Broken ecosystem 2: why accessing VCs is hard
Second installment in a series prompted by a post on Vecosys. First installement here.
There is a long running love-hate relationships between VCs and Entrepreneurs. VCs need entrepreneurs because they get paid to put money to work and entrepreneurs need cash to build their businesses, but the former lament the latter’s lack of focus on generating huge early exits whilst the latter lament the former’s lack of understanding of their vision and bizarre focus on cash (by the way anyone who comments on this literally will see their Gapingvoid subscription cancelled). Symbiosis is hard to achieve but more openness and communication is a way to help this process along. And when it works well it can produce great outcomes.
1. Why is it so hard to get through ?
A particular gripe area when it comes to “supporting the community” has to do with the rules of engagement before an investment is actually made. From my experience the criticism levelled at VCs at the pre-investment stage tends to be along the following lines:
- VC’s are impossible to access; when you do access them, you get a 45 minutes meeting which sometimes demonstrates a tendency to move to conclusions too quickly and a fundamental lack of understanding of the business
- VC’s don’t actually like entrepreneurs and find it uncomfortable to mingle with them. They would much rather mingle with representatives of the BVCA and high-profile chairperson types.
- VC’s, when they do engage, tend to express themselves in a dialect that involves expressions such as “we really feel participating preferred with a linear catchup after a 5X return is market standard” or “as long as you are flexible on the reverse vesting I am sure we can get to the finish line”
So here is my balanced opinion: I really think most of this is bogus, except for the jargon bit. The reason you cannot get to the VC that easily is twofold:
- Everyone wants to get access, so most of us cannot respond in depth (if at all in some cases) to all incoming projects unless we (a) give up on our existing portfolio companies (b) don’t pursue the hot opportunities at speed (c) give up on seeing the family and (d) in my case, stop blogging (:-)) There are probably 10-15 funds in the top tier of European funds and about 100 funds with any real funding capability in total. But there are literally thousands of projects seeking funding. So you will understand that attention is scarce. All of us in VC land are equally anxious to find the next big thing, but all of us are needing to be laser focused to get anything done. Time is our most valuable resource.
- Because we unfortunately have limited time to screen opportunities, we rely heavily on circles of trust to act as a first filter. So entrepreneurs we have backed, board members we have worked with, angels we trust, fundraisers who don’t waste their time with unfundable projects and so on are all great ways to get more than your share of attention.
Here is what the implied Darwinian logic is: if you can’t figure out a way to get to your target VCs, you are unlikely to get through the next hurdles that startup life will throw your way. You may think this is harsh, but it’s not once you have built a $20M revenue business that life becomes easier, in fact it tends to become harder. Natural selection starts early.
Beyond that, I cannot buy the arguments that say VC’s are hard to engage with or entrepreneurs don’t know how to approach them at whatever cocktail parties. I for one am highly approachable and find nothing more inspiring that a good in-depth chat about a new business idea with a credible entrepreneur. In fact, that’s why I do this job ! If I did not derive energy from meeting inspring people, I should really be in a different business.
Criticisms I do agree with relate to lack of transparency. I would identify four areas that need more work:
- providing transparency on who’s who and who does what in the venture market. I am amazed at how hard it is for entrepreneurs to differentiate between individual funds and individual partners.
- better SLA’s from the venture crowd in terms of response times and clarity of feedback (myself included)
- educating our entrepeneur on all “supply side” aspects of our ecosystem, such as the negotiation of proper terms.
- fostering a stronger angel community
On that note, there are ton of great initiatives coming up in Europe to help bridge that gap, some of which I and others will be devoting some serious time and energy to. I will talk about this in another post, addressing the topic of how we can indeed engage with the entrepreneur community in a leveraged way a la Seedcamp.
I am conscious that the hard tone of my post might contrast somewhat with the touchy-feely tone of many entrepreneurship or venture blogs, but the reality of VC life is that everyone wants a piece of your day and that those of us who get anything done get there by being brutally decisive about where we spend our time. That’s why access is and will remain hard.
That is not to say that the quality of our ecosystem cannot be improved with more and better education about what each of the parties want out of a venture relationship, or that VC’s should not improve their working practices, as highlighted by Robin. In fact this is the reason why I started this blog in the first place.
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