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:

1. 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.
   
2. 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.


Technorati Tags: brokenecosystem, VC, Europe, vecosys

Comments

[leafar]

Ivan is clear and I fully agree.

But as Nick Brisbourne puts it "maybe" is the most usefull tool for a VC and probably the less usefull for an entrepreneur.

But Atlas was one of the cleanest funnel of screening, I've done.
1) Pré-screening with Pierre Festal, efficent probably more available.
2) Meeting with Marc Oiknine ... Maybe !
3) Waiting for traction to turn that maybe into yes/no.

I will say it in TheFunded.com.

[Fred Destin]

Thanks Ivan great comment and some excellent food for thought.

[Ivan Pope]

Thanks for a good post Fred. I'd like to respond from a personal perspective.
I've not found any problems getting access to VCs in the UK quite the reverse. And I haven't found VCs to be ill informed or obscure with language, generally I've found them to be interesting, well informed, interested, intelligent and full of ideas for my business and sector. But from a whole bunch of meetings with them, I have some observations:

1. VCs who agree meetings don't pre-filter. Maybe this is the opposite of the access issue, but I have been to so many meetings now that I can predict at exactly which point interest will wane. It's just after I explain my team (small) and stage (early). I've literally felt many meetings lose energy and draw to a conclusion at precisely this point. It's as if the VCs got themselves all hyped up but forgot to ask some basic questions in advance.

2. Let alone clarity of feedback, sometimes any feedback at all would be wonderful. I've had really, really good meetings (unless in fifteen years of this I've just gone stupid) after which I can't raise a proper follow up or sensible bit of feedback, let alone a clear decline. I'm a grown up - fobbing me off or just not answering my emails doesn't really impress me. You know, I also have my pride. I can sense the line between sensible attempts to elicit a follow up and craven whinging belly on the floor slobbering needy desire for some follow up, and I won't cross that line.

3. How about clarity of who does what? What's the difference between a Partner, an Associate, an Analyst, a Venture Partner, a Senior Associate, a Director, a Consultant, a Sector Partner? I've got cards with all those things on them and frankly I have no idea how to guage who I'm talking to - though I guess that may be part of the IQ test as well.

4. How about some pre-meeting input. I'm forever asking the questions: what do you want from this meeting, is it casual or formal; do you want a presentation or a chat; should I bring my whole team or just myself; how long might it last.

5. And don't kid yourselves: don't tell me you are a west-coast style VC with the ability to make early stage and seed investments, and then in the same meeting tell me that because I am pre-revenue that you could never get it past your investment committee.

None of this is personal of course (don't you love that thing that entrepreneurs can't risk upsetting VCs just in case), it's drawn from a period of frustrating meetings. All of the above has occured to me on more than one occasion, some of it on many occasions.

On the other hand, fwiw, I really like VCs. I've met hundreds now over the last fifteen years. In the nineties I really didn't know what they did or how or why they did it. Now, with the advent of VC blogging, I feel I have at least some insight into the workings of the VC mind.

But VCs, remember, we are human too. We have pride. We are busy. We are stressed. We need feedback. We are smart. We do generally know what we are talking about. If we take a meeting, that costs us in the same way that it costs you. In fact, probably a lot more.

So, think respect. Think follow up. Think ongoing relationship.

Thanks for listening.