciding who to take money from, or perhaps #2 begind “reputation.”

dalbasal 8y ago
Are you accounting for help, in the area they're supposed to be good at? Finding further investment, recruiting senior people (eg a CFO), finding exit options, finding acquisition targets, legal, accounting... Thoses aren't things you need everyday, but outside of most founder's expertise on the days they do. I mean it's great if they can help with product strategy, or technical stuff but.... they're finance people. I feel like setting this expectation might lead to no good.
- austenallred 8y ago
  Yes. Good VCs can do the above - that’s a layup, mediocre VCs try to help at the above but are hit and miss on their helpfulness.
cabaalis 8y ago
I've taken some money from VCs. (~1m over 2 rounds.) In some cases they wanted to be very active in the business, in others they were more passive. The ones who wanted to be very active were problematic, mostly because the founders did not welcome their strategy contributions and there seemed to be an inherent suspicion of their intentions. When the business failed, this only amplified. It would seem to me the best situation would be a VC who actually has industry experience in your target market. I'm not talking about SaaS experience or hardware/software xp, but connections and experience in the actual industry you are trying to disrupt.

ianamartin 8y ago

For me, the value I'd get from an investor would be industry contacts. I'm self-taught, haven't worked anywhere big, and grew up in a not-very-techy part of the country. For the side-projects I have brewing that would potentially be businesses, the value of investment capital pales in comparison to getting my feet in the door to show off my work to people who might be interested. That's a data point of one, and VCs are dealing with . . . uh, everyone but me. So I'm not making a blanket statement about what value should be. But that's what I would find useful.

startupdiscuss 8y ago

The problem with this study is that there are only two agents: founders and VCs. And whatever credit does not go to VCs implicitly goes to founders. They did a study of married (heterosexual, this is an old study) couples and asked them what % of the housework each did. The percentages always added up to over 100%, and in some cases a lot over. There were many reasons why people attribute their own contributions to be greater than that of others. This just seems to be the same phenomenon on steroids. They should ask the founder how helpful the VC is compared to the banker, or the advisor on the board. They should perform other sorts of comparisons to add context. Consider that VC may be performing functions that are useful but are not properly appreciated, for instance, signalling. Edit: Also consider the VC contribution of raising money and then staying out of the way.

nicodjimenez 8y ago

One interesting thing I've learned as a technical founder is that the difference between lame business people and great business people is actually just as big as the difference between lame engineers and great engineers, if not bigger. Great business people and investors will give you actionable insights, lame business people will give you generic business advice that will waste your time.

nikanj 8y ago
Financials/execution/governance are surprisingly similar to programming. You have to have a solid overall design, and a bug-free implementation. A great architect creates frameworks and structures that enable less-experienced people to be productive as well, while simultaneously making many of the typical errors impossible. In a typical startup, the "business guy" is responsible for both the business insights, and the actual running of the corporation. On the other side of the fence, the technical finder is responsible for the product ownership and implementation. Both parties would benefit from reflecting on the similarities. One of the big ones for me was realizing a "business visionary" who can't create a cash flow forecast is about as useful as an enterprise architect who can't code fizz buzz. It's not exactly in the job description, but being useless at the implementation almost always makes you useless at the design too.

nigekelly 8y ago

There is severe bias in this study. Are entrepreneurs going to really come out and say what they really think? After all they need the money. Why weren't the institutional investors/LPs surveyed to see what they think of VC/GP value add? I think this would be more telling about who the good/bad VCs are ..... who's bringing home the bacon across the board consistently. A bad VC may do well with one investment, get great feedback from that founder but yet destroy investor capital on all other investments..... meaning the LPs are down on the money they put in. The Kauffman foundation produced a great study of return performance from VC/GPs back to LPs several years ago. The conclusion was that investing in VCs produced very poor returns. The Russell 2000 index was a superior investment alternative.

rdlecler1 8y ago

Most VCs are running a lifestyle businesses (ironic). I’m going to guess that some of the larger platform VCs are pulling the numbers up so remove those and the picture becomes much more bleak.

yashevde 8y ago

I wonder what the value of the Personal Chemistry factor is.. it sounds like just a meta-feature in this study that would be highly correlated/anti-correlated with the other features. I.e. if a VC isn't as strong on the Deal Terms as the entrepreneur would like, it would negatively impact the Personal Chemistry. The link between Personal Chemistry and value add isn't clear to me here

dick_sucker2 8y ago

What would the value add be of getting the money faster or with less stress vs. the value add talked about in the article? I'm thinking that perhaps security tokens may change the dynamic in the future because they allow a founder to raise seed money faster with less unfavorable conditions.

btilly 8y ago
Fundraising is a distraction. A founder who is engaged in fundraising finds it difficult to focus on their actual business. Being able to get back to the business quickly therefore provides a very obvious value proposition for the founder. VCs have the rather different requirements. People looking for their money is an ongoing activity for them, so there is no particular advantage in ending that dance with any particular founder. Indeed, not being in a hurry to make a deal when the other side is improves their bargaining position. (Unless someone else is faster.) And the more likely they are to hear about a showstopper that would make them decide to not invest. The result is that VCs want to drag negotiations on as long as possible..right until the moment that it is clear that some other VC is leading the investment and their possibility of getting a piece of the action is slipping away. This is why what YCombinator does works so well. They decide very fast on whether you're in a batch. They standardize terms, which makes it harder for investors to drag their feet. And on demo day, every investor knows that they are competing with other investors in an investment round that will close quickly. This forces them to make a go/no-go decision. Interestingly, the fact that founders get to raise money quickly and get back to their business improves their businesses odds of survival. Which improves the prospects for investing in them.

xivzgrev 8y ago

The article says this "VCs ranked top 3 criteria they thought the founders evaluated them on." Then the supporting chart is labelled "most important factors for partnering or making investments" Which is it? Were VCs asked about what they believe founders value, or what they find important in making investment decisions? Because the article points out track record is rated low. Which makes sense for the former but makes zero sense for latter, so I'm guessing chart was just mislabelled.

rdlecler1 8y ago

If a founder focus on terms instead of value add VCs then we shouldn’t be surprised that most VCs are not all that helpful.

deleted 8y ago

[deleted]

lpolovets 8y ago

My perspective from the VC side is similar to Austen's (https://news.ycombinator.com/item?id=17284114 https://news.ycombinator.com/item?id=17284114): a lot of VCs are neutral, some are very helpful, and others are destructive. I've seen this dynamic from both talking to founders about whether they find investors helpful, and from sitting in on board meetings where other investors are present. The best way to understand what kind of investor you're talking to is to reach out to a handful of founders they've worked with and ask them about their experiences. A few other observations from my 5-6 years so far in VC: * Founders spend 3000 hours/year focusing on their business and domain while investors spend 3000 hours/year learning about hundreds of business and hundreds of domains. As a result, >95% of the time founders know way more about their specific business than their investors. On the other hand, >95% of the time investors know more than founders about cross-business strategies and ideas. So investor advice is best when it's related to their broader perspective: what kind of recruiting channels work best for the 50 companies they work with? What are tips for negotiating a contract? What are good pricing strategies? How early do companies typically hire a VP of Eng? Most investors won't be helpful for domain-specific questions like "will power plant operators really want this feature in my SaaS product?" or "what's the best marketing channel for reaching power plant operators?" * Even for a single investor, their helpfulness will vary company to company. My guess is that if you polled the founders I've worked with, 1/3 would say I'm very helpful, 1/3 would say I'm somewhat helpful, and 1/3 would say I haven't helped much. I hope/think none of the founders would say I subtract more than I add. Sometimes it turns out I can help a lot, like if you're looking for a VP of Eng and I know a great candidate who is looking for a job. Other times I can't help at all, like if you want to be introduced to power plant owners and I don't know a single one. I do my best to help when I can and stay out of the way when I can't.

mathattack 8y ago

It’s a broad mix. My unscientific (small) sample has been that the best advice came from the most famous VCs from the largest firms. (It surprised me, but I guess their fame and fortune were well earned) I’ve also seen extremely helpful late stage strategic investors who brought great customer introductions. My view is that things deteriorate when the CEO ceases to be honest with the investors, or when the investor is out of their natural element.

pipio21 8y ago

Ohh, yeah!! The value they add is called "money". They give you it every single time(you work with them), not sometimes. If you expect them to babysitter you, mentor or friendship, from my point of view it is your expectations that are wrong. You should find emotional support elsewhere. I recommend masterminds. I am friend and colleague of old VCs of mine. But I did not expected from them in the past more than a professional relationship. This is probably what makes a good friend or a lover , not being too much needy and dependent.

cascom 8y ago

This doesn’t seem that surprising, most of these companies are “failures” - seems to stand to reason that many of these founders would cast some blame on the VCs (perhaps for not continuing to support the business when it was clear that it was not working). Also not surprising is the that VCs overestimate their value. Lastly founders probably have a much more diverse (and perhaps incorrect view - probably fostered by the VCs) of actual value add of VCs.