We recently conducted a survey of what our portfolio CEOs say they want most from a venture capital firm. What do entrepreneurs think about the inner workings of a VC?
The entrepreneurs said they want VCs to offer strategic guidance, to connect their portfolio companies to a broader network, and to exhibit personal and professional character. An entrepreneur wants a well-connected, experienced VC who can act as a voice for her business and help triangulate which relationships to draw upon when her company faces challenges.
Direct strategic and financial support is half of the equation, according to our CEOs. Treating entrepreneurs with respect is equally vital. Personality matters, and entrepreneurs are far less likely to work with VCs who neglect the human and emotional components of a portfolio relationship. The CEOs who responded to our survey indicated that straightforwardness and humility are among the most important traits in a VC.
Top 5 Qualities in a VC
1) Deep Network
Entrepreneurs love VCs who can contribute value by making introductions — whether in recruiting, customer acquisition, advisor relationships, or finding other investors. VCs who can help founders get in touch with experienced industry professionals and executives, marketing/PR experts, and new talent directly contribute value to their portfolio companies. As a founder, when you select an investor you’re joining a community. Scrutinize the health and strength of that community as closely as you do the individual investor you’re signing on. (importance score: 7.90)
“8VC’s network is second-to-none. When we chose to partner with 8VC for Common’s Series B, the depth of their network in very relevant industries — particularly real estate and asset management — was a major deciding factor. Drew, Joe, Kimmy, and the entire 8VC team not only have an impressively broad network, they have deep, longstanding relationships with many industry leaders who will pick up the phone when they call.”
— Brad Hargreaves, CEO of Common
2) Operational Experience
Entrepreneurs want to work with VC teams comprised of former entrepreneurs with practical experience operating businesses. Experienced VCs who have launched companies themselves will know when founders need help, and will be able to provide support as coaches. Perhaps more importantly, though, investors who have founded companies will be personally aware of the ups and downs of building a business from scratch.(importance score: 7.11)
“As the CEO/Founder of Illumio, an enterprise cybersecurity software company, strategic introductions to customers, investors and potential team members are indescribably valuable. 8VC not only has one of the most extensive networks in the Valley in each of these critical areas, but the operational experience to understand how and when to deploy them. I have worked closely with the 8VC team in building Illumio and they continue to help us ensure that we have the best access and most impactful connections.”
— Andrew Rubin, CEO of Illumio
Many of our CEOs replied that transparency at the board level is one of their highest concerns. Entrepreneurs want investors who are brutally honest about what they and the other partners at their firm think. Not only does transparency help produce new ideas, but it helps prevent catastrophe. Venture investors can rarely (if ever) ‘make’ a company. But they certainly can ‘break’ it. Clear communication about financing, strategic deals, and hiring/firing can prevent the type of situations where venture capitalists destroy value. (importance score: 6.96)
Board meetings can sometimes turn into posturing and chest-beating sessions. It is rare that this produces value. Humility is paramount, and investors should check their egos at the door. Managing a board is tough, and as company grows it can occupy many precious hours for a founding team. Dealing with divas doesn’t help. (importance score: 6.18)
“One of the things entrepreneurs value is self-awareness — knowing what we don’t know is more valuable than being smart. It forces us to learn. I love this about the 8VC team: there’s a humility and respect for the entrepreneur that exists despite their track record. They spend more time asking questions than talking about their experiences, and readily admit when they are as new to a challenge as we are.”
— Nima Ghamsari, CEO of Blend
5) Know When to Be Hands-Off
Great investors understand that entrepreneurs need room to maneuver, and that micromanaging the operations of a start-up can create political frustration. Investors should understand when to offer guidance on operations and strategy, and when to allow entrepreneurs to experiment and exercise their own agency over their projects. There are few things more stultifying for a CEO than being continually monitored by an overbearing investor. (importance score: 5.40)
“The primary job of an investment team and a board is to make sure that a startup has support for its overall mission and that the entire power and network of the investors is deployed to help achieve that mission. Commandeering the day to day operations of a company is antithetical to this goal — and it’s just plain stupid. This is why I love working with 8VC — they help where I need help and we can have very blunt conversations on things that are going well and those that aren’t, but they don’t pretend to be the CEO of my company. And they’re always — always — there for us when we are attempting to do something risky and difficult that will change healthcare, the industry we have chosen to disrupt.”
— Alex Turkletaub, CEO of ROAM Analytics
When we compiled this list, we were struck by how simple many of these asks are. Fundamentally, our founders want their investors to act like rational, honest, amicable people. They want us to know when to leverage their resources and knowledge but also to know when we aren’t as able to help. At 8VC we take these simple requests very seriously — and fortunately our portfolio entrepreneurs notice the difference. As Nick Taranto, the co-founder of Plated, put it:
“Any early stage business is going to go through tough times — it is an inherent part of being early stage, and being in business! The partners at 8VC have always been there for us. The VC-entrepreneur relationship is actually not as complex as it may seem. As an entrepreneur, what you want from your VC is emotional, tactical, and financial support where and when you need it most.”
In sum, healthy VC-entrepreneur relationships go far beyond the legal and fiduciary requirements spelled out in term sheets. The best venture capitalists are much more partners than financiers. They are active participants in the business, empathetic to the intense struggle of entrepreneurship, and focused on creating long term success.
Methodology: we first conducted a series of interviews with our entrepreneurs to create a list of traits desirable in a venture capital firm. We then surveyed a larger random group of 30 portfolio CEOs to see how they would rank the traits in importance, and averaged their replies. The results are listed below:
1. Deep Network. Score: 7.90
2. Operational Experience. Score: 7.11
3. Straightforward. Score: 6.96
4. Humility. Score: 6.18
5. Knows When to Be Hands-Off. Score: 5.21
6. Back-Channel Support. Score: 5.17
7. Advice on Scaling Up. Score: 4.86
8. Hyper-Availability. Score: 4.69
9. Handles Governance with Grace. Score: 3.93
10. Emotional Reassurance. Score: 3.03
For comparable studies see the National Venture Capital Association’s big survey in 2013 on what entrepreneurs want from VCs. However, note that NVCA only surveyed respondents on the technical aspects of the VC-entrepreneur dynamic. We made sure to include personal and emotional dynamics of the VC-entrepreneur relationship.
Finally, it’s likely that certain biases affected the quality of the results. We think that entrepreneurs may have underrated qualities such as “emotional support” for cultural reasons. However, in our experience empathy matters a lot. Building startups is difficult and involves serious ups and downs, and the majority of leaders need reassurance when the going gets rough. We all do. Nonetheless, our results should help to understand how entrepreneurs understand themselves.