
Do VCs really add value?  Founders say sometimes - imartin2k
https://medium.com/@fritjofsson/do-vcs-really-add-value-founders-say-sometimes-f27bb956eb8c
======
austenallred
I think it changes a whole lot based on _who_ you work with.

In my experience it seems like 75% of VCs are neutral. They try to be helpful,
aren’t really, but don’t get in the way, and their cash is green. They can
email me two times a day if they want, it won’t help me any more (and will be
annoying).

10% are actively harmful. Either they have really bad advice, are a
distraction, or try to lead your company down bad paths.

15% are incredibly helpful (maybe the 10% and the 15% should be switched), and
you should do whatever it takes to work with them. They can think through
problems instantly, see 15 steps ahead, understand where you are and what you
should be focusing on, know everyone, and actually put in the work. I’ve been
_shocked_ at how helpful some VCs can be in eliminating most of your biggest
problems. It’s just rare that happens.

That’s why I’m surprised to see how little “track record” was valued. With few
exceptions that’s my #1 consideration when deciding who to take money from, or
perhaps #2 begind “reputation.”

~~~
vannevar
The big question is whether the 10% that are bad and the 15% that are good are
consistently bad and good. If for some companies the bad are good, and vice
versa, then it pretty much boils down to speed and terms. The rest is a
crapshoot.

~~~
WalterSear
I was part of a YC company that died due to our CEO following well meaning,
but bad advice from VCs and advisors - it was a consumer _technology_ play,
but all the advisors had made their money opening online shopfronts. So, we
burnt time trying to find consumers, and the product and service languished.

~~~
ScottBurson
I suspect it's mostly not a matter of some VC/advisors being good and others
being harmful across the board, but rather the appropriateness of a particular
VC/advisor for a particular business. The Dunning-Kruger effect is probably
very much in play: someone who has been successful with one kind of business
may tend to overgeneralize the applicability of what they learned.

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nicodjimenez
One interesting thing I've learned as a technical founder is that the
difference between lame business people and great business people is actually
just as big as the difference between lame engineers and great engineers, if
not bigger. Great business people and investors will give you actionable
insights, lame business people will give you generic business advice that will
waste your time.

~~~
nikanj
Financials/execution/governance are surprisingly similar to programming. You
have to have a solid overall design, and a bug-free implementation.

A great architect creates frameworks and structures that enable less-
experienced people to be productive as well, while simultaneously making many
of the typical errors impossible.

In a typical startup, the "business guy" is responsible for both the business
insights, and the actual running of the corporation. On the other side of the
fence, the technical finder is responsible for the product ownership and
implementation. Both parties would benefit from reflecting on the
similarities.

One of the big ones for me was realizing a "business visionary" who can't
create a cash flow forecast is about as useful as an enterprise architect who
can't code fizz buzz. It's not exactly in the job description, but being
useless at the implementation almost always makes you useless at the design
too.

------
iseff
Speed is one of the most underemphasized traits of a great VC for founders.
While fundraising, a quick yes is the best answer, but a quick no is the
second best. Investors who follow this are truly founder friendly: it's easy
to stall and wait for more data, but it's actually helping the entrepreneur to
just say no. Those are the investors I want to pitch again later.

It's no surprise founders rank speed highly while investors don't. Find
investors who care about speed and you'll find a great partner.

~~~
jasode
_> It's no surprise founders rank speed highly while investors don't._

There may be some nuance missing in the slide.[1]

Based on the article's text, that right column should actually be subtitled _"
what VCs think the founders rank as most important"_ instead of _" important
to VCs"_.

The left side is self-reporting (founder's ranking). But the right side is a
"Theory of Mind"[2] exercise (what VCs think founder's ranking would be).

I'm not a VC but it seems to me that that "network/rolodex" should be higher
rank than "speed". I wonder if founders rank speed above "rolodex" because
many startups' bank accounts are near zero and they can't make payroll next
week if the VCs drag their feet. Financial duress scenarios like that during
fundraising may make founders overemphasize "speed of a deal" to the detriment
of other more important factors.

[1] [https://cdn-images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ](https://cdn-
images-1.medium.com/max/800/0*VvTVys39uVMHqtbZ)

[2]
[https://en.wikipedia.org/wiki/Theory_of_mind](https://en.wikipedia.org/wiki/Theory_of_mind)

~~~
wpietri
At least anecdotally, I don't hear much from founders who are that close to
zero. In my experience, speed is important because slowness drastically
increased cognitive load and somewhat increases risk during fundraising. And
also because fundraising is a distraction from why they got into it.

One way to think about it is in terms of a graph of number of VCs they have to
think about/deal with at once. They're going to start the fundraising process
with a list of firms, people, etc. Let's say that each week they take on n new
items. If it takes 4 weeks to get an answer, they're juggling n*4 balls, many
of the conversations in different states. Complexity goes up and/or throughput
goes down. It's painful.

I suspect for entrepreneurs speed it also code for clarity, in that the "vc
no" (and specifically the "California no" [1]) often present as slowness when
it's really about something else inside the VC.

[1]
[http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html](http://ross.typepad.com/blog/2005/04/the_vc_no_and_t.html)

------
nigekelly
There is severe bias in this study. Are entrepreneurs going to really come out
and say what they really think? After all they need the money.

Why weren't the institutional investors/LPs surveyed to see what they think of
VC/GP value add? I think this would be more telling about who the good/bad VCs
are ..... who's bringing home the bacon across the board consistently. A bad
VC may do well with one investment, get great feedback from that founder but
yet destroy investor capital on all other investments..... meaning the LPs are
down on the money they put in.

The Kauffman foundation produced a great study of return performance from
VC/GPs back to LPs several years ago. The conclusion was that investing in VCs
produced very poor returns. The Russell 2000 index was a superior investment
alternative.

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startupdiscuss
The problem with this study is that there are only two agents: founders and
VCs. And whatever credit does not go to VCs implicitly goes to founders.

They did a study of married (heterosexual, this is an old study) couples and
asked them what % of the housework each did. The percentages always added up
to over 100%, and in some cases a lot over.

There were many reasons why people attribute their own contributions to be
greater than that of others.

This just seems to be the same phenomenon on steroids.

They should ask the founder how helpful the VC is compared to the banker, or
the advisor on the board. They should perform other sorts of comparisons to
add context.

Consider that VC may be performing functions that are useful but are not
properly appreciated, for instance, signalling.

Edit: Also consider the VC contribution of raising money and then staying out
of the way.

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lpolovets
My perspective from the VC side is similar to Austen's
([https://news.ycombinator.com/item?id=17284114](https://news.ycombinator.com/item?id=17284114)):
a lot of VCs are neutral, some are very helpful, and others are destructive.
I've seen this dynamic from both talking to founders about whether they find
investors helpful, and from sitting in on board meetings where other investors
are present. The best way to understand what kind of investor you're talking
to is to reach out to a handful of founders they've worked with and ask them
about their experiences.

A few other observations from my 5-6 years so far in VC:

* Founders spend 3000 hours/year focusing on their business and domain while investors spend 3000 hours/year learning about hundreds of business and hundreds of domains. As a result, >95% of the time founders know way more about their specific business than their investors. On the other hand, >95% of the time investors know more than founders about cross-business strategies and ideas. So investor advice is best when it's related to their broader perspective: what kind of recruiting channels work best for the 50 companies they work with? What are tips for negotiating a contract? What are good pricing strategies? How early do companies typically hire a VP of Eng? Most investors won't be helpful for domain-specific questions like "will power plant operators really want this feature in my SaaS product?" or "what's the best marketing channel for reaching power plant operators?"

* Even for a single investor, their helpfulness will vary company to company. My guess is that if you polled the founders I've worked with, 1/3 would say I'm very helpful, 1/3 would say I'm somewhat helpful, and 1/3 would say I haven't helped much. I hope/think none of the founders would say I subtract more than I add. Sometimes it turns out I can help a lot, like if you're looking for a VP of Eng and I know a great candidate who is looking for a job. Other times I can't help at all, like if you want to be introduced to power plant owners and I don't know a single one. I do my best to help when I can and stay out of the way when I can't.

------
wjossey
I’ve seen both sides of it now, and can definitely attest to having a great
experience with the Flybridge team. From intros that have turned into sales,
letting us crash in their office multiple days a week to save on office space,
or sharing their WeWork credits so we could book some conference rooms for
free. They do things the right way, and are just a really enjoyable team to be
around. They’ve been instrumental in helpful us grow during our first year of
existence, and we wouldn’t be as far along had we not chosen to work with
them.

But, the point of “sometimes” is still a valid one. So, be selective if you
are looking for someone who will be more than just a check.

------
baxtr
I regularly go from hating VCs (DHH style) to thinking that they are pivotal
in creating categories that didn’t exist before. A charismatic founder with a
strong vision and supporting VC can indeed change the world (hopefully to the
better)

~~~
mkirklions
I have a hard time understanding why capital is needed.

For apps, a single person can build a major app in a year.

For products, tooling is often between 50k-1M. Everyone here is a software
engineer or similar, so that money isnt hard to make/save.

Can anyone explain? Advice + support is extremely valuable, but I dont quite
understand why so many startups go this route.

~~~
soneca
_" a single person can build a major app in a year"_

I believe this is false by at least two orders of magnitude. Particularly if
_major_ means high scale, with properly researched and designed to your
customer, with proper support for users/customer, with proper infrastructure
technically, financially and legally wise.

I am all for bootstrapping business and have as role models the likes of DHH
more than VC-funded founders. But that doesn't mean I don't understand the
need of capital.

~~~
barry-cotter
WhatsApp is proof that they’re off by at most one order of magnitude. I’m sure
others can come up with solo founders who made really impressive things.
Plentyoffish and Minecraft come to mind as not necessarily immensely
technically complex but having created huge amounts of value as one man shows.

~~~
soneca
WhatsApp raised VC capital. I dont know about Minecraft

------
simonbarker87
VCs (and investors in general) in my experience are money and a headache, but
the money is super useful.

~~~
mirceal
Hmm... I will disagree there. Yes it can be challenging but the thing to keep
in mind is that a good VC will come with a lot of experience and a lot of
contacts that he/she will leverage in an attempt to make you successful.

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ianamartin
For me, the value I'd get from an investor would be industry contacts. I'm
self-taught, haven't worked anywhere big, and grew up in a not-very-techy part
of the country. For the side-projects I have brewing that would potentially be
businesses, the value of investment capital pales in comparison to getting my
feet in the door to show off my work to people who might be interested.

That's a data point of one, and VCs are dealing with . . . uh, everyone but
me. So I'm not making a blanket statement about what value should be. But
that's what I would find useful.

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montrose
"Founders rank speed as their 3rd most important criteria and VCs, in fact,
ranked it as the least important one."

This disconnect represents a significant opportunity for new VC firms.

------
xivzgrev
The article says this

"VCs ranked top 3 criteria they thought the founders evaluated them on."

Then the supporting chart is labelled "most important factors for partnering
or making investments"

Which is it? Were VCs asked about what they believe founders value, or what
they find important in making investment decisions?

Because the article points out track record is rated low. Which makes sense
for the former but makes zero sense for latter, so I'm guessing chart was just
mislabelled.

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rdlecler1
Most VCs are running a lifestyle businesses (ironic). I’m going to guess that
some of the larger platform VCs are pulling the numbers up so remove those and
the picture becomes much more bleak.

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pipio21
Ohh, yeah!!

The value they add is called "money". They give you it every single time(you
work with them), not sometimes.

If you expect them to babysitter you, mentor or friendship, from my point of
view it is your expectations that are wrong.

You should find emotional support elsewhere. I recommend masterminds.

I am friend and colleague of old VCs of mine. But I did not expected from them
in the past more than a professional relationship.

This is probably what makes a good friend or a lover , not being too much
needy and dependent.

------
cascom
This doesn’t seem that surprising, most of these companies are “failures” -
seems to stand to reason that many of these founders would cast some blame on
the VCs (perhaps for not continuing to support the business when it was clear
that it was not working).

Also not surprising is the that VCs overestimate their value.

Lastly founders probably have a much more diverse (and perhaps incorrect view
- probably fostered by the VCs) of actual value add of VCs.

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mathattack
It’s a broad mix. My unscientific (small) sample has been that the best advice
came from the most famous VCs from the largest firms. (It surprised me, but I
guess their fame and fortune were well earned)

I’ve also seen extremely helpful late stage strategic investors who brought
great customer introductions.

My view is that things deteriorate when the CEO ceases to be honest with the
investors, or when the investor is out of their natural element.

------
yashevde
I wonder what the value of the Personal Chemistry factor is.. it sounds like
just a meta-feature in this study that would be highly correlated/anti-
correlated with the other features. I.e. if a VC isn't as strong on the Deal
Terms as the entrepreneur would like, it would negatively impact the Personal
Chemistry. The link between Personal Chemistry and value add isn't clear to me
here

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cwmma
I have to wonder, about the different levels of reported contact, how much is
actual VCs over estimating how much they contact they have with companies, and
how much is that the VCs who actually responded to the survey were possibly
atypical, like the ones who contact the companies less frequently are also
less likely to fill out a survey

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rdlecler1
If a founder focus on terms instead of value add VCs then we shouldn’t be
surprised that most VCs are not all that helpful.

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dick_sucker2
What would the value add be of getting the money faster or with less stress
vs. the value add talked about in the article? I'm thinking that perhaps
security tokens may change the dynamic in the future because they allow a
founder to raise seed money faster with less unfavorable conditions.

~~~
btilly
Fundraising is a distraction. A founder who is engaged in fundraising finds it
difficult to focus on their actual business. Being able to get back to the
business quickly therefore provides a very obvious value proposition for the
founder.

VCs have the rather different requirements. People looking for their money is
an ongoing activity for them, so there is no particular advantage in ending
that dance with any particular founder. Indeed, not being in a hurry to make a
deal when the other side is improves their bargaining position. (Unless
someone else is faster.) And the more likely they are to hear about a
showstopper that would make them decide to not invest.

The result is that VCs want to drag negotiations on as long as possible..right
until the moment that it is clear that some other VC is leading the investment
and their possibility of getting a piece of the action is slipping away.

This is why what YCombinator does works so well. They decide very fast on
whether you're in a batch. They standardize terms, which makes it harder for
investors to drag their feet. And on demo day, every investor knows that they
are competing with other investors in an investment round that will close
quickly. This forces them to make a go/no-go decision.

Interestingly, the fact that founders get to raise money quickly and get back
to their business improves their businesses odds of survival. Which improves
the prospects for investing in them.

