The Arrogant Venture Capitalist: A View from the Trenches
The VC-entrepreneur relationship debate has always been heated and has been intensifying of late. Beyond “sour grapes” and “frustration bred by failure,” I wanted to dig deeper, so I used my blog to ping the community and share the feedback. Over sixty entrepreneurs responded and provided the foundation for this writeup.
Poor First Impressions
Richard Jordan says: “More than half of the VC pitches involved participants who behaved in a disrespectful manner.” Arriving late, cutting out early, reading their Blackberry, taking calls, you name it. One young founder got invited to pitch for fifteen minutes only to find the meeting started late and was not extended.
The absence of feedback loops is endemic, with entrepreneurs irked about “dozens of unanswered calls and mails, from people we met.” Another common gripe is the need to be dealing with the associate who needs to sell his deal internally and is often insecure and not clear himself on his chances of getting the deal done. Even in first meetings, the lack of “empathy with and experience of the startup and the sacrifices involved” can leave entrepreneurs fuming. Entrepreneurs also complain about a lack of confidentiality with their pitches “landing on competitors’ desks days after the meeting.”
Getting Strung Along or Left at the Altar
“Raising capital depletes far more energy than investors realize ,” says one entrepreneur. “Getting a ‘no’ is fine, but to preserve their opportunities many VC’s tend to string along entrepreneurs forever.”
Many investors appear to be “vague on their decision and engagement process, which tends to be liquid.” VC’s promise term-sheets which never come or withdraw at closing, while others don’t check conflicts of interest. “VCs are too opportunistic in their behaviour,” says one respondent.
There seems to be a “lack of clarity (or absence) in the rules of the game.” Entrepreneurs are confused and angry about this. “The whole process leaves me with this feeling that landing funding is nothing more than getting lucky with the right pitch on the right day with the right person in the room,” says D. It makes you feel like “a sort of magic and certain incantations and artistry is required,” yet despite that, “investors often still fail to ask the hard questions.”
The Art of Getting a Term-sheet…and a Raw Deal
“The entrepreneur is a bit like a child who’s just learned the rules of chess—he’s studying the current move intently, but he’s rarely thinking far ahead. The VC is an old hand at this game. The entrepreneur tries to play well, but the terms he fights for often turn out not to be important, while the terms he thinks are innocuous can surprise him in unexpected ways […] The entrepreneur comes away feeling like he was played.” Clauses like participative liquidation preferences, anti-dilution, aggressive reverse vesting, board control or simply shareholders’ rights come up frequently. “Taking capital does feel a bit like making a deal with the devil.” “My own VC’s have been great. That said—like many entrepreneurs, I’ve only realized some of the longer-term implications of the documents I’ve signed well after the fact. This was enough to make me wary.”
Unwanted Advice, Poor Communication, and Lack of Operational Sense
“While VCs are always happy to dish out advice, this feels disingenuous from people who have never actually built a company or had a knockout success as an investor. Learning from mistakes is far less useful than emulating success.” One entrepreneur adds: “Often time they have zero operational experience, don’t understand marketing beyond just building their own brand, and see money as their ticket for everything.”
David Smuts believes there are two kinds of VC’s: “Careerists VC’s” and “Entrepreneur VC’s,” and two kinds of Entrepreneurs: “Real Entrepreneurs” … Next Page »