Choose Your VC Investor Carefully

Posted on Oct 25, 2009 | 53 comments


Beware of VC Seagulls, who shit on you and then fly away (or worse yet leave you with Red Herrings)

seagullThis is part of my ongoing series Startup Advice.  I write this post as a warning to pick your VC’s carefully.  I like to say to first-time entrepreneurs, picking a VC is more permanent than marriage.  If you pick the wrong spouse at least you can get divorced.

Keeping a blog has been great because so many entrepreneurs have written me with questions about their companies and I’ve gotten to know many of you personally through the process.  In these many exchanges similar questions crop up.

One theme that I always get is, “I’ve gotten an offer from a VC, but they want me to do X, what do you think?”  X is always something non-standard that the entrepreneur knows in his gut isn’t right.  Trust your instincts – they will serve you well as an entrepreneur.

For example, a recent phone call I had with a young entrepreneur straight out of one of the most prestigious engineering schools in America he asked, “I have an offer for $400,000 in seed money but the VC wants me to agree now to bring in a new CEO.”  This company is doing its SEED round and they already want to bring someone new in.

[UPDATE: Chris Dixon rightly points out in the comments that there are cases where somebody would encourage you to bring in a co-founder.  I have made this comment to teams myself.  In the case I was referring to above  it was a talented team but they were told they needed a “seasoned” CEO.  If you’re a founder and talented at what you do but aren’t well rounded enough to be a CEO in your startup you should listen to the message you’re being given – it’s possible you need another co-founder.]

I told the CEO, “I have the luxury of not knowing the name of the VC you’re talking to so I won’t sound biased.  I guarantee this is a bad VC.  Either you’re not a good leader and he shouldn’t be investing at all, or he has no clue what it takes to build a startup.”

There are many great VCs.  There are people like Gus Tai who any entrepreneur who’s worked with him well tell you is that he has helped coach them into building a great business.  I pitched Gus twice and he told me no both times.  Yet I walked away from the process feeling OK about myself and feeling like he actually engaged in our process.  Below is a quote about Gus from The Funded.

Gus has been amazing. When we were thinking of raising, he was the first I called, and after talking to Benchmark, Accel, August, and a few other tier 1 firms, it came down for me the person who was going to join the board. I have dozens of other entrepreneurs that do nothing but gush about Gus and these are in full confidence since we bash others :)

You’d be lucky if you got him. He has the most wisdom I’ve seen from a VC and I know I’m going to learn something with every interaction.

Yet Gus is in the minority in my opinion.  Too much money flowed into VC in the past 10 years and it brought in too many people who became VCs for the wrong reason.  And many of these people are money managers rather than people like Gus who inspire entrepreneurs.

I have a term for these kinds of investors who have no real experience with how to build companies – VC Seagulls.  Let me explain.

Many years ago I worked at Andersen Consulting, originally developing software for large corporations and then as a strategy consultant.  Much bad came out of this period including my cynicism for consultants. But much good also came.  At just 24 years old I was given the responsibility of managing teams.  I learned a lot about how to set goals, manage projects, deal with competing personalities and, importantly, manage “up.” [never mind who’s nickel I learned all of this on, but that’s a story for another day.]

One of the terms we coined there was a “seagull.”  We used it to describe certain of our partners (e.g. the owners of Andersen Consulting).  Seagulls were the partners who didn’t spend much actual time on your project.  They were smart and accomplished.  They knew enough about your project to have an opinion but not enough to help.  They would swoop in for one day to “check in on things,” shit on you and then fly away.  Seagulls.

The analogy holds pretty well for some VCs and this can be destructive.  I think the best VCs act as a sounding board for management.  We provide a point-of-view that isn’t clouded by living in the details on a daily basis.  We provide advice that is pertinent because we are able to see patterns across multiple companies.  And hopefully we provide input because we’ve been in your shoes before.  We’re there to serve you as the people who do the real work not there to have you serve our egos.

It is occasionally our job to spar with management – to point out where we don’t agree with the direction that is being proposed.  In many scenarios I view this role as my job to inject a different point-of-view but to ultimately let management decide what is right based on my input and that of other board members.  My normal viewpoint is that the management teams are living the day-to-day of the business and are in a better position to make the difficult daily choices that need to be made.

VC Seagulls don’t think this way.  They think that they know better than management.  They are condescending.  They can tell you what the “conventional wisdom” would be for your decisions.  They learned it at b-school.  They encourage you to hire senior people on your team who have gold-plated resumes.  They’re easily impressed when you’re selected for TechCrunch50 but not easily engaged in a detailed discussion about your conversion metrics.

You know in your gut who they are.  If you haven’t read Blink by Malcolm Gladwell then read it.  In our core we easily spot people’s inner character.  We know VC Seagulls when we see them but we’re attracted to work with them because they have a brand name.  They work for a prestigious firm, have sat on big boards, went to HBS and speak at lots of conferences.  But if your gut check is telling you that they would be a VC Seagull and IF you have other options … run!

Seagull VC’s (like some of my old Seagull Andersen Consulting Partners) are smart people, don’t get me wrong.  But they’re know-it-alls.  They always have to offer their opinion just to be heard.  They speak up on every topic.  They’re self-righteous about how to approach your business problem and often they’ve never actually had to do what you’re now trying to do.  They think everything is easy (if you would just listen to them).

redherringAnd the thing that concerns me is that they often introduce red herring’s into the discussion.  In the need to seem smart they divert the board conversation into something that isn’t on the company’s critical path or isn’t of strategic substance.  They slow down important decisions and inadvertently give management teams homework to analyse their suggestions following the board meeting.

You know the type.  They read something last week on TechCrunch and want to know what “you’re doing about it.”

One quick example.  At my first company, which was based in London, we decided to set up a development facility in India.  I hired a guy, Azhar Khan, who was raised in the Indian subcontinent (Pakistan, actually) but educated and worked his whole life in the US.  He also had experience in setting up tech development centers in India.

Azhar researched all possible locations for our Indian office based on: ease of travel, cost of employees, technical abundance, annual staff attrition rates, local infrastructure and safety for our UK employees who would spend a lot of time down there setting things up.

He gave me options like Bangalore, Bombay, Pune, Hydrabad, Chennai and  Noida.  He also gave me the option of Pakistan.  We narrowed down the decision to Bangalore, Pune and Bombay (Mumbai).  I personally ruled out Pakistan due to the perception that our staff would feel less safe there.  It was cheaper, sure, but post Sept 11th our employees didn’t want to spend weeks at a time there (rightly or wrongly).  I’m not anti Pakistan by any means (they guy I hired was Pakistani!), but when your people don’t want to go somewhere – you listen to them.

India_mapAzhar and I went out to India for 3 weeks and surveyed all three locations.  In the end I chose Pune because as much as I loved Bangalore I felt the annual salary increases and staff attrition would have been too high.

[Note, Azhar’s next company, iLike, chose Bangalore and then had to close down the office because staff salaries escalated too much.  This is a must read and cautionary tale of choosing a city that is growing too rapidly, plus it made me feel self righteous because Azhar left my company due to my choice of Pune ;-) – We’re still friends – he  just didn’t want to live there]

I came back and presented a very detailed analysis to the board.  None of my board members had ever set up development facilities in India.  I felt that we had gone WAY beyond the call of duty in our analysis.

For most board members it was a complete and exhaustive survey.  But I had one board member who felt the need to drag out the discussion.  He had been on the board of a company that had done development in Pakistan and argued that it was considerably cheaper (it was).

I tried to make the case that cost was only one factor and India was already an order of magnitude cheaper than the UK.  The conversation dragged on and in the end I had to go back after the board meeting and do more analysis and have the board decide at a later date.  To say I felt annoyed was an understatement.  In the end the board voted my way but I wasted valuable time on an expedition to serve his ego.  “Hey, we just had to be sure you’d done your work before we made this important decision.”  F-U.

I know this sounds like an extreme example but I see many board members add overhead to businesses all the time through similar red herring input.  In the VC’s mind it is innocent enough and starts off with a “have you guys ever considered …?” type comment.  They don’t mean to be malicious.

But it’s the job of the CEO to control the board tempo.  It’s your job to let everybody have input but to park red herrings that would take the conversation in the wrong direction.  More importantly, you need to be careful not to get “homework” out of the board meeting to feed the ego of the Seagull VC.

If you can avoid working with Seagulls in the first place it will save you hours of frustration.  If you already have seagulls, do as you would do in real life – take cover to avoid being shit on.

[UPDATE] In reading David Smuts’ excellent comments to my post it is clear that I didn’t give enough advice on what to do (the danger of publishing at 12.30am).

1. Make sure to reference, reference, reference.  Obvious start is to talk with other entrepreneurs.  I always tell people to seek out references of companies not listed on the immediate call sheet that the VC gives you.

2. The point I tried to make in my post was that I believe most humans innately know when they’re dealing with a seagull.  But we subjugate this feeling because we’re dealing with somebody we perceive to have a certain status.  Don’t go against your instinct.  Entrepreneurs tell me their current funding horror story and then usually back down by saying, “but maybe it’s me.”  Stick with your instincts.

3. David points out excellently that many VCs leave enough of a trail for how they think in their digital fingerprints.

4. Not all VCs are seagulls.  There are many great ones.  I hope nobody infers that I think all or even a majority are seagulls.  BUT … just like in real life there are MANY seagulls and they fly in packs.

 

  • http://twitter.com/davidsmuts David Smuts

    Great post Mark, I would imagine however that many Entrepreneurs (especially first timers) will have some difficulty in identifying a VC Seagul, after all they seemed so nice to him when they signed him up!

    I think it's genuinely hard to identify these types unless you're in the know in the VC who's who, or have done this before. I like to approach the process of identifying a VC partner through a positive criteria match rather than trying to avoid VC Seaguls, who are in most cases, difficult to spot early on in the enagement process. Looks and charm can be very deceptive, and what may first appear to be a good match can become a bad one when things get down to business.

    Here's my Top 10 list for finding a VC Partner instead of a VC Seagul:

    1) The VC has real life Entrepreneurial experience (CEO of a startup)-
    [Top of my list, there is no substitute for real life experience]

    2) The VC is hungry-
    [i don't mean desperate! Hungry means he actively seeks out investment opportunities, the really successful VCs are always looking out for more]

    3) The VC is ambitious-
    [He needs to be both personally ambitious as well as ambitious for your company]

    4) The VC is a creative thinker & visionary-
    [must be able to add value through creative dialogue and strategic vision, can identify alternative solutions to problems as well as alternative opportunities]

    5) The VC comes recommended-
    [check his references just as he will do yours]

    6) The VC has experience in your sector-
    [ideally has relevant interest and experience in your industry]

    7) The VC is a serial networker-
    [don't rely just on his past contacts! He must be a live and active networker who is constantly building new contacts- it's too easy to find a VC who is bored of the networking chore! esp the older ones]

    8) The VC is an Angel Investor
    [A VC who is invests his own money outside of his firm's fund in seed startups demonstrates a real interest and passion for investing. If he's got his personal funds invested in you (even if a small sum) then his/your interests are truly aligned, that would be a dream VC!]

    9) The VC has excellent communication & interpersonal skills
    [Manners maketh a man, he is tactful, polite and effective at motivating change in others and handling negotiations, even difficult ones]

    10) The VC is passionate about his work-
    [a very rare trait, is this VC blogging, working late, giving advice because he cares, passionate about the issues his industry faces, passionate about innovation and loves his job? if he's not passionate about his work he's not right for you]

    By identifying these assets in your VC Partner you should be able to avoid the VC Seagul in the first place.

  • http://www.cdixon.org chris dixon

    Hi Mark
    I don't agree with your comments about bringing in other founders (“CEO”s) to seed deals. I know a number of startups where there is a great co-founder and a mediocre co-founder, and a perfectly reasonable activity for an active seed investor is to try to convince the great co-founder to bring in someone else at their level. If that other person is a business person, they are sometimes called the CEO. I agree if you are hiring a big fancy CEO at that stage who isn't a scrappy co-founder it's a mistake. But helping build the team IMO is one of the most important things a seed investor can do.

  • http://bothsidesofthetable.com msuster

    Fair point. I should have made it more clear since I know the actual situation and I wasn't clear enough since I was trying to protect the individual who is raising now. It is a young team with multiple founders. The investor is advocating that they bring in a “seasoned” CEO. My perception is not that they're trying to plug a weakness in the CEO who to me seems strong for the stage of company. But to be fair they're living the situation daily and I'm not. Perhaps they've made the judgment that he has gaps. Thanks for your input.

  • http://www.cdixon.org chris dixon

    In that case I totally agree with you. Thx for the very interesting
    post!

  • http://twitter.com/davidsmuts David Smuts

    Great post Mark, I would imagine however that many Entrepreneurs (especially first timers) will have some difficulty in identifying a VC Seagul, after all they seemed so nice to him when they signed him up!

    I think it's genuinely hard to identify these types unless you're in the know in the VC who's who, or have done this before. I like to approach the process of identifying a VC partner through a positive criteria match rather than trying to avoid VC Seaguls, who are in most cases, difficult to spot early on in the enagement process. Looks and charm can be very deceptive, and what may first appear to be a good match can become a bad one when things get down to business.

    Here's my Top 10 list for finding a VC Partner instead of a VC Seagul:

    1) The VC has real life Entrepreneurial experience (CEO of a startup)-
    [Top of my list, there is no substitute for real life experience]

    2) The VC is hungry-
    [i don't mean desperate! Hungry means he actively seeks out investment opportunities, the really successful VCs are always looking out for more]

    3) The VC is ambitious-
    [He needs to be both personally ambitious as well as ambitious for your company]

    4) The VC is a creative thinker & visionary-
    [must be able to add value through creative dialogue and strategic vision, can identify alternative solutions to problems as well as alternative opportunities]

    5) The VC comes recommended-
    [check his references just as he will do yours]

    6) The VC has experience in your sector-
    [ideally has relevant interest and experience in your industry]

    7) The VC is a serial networker-
    [don't rely just on his past contacts! He must be a live and active networker who is constantly building new contacts- it's too easy to find a VC who is bored of the networking chore! esp the older ones]

    8) The VC is an Angel Investor
    [A VC who is invests his own money outside of his firm's fund in seed startups demonstrates a real interest and passion for investing. If he's got his personal funds invested in you (even if a small sum) then his/your interests are truly aligned, that would be a dream VC!]

    9) The VC has excellent communication & interpersonal skills
    [Manners maketh a man, he is tactful, polite and effective at motivating change in others and handling negotiations, even difficult ones]

    10) The VC is passionate about his work-
    [a very rare trait, is this VC blogging, working late, giving advice because he cares, passionate about the issues his industry faces, passionate about innovation and loves his job? if he's not passionate about his work he's not right for you]

    By identifying these assets in your VC Partner you should be able to avoid the VC Seagul in the first place.

  • http://lifeafterkids.wordpress.com Marla Schulman

    Mark a very insightful post. As a newbie entrepreneur trying to make sense of these waters, I appreciate your guidance. Thank you.

  • http://nicheVC.com nicheVC

    Very thoughtful post, Mark. I have always believed that you should endeavor to back an existing team versus infuse new blood, although it is very stage dependent and, moreover, wholly depends on the capabilities and permeability of the founding team. As for the seagull bit, it should take time to get to know the right capital partner … and, if you know a certain classic by Coleridge, a seagull might also be construed as an albatross.

  • http://twitter.com/davidsmuts David Smuts

    “I believe most humans innately know when they’re dealing with a seagull. But we subjugate this feeling because we’re dealing with somebody we perceive to have a certain status” M Suster

    You hit the nail on the head Mark. Entrepreneurs (especially new ones) are more inclined to accept this kind of situation. They're also likely to be one month away from bankruptcy and/or divorce or breakup w/other half, so naturally they WANT to believe what they see at face value.

    You're also right that most VCs are not seagulls. But only a very few are Eagles (see my top 10 list above).

    If you're looking for VC funding then the goal is to spot the Eagle and bring him in. An Eagle can transform your business, but in my view there are only about a dozen (maybe 20?) Eagles in the US VC world. In the UK, I struggle to identify more than 3 or 4 at most. Perhaps there are more, but they're not visibly out there networking so they don't qualify.

    The majority of VCs however are in fact Pigeons; large in number, followers by nature and not all that effective. The epitome of a careerist in my view, seeking comfort in being a follower in a percieved “safe environment”, rather than flying new hights and exploring new lands. If you're a VC why be anything other than an Eagle? (sounds like a Bette Midler song)

    The startup Founder community however is beginning to become better informed on VC funding (in part due to some Eagles lifting the veil) and if you want to know the difference between an Eagle, Pigeon and Seagull then simply engage this community (you'll find out who are Eagles in less than 24hours!).

  • http://giffconstable.com giffc

    thanks for clarifying – I had the same initial reaction Chris did (probably because I find myself right now being the guy “brought in” by a seed VC to round out a brilliant technologist with little business experience).

    In an ideal world, your startup has the pick of the litter and you can choose your investor wisely. However, not every startup is so lucky, in which case the founders have to choose between accepting seaguls or not doing a round at all.

    Another lesson I learned the hard way in a previous life is never to work with institutional investors who are not focused on early stage technology companies. It was not pretty. Going to stop there :)

  • http://www.cdixon.org chris dixon

    Hi Mark
    I don't agree with your comments about bringing in other founders (“CEO”s) to seed deals. I know a number of startups where there is a great co-founder and a mediocre co-founder, and a perfectly reasonable activity for an active seed investor is to try to convince the great co-founder to bring in someone else at their level. If that other person is a business person, they are sometimes called the CEO. I agree if you are hiring a big fancy CEO at that stage who isn't a scrappy co-founder it's a mistake. But helping build the team IMO is one of the most important things a seed investor can do.

  • http://bothsidesofthetable.com msuster

    Fair point. I should have made it more clear since I know the actual situation and I wasn't clear enough since I was trying to protect the individual who is raising now so I tried to leave out any identifiable information.

    It is a young team with multiple founders. The investor is advocating that they bring in a “seasoned” CEO. My perception is that they're not trying to plug a weakness in the CEO who to me seems strong for the stage of company.

    But to be fair to investor, they're living the situation daily and I'm not. Perhaps they've made the judgment that he has gaps? Thanks for your input.

  • http://www.cdixon.org chris dixon

    In that case I totally agree with you. Thx for the very interesting
    post!

  • http://walkercorporatelaw.com Scott Edward Walker

    Another solid post, Mark – and a very important one. Indeed, as a corporate lawyer for 15+ years, the most common mistake I have seen entrepreneurs make in dealmaking is not diligencing the guys on the other side of the table (which I discuss under “Mistake #1” here: http://bit.ly/10eiiN). As you point out, this is critical where there will be a long-term relationship post-closing (such as in a venture-capital financing). Diligencing the guys on the other side of the table means investigating both (i) the company/firm (if it’s not a marquee name) and (ii) the particular individuals with whom the entrepreneur is dealing. Who are these guys? Are they good guys or are they jerks? Can they be trusted? When they say they are going to do something, do they do it? Do they add value? Accordingly, as you aptly added to the end of your post, the entrepreneur must “[m]ake sure to reference, reference, reference.” Indeed, he must speak with other entrepreneurs or CEO’s who have done deals with the guys on the other side of the table in order to make an informed judgment as to whether they are guys with whom the entrepreneur should be doing business. Many thanks, Scott

  • http://bothsidesofthetable.com msuster

    Me, too. Which is why I tell people to be careful about the oxymoronic “strategic” investors. Some are great, most are not.

  • http://bothsidesofthetable.com msuster

    Thanks for your input. I agree that building a relationship with a VC over time is the best way to know whether it's a good fit or not. I wrote it up in this post –> http://www.bothsidesofthetable.com/2009/08/08/w

  • http://bothsidesofthetable.com msuster

    Too funny. I love the reference especially since I'm an Eagles fan (Philadelphia, that is!)

  • http://lifeafterkids.wordpress.com Marla Schulman aka DvinMsM

    Mark a very insightful post. As a newbie entrepreneur trying to make sense of these waters, I appreciate your guidance. Thank you.

  • http://nicheVC.com nicheVC

    Very thoughtful post, Mark. I have always believed that you should endeavor to back an existing team versus infuse new blood, although it is very stage dependent and, moreover, wholly depends on the capabilities and permeability of the founding team. As for the seagull bit, it should take time to get to know the right capital partner … and, if you know a certain classic by Coleridge, a seagull might also be construed as an albatross.

  • http://twitter.com/davidsmuts David Smuts

    “I believe most humans innately know when they’re dealing with a seagull. But we subjugate this feeling because we’re dealing with somebody we perceive to have a certain status” M Suster

    You hit the nail on the head Mark. Entrepreneurs (especially new ones) are more inclined to accept this kind of situation. They're also likely to be one month away from bankruptcy and/or divorce or breakup w/other half, so naturally they WANT to believe what they see at face value.

    You're also right that most VCs are not seagulls. But only a very few are Eagles (see my top 10 list above).

    If you're looking for VC funding then the goal is to spot the Eagle and bring him in. An Eagle can transform your business, but in my view there are only about a dozen (maybe 20?) Eagles in the US VC world. In the UK, I struggle to identify more than 3 or 4 at most. Perhaps there are more, but they're not visibly out there networking so they don't qualify.

    The majority of VCs however are in fact Pigeons; large in number, followers by nature and not all that effective. The epitome of a careerist in my view, seeking comfort in being a follower in a percieved “safe environment”, rather than flying new hights and exploring new lands. If you're a VC why be anything other than an Eagle? (sounds like a Bette Midler song)

    The startup Founder community however is beginning to become better informed on VC funding (in part due to some Eagles lifting the veil) and if you want to know the difference between an Eagle, Pigeon and Seagull then simply engage this community (you'll find out who are Eagles in less than 24hours!).

  • http://giffconstable.com giffc

    thanks for clarifying – I had the same initial reaction Chris did (probably because I find myself right now being the guy “brought in” by a seed VC to round out a brilliant technologist with little business experience).

    In an ideal world, your startup has the pick of the litter and you can choose your investor wisely. However, not every startup is so lucky, in which case the founders have to choose between accepting seaguls or not doing a round at all.

    Another lesson I learned the hard way in a previous life is never to work with institutional investors who are not focused on early stage technology companies. It was not pretty. Going to stop there :)

  • http://bothsidesofthetable.com msuster

    Me, too. Which is why I tell people to be careful about the oxymoronic “strategic” investors. Some are great, most are not.

  • http://bothsidesofthetable.com msuster

    Thanks for your input. I agree that building a relationship with a VC over time is the best way to know whether it's a good fit or not. I wrote it up in this post –> http://www.bothsidesofthetable.com/2009/08/08/w

  • http://bothsidesofthetable.com msuster

    Too funny. I love the reference especially since I'm an Eagles fan (Philadelphia, that is!)

  • http://lmframework.com/blog/about David Semeria

    Of course, the underlying assumption is that the founder is in a position choose his VC. Quite a big one, imo.

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  • http://lmframework.com/blog/about David Semeria

    Of course, the underlying assumption is that the founder is in a position choose his VC. Quite a big one, imo.

  • paulkosacz

    Bravo! You wrote: “Too much money flowed into VC in the past 10 years and it brought in too many people who became VCs for the wrong reason. And many of these people are money managers rather than people like Gus who inspire entrepreneurs.” This is a point I've been on the old soapbox shouting about for years. The last thing the entrepreneur needs to deal with are faux-VCs who are glorified money managers. As both you and Mr. Smuts in his comment mention, inspiration begets inspiration. That is the true meaning of teamwork, where the sum is greater than the parts. Adding a VC who conforms to this ideal model thus brings more to the table than money, and greatly diminishes the chance that someone else will have to clean up the poop, especially when trying to launch a product or land a big customer.

    I think, in short, that your post is among the most critical you've done, and I would beat the drum even louder.

    Again, bravo.

  • http://www.dynamicsynergy.com/ Mark J. Landay

    Mark,
    Nice post. If an entrepreneur has the option of which VC to choose, more important than firm is the VC partner. Each individual partner has their own track record of successful investing and exits. Though it may be self fulfilling, having the partner with the most successful record being your champion provides a higher opportunity for success. Therefore, in doing their due diligence on VC firms, entrepreneurs would be wise to look at individual partner’s track record. That is the partner that will be the board member and giving you guidance. The entrepreneur may think it is s*&t work, they are being dumped on. However, experience, success, and results speak for themselves.
    Or as I believe they say in Philly: “Scoreboard, baby”

  • http://twitter.com/fillup fillup

    Honestly, this is what every layer of management does to one degree or another. Every layer. It tends to be more destructive and distracting the higher up the org chart you go (i.e., CEO’s are more distracting than VP’s are more distracting than Sr. Managers).

    It’s uniquely destructive when it’s the board because: a) they and they alone have fiduciary duty and control over everything and b) members tend to be involved so little that their feedback is both less relevant and more apt to start a wild goose chase.

    I have had this same experience working at large companies, where it’s not “The Board” — it’s the “Corporate Office” or the equivalent. “Why haven't you placed that new search box on your homepage? It's our Strategic Initiative!”

  • paulkosacz

    Bravo! You wrote: “Too much money flowed into VC in the past 10 years and it brought in too many people who became VCs for the wrong reason. And many of these people are money managers rather than people like Gus who inspire entrepreneurs.” This is a point I've been on the old soapbox shouting about for years. The last thing the entrepreneur needs to deal with are faux-VCs who are glorified money managers. As both you and Mr. Smuts in his comment mention, inspiration begets inspiration. That is the true meaning of teamwork, where the sum is greater than the parts. Adding a VC who conforms to this ideal model thus brings more to the table than money, and greatly diminishes the chance that someone else will have to clean up the poop, especially when trying to launch a product or land a big customer.

    I think, in short, that your post is among the most critical you've done, and I would beat the drum even louder.

    Again, bravo.

  • http://www.dynamicsynergy.com/ Mark J. Landay

    Mark,
    Nice post. If an entrepreneur has the option of which VC to choose, more important than firm is the VC partner. Each individual partner has their own track record of successful investing and exits. Though it may be self fulfilling, having the partner with the most successful record being your champion provides a higher opportunity for success. Therefore, in doing their due diligence on VC firms, entrepreneurs would be wise to look at individual partner’s track record. That is the partner that will be the board member and giving you guidance. The entrepreneur may think it is s*&t work, they are being dumped on. However, experience, success, and results speak for themselves.
    Or as I believe they say in Philly: “Scoreboard, baby”

  • Phillip Morelock

    Honestly, this is what every layer of management does to one degree or another. Every layer. It tends to be more destructive and distracting the higher up the org chart you go (i.e., CEO’s are more distracting than VP’s are more distracting than Sr. Managers).

    It’s uniquely destructive when it’s the board because: a) they and they alone have fiduciary duty and control over everything and b) members tend to be involved so little that their feedback is both less relevant and more apt to start a wild goose chase.

    I have had this same experience working at large companies, where it’s not “The Board” — it’s the “Corporate Office” or the equivalent. “Why haven't you placed that new search box on your homepage? It's our Strategic Initiative!”

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  • http://twitter.com/davidsmuts David Smuts

    Mark Landay,
    I agree that a VC with a track record of successful exits is an optimum Partner. However I wouldn't disregard a VC who is new and has not had time to build a track record yet (that would be akin to a VC rejecting an Entrepreneur without a trackrecord). But I would reject a VC who does not have any Entrepreneurial experience himself. Don't want a Harvard MBA graduate thank you very much!

    I think a VC who is new and ambitious has a lot to offer a startup, even if he doesn't have a trackrecord on exits as a VC. As long as he has a track record in business then I trust this will lead to a track record in exits. A new VC is often more hungry, more ambitious and more idealisitic. Often more willing to challenge the status quo and often more eager to differentiate himself (may be less risk-averse). The critirea for a new VC must be his business acumen/expertise. Don't touch a new VC straight out of MBA school.

  • http://www.linkedin.com/in/rajatsuri rajatsuri

    Is it really that easy to choose your partner? I think most first-timers will have to settle for a junior level partner, regardless. That's not always a bad thing, because I'm not sure experience is the most important thing – rather personality/vision fit is probably the top criteria.

    Mark Pincus talks about this type of topic sometimes – check out his very candid startupschool talk about his VC experiences ( http://www.justin.tv/clip/4df4ad14c58b6ed6 )

    Here's an open question: say if you were introduced to one partner in a firm who is the lead, but you'd rather have another partner on the firm be on your board. Is there any way to accomplish that? Does the founder have the choice?

    I don't know the answer, but it seems to me that might be as awkward as finding a girlfriend whose sister you fancy a lot more ;)

  • http://twitter.com/davidsmuts David Smuts

    Mark Landay,
    I agree that a VC with a track record of successful exits is an optimum Partner. However I wouldn't disregard a VC who is new and has not had time to build a track record yet (that would be akin to a VC rejecting an Entrepreneur without a trackrecord). But I would reject a VC who does not have any Entrepreneurial experience himself. Don't want a Harvard MBA graduate thank you very much!

    I think a VC who is new and ambitious has a lot to offer a startup, even if he doesn't have a trackrecord on exits as a VC. As long as he has a track record in business then I trust this will lead to a track record in exits. A new VC is often more hungry, more ambitious and more idealisitic. Often more willing to challenge the status quo and often more eager to differentiate himself (may be less risk-averse). The critirea for a new VC must be his business acumen/expertise. Don't touch a new VC straight out of MBA school.

  • http://www.brightscope.com/ Mike Alfred

    Gus is a true class act.

  • http://www.brightscope.com/ Mike Alfred

    Gus is a true class act.

  • http://bothsidesofthetable.com msuster

    Thank you, Paul. I appreciate the feedback.

  • http://bothsidesofthetable.com msuster

    Mark, you're right to point out that the individual partner matters. However, I'd point out the just looking for people who sit on the most prominent boards doesn't always tell the whole story. Plus, if you pick the most senior guy don't always expect to get the most amount of time.

  • http://bothsidesofthetable.com msuster

    Too right. And a good reminder for CEOs. Shit rolls downhill, as they say. Your job is to stop it.

  • http://www.linkedin.com/in/rajatsuri rajatsuri

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  • http://bothsidesofthetable.com msuster

    Thank you, Paul. I appreciate the feedback.

  • http://bothsidesofthetable.com msuster

    Mark, you're right to point out that the individual partner matters. However, I'd point out the just looking for people who sit on the most prominent boards doesn't always tell the whole story. Plus, if you pick the most senior guy don't always expect to get the most amount of time.

  • http://bothsidesofthetable.com msuster

    Too right. And a good reminder for CEOs. Shit rolls downhill, as they say. Your job is to stop it.

  • http://www.linkedin.com/in/rajatsuri rajatsuri
  • http://www.linkedin.com/in/rajatsuri rajatsuri
  • Ray_Chan

    Thanks Mark, good article, and had been shit on myself in the past, and that is why I put together SeedTrack.org at Tech Coast Angels. We are the kingmakers and we help the entrepreneur to run the show by providing services, connections, knowledge and help with execution, to turn dreams into businesses. BTW, we have another term for those VC Seagulls, they are the 'Shit and Run' VC.

  • Andrew Martin

    Excellent topic and great examples. Entrepreneurs should be well aware of all the risks that the VC may drag with them and should not let themselves carried away by enthusiasm. It is a lot more in stack for the entrepreneur than for the VC and it would be pitiful to see your dream company going down the drain due to some VC's that care more about their believes than about your whole life investment. This should be a must-read for all the entrepreneurs. Learn from it and later you can start consulting the VCgate investors' database ( http://www.vcgate.com ), you will have plenty of VC's to choose from. It's your time to be picky.