What do startups wish VCs knew?

Full disclosure – I’m a venture capitalist so I know there are mixed feelings about VCs. On the one hand, venture capital is an important piece of the broader startup puzzle. Done right, venture capital can be a wonderful, positive force for startups and the innovation economy alike.

On the other hand venture capital can also, at timesfat cat, be really messed up.  Done wrong, it can be a negative, destructive toxin.

There’s plenty of advice out there (books, articles, etc.) telling startups how to engage with VCs in the hopes of raising money.  The world usually sees venture capital from the perspective of empowered givers and hopeful receivers (think ‘Shark Tank’).  How about looking at things from the opposite perspective?  What advice do startups have for VCs?  What do startups wish VCs knew?

Some examples people have shared in the past:

  1. VCs need to give startups definitive answers, even if it’s a “no.”  A lot of entrepreneurs feel they get the run-around from VCs who can lead them on for months with the bait of possible funding. Meanwhile they suspect the VCs are just waiting to see if the business gets more traction or if other investors jump on board. As one founder put it “I wish they’d just say yes or no. We can always leave the door open in case the VC changes its mind later, but as CEO I need to know what I can count on right now and what’s really just a waste of my time.”
  2. VCs are sheep pretending to be shepherds.  VCs can act as if they have magic powers to judge your business, but in reality they mostly care about who the founders are and who else is investing. To quote another entrepreneur “if your startup has a CEO with a big enough resume, plus some big name investors at the table, it’s pretty easy to get 80% of the other VCs to scurry in like rats.”
  3. I want to build a long-term business, but VCs want a short-term flip.  Founders can feel trapped because, in order to get funded, they have to promise an “exit.” With 90% of exits happening through acquisitions, this means they inevitably have to promise VCs they’ll get bought – soon – even if it isn’t what they really want.  Most founders start companies because they’re passionate and want to change the world, not because they want to lay off 80% of their team in a few years after getting bought and shoved into a big corporate box somewhere.  There’s often inherent tension and a conflict of interests between the long-term needs of a business and the short-term demands of a VC.

Of course, these aren’t all the issues between entrepreneurs and VCs. Rather, I’m hoping they’re decent seeds for a broader conversation.  If you’re an innovator or entrepreneur, what do you wish VCs knew?  I welcome your comments – good, bad or ugly.

This Post Has 8 Comments

  1. Why… thanks for asking. 😉
    It surprises me how vcs can latch on to random parts of a business plan that don’t matter and make rash decisions about the entire business as a result. They can seem more interested in making a quick decision than in taking a closer look.

  2. As entrepreneur I wish venture funders were more sensitive too social return in also financial return. There are more ways to measure success than quick finance gain. More perspectives on value could do more appreciated.

  3. True venture capitalists are a key part of the economy and are helpful for many startups but they only fund a somewhat small percentage of startups overall. Most get by using other sources or bootstrapping. For those rocket businesses that want to try venture capital they do so at risk. The money is not without strings. Entrepreneurs need to be informed about those strings before they take money from professional venturers. Investors know some entrepreneurs are not versed in the true costs of their money, but I suppose it isn’t the investor’s duty to educate every startup. Startups must educate themselves.

  4. The comments and your article is no surprise from what I have observed from the full range of managers they I have known.

    There must be some really good tasting and addictive cool aid that is drunk. Very few managers realize that they went down this path because they were good at it, and few can accurately determine how good at manager they are. They like all of us can not be good at more than one or two things. That cool aid makes them think they are good at many thing because they have made decisions concerning other things. Being in the position to make a decision does not mean you’re an expert in that area.

    Apple is a great example of the VC and investors placing a great manager to control the company but not the person that could make the company accel. You hire safe people to run companies safely which means mediocrity and for some reason expect superior results. Your managers are not comfortable with superior results because it takes knowledge they do not have and can not learn because it may take decades of effort. The people that have this knowledge do not choose to be managers. That cool aid keeps the managers you hire from finding the people with the knowledge and then create the superior company together.

  5. Please admit when you don’t understand something.
    Sometimes it feels as if VCs don’t understand something but are too proud or embarrassed to admit it. This is a big problem because I can go on talking and not realize I’ve left some of the group behind. Most people won’t invest in something they don’t understand so this can break a deal. Please ask for clarification when something doesn’t make sense. There isn’t always a lot of time, but I’d rather have a VC understand a smaller portion of my business instead of not getting the whole thing and refusing to fund without giving me the chance to clarify.

  6. Great post! Nailed it on the head. My Exec team and I just got out of a four our Labor Day Morning meaning where my Co-Founders shared a story of how they brought on a VC which slowly took control of the company, muscled out the founders (essentially), and have so much control that the protracted legal battle may not be worth it at this point. The VC’s intent is simply to split up parts of a Fortune 500 company and sell them off. Really sad experience for them, but I’m happy to have them as Co-Founders!!! The worst is…the VC President was someone they knew prior!!!

    The truth is, if we seek VC funding, it will be to enhance our business to be the best it can be. Regardless of exit strategy, what we need is an active VC that will help us fill in our weaknesses and provide advice or contacts where necessary. We’re aware we don’t have all the answers, but a good VC should be able to coach us or help us find them more easily!!!

  7. While no question that there is value to having venture capitalists interested in the start-up venue with an interest and willingness to support budding entrepreneurs, there is the other side of the proverbial coin which is what do start-ups need to know about the financing venue of venture capitalists to be sure it is the right fit for them rather than more conventional non-traditional financing sources. Indeed, there is also the reality that many involved in the more conventional non-traditional financing venue do not, themselves, fully under the value and pitfalls of connecting or coordinating with venture capitalists. There definitely needs to be a comprehensive discourse on the subject as well as an elevation of the importance of including in the technical assistance provided to start-ups a robust discussion of the potential financing options including venture capital.

  8. Knowing a little about your fund I’m glad you use lots of data analytics when deciding which startups to invest in. I wish more VCs did this because it could make things more consistent and if analytics worked, more successful. There has been too much arbitrary decision making in VC and VCs should know this needs to change in a world that’s changed since venture capital began.

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