VC Firms Don't Back You, VC Partners Do

http://www.hunterwalk.com/2013/04/vc-firms-dont-back-you-vc-partners-do.html

by hunterwalk • 13 years ago

9 6 13 years ago

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dottrap2• 13 years ago

Careful. This borders on Guy Kawasaki's Top 10 Mistakes by Entrepreneurs, Item 10: Befriending your VC.

http://www.youtube.com/watch?v=HHjgK6p4nrw

hunterwalk2• 13 years ago

I think of it more as creating professional obligation rather than friendship. It's a commitment hack, no?

dottrap2• 13 years ago

Again, be careful here. There is an easy risk that you will over-estimate how much of a commitment your VC actually has in you.

Guy Kawasaki lists this in his 10 Mistakes too, Item 11: Assuming that your VC will truly add value.

7Figures2Commas2• 13 years ago

I won't argue that a venture capitalist can't be a useful ally, but it's a mistake to overestimate how much assistance they can really provide when you need it most.

Venture capitalists doing their jobs owe their loyalty to limited partners. So long as things are going relatively well or there's reason to believe things are going to go well, their interests are probably aligned with yours. But when they diverge, don't expect disinterested advocacy on your behalf.

hunterwalk2• 13 years ago

Yup, this is a commitment hack meant to strengthen obligation. In most cases, interests are aligned. When they're not, at least you have a foundation to discuss upfront why they're differing.

7Figures2Commas2• 13 years ago

I don't know what a "commitment hack" is. If you're suggesting that entrepreneurs can somehow influence venture capitalists to forget that they have fiduciary duties to their limited partners, and to act in a manner inconsistent with those duties, I think you're expecting too much.

Sometimes entrepreneurs make life more complicated than it really is. A venture capitalist exists to invest money on behalf of limited partners, and to deliver a satisfactory return to those limited partners. To support that end, he or she will provide some non-financial support to the entrepreneurs he or she funds. There are limits to this of course, and an entrepreneur should never assume that this support will be there indefinitely.

When a venture capitalist pulls back his or her support, a discussion about alignment of interests isn't going to be meaningful. If your company isn't doing well (or well enough) or the fund has decided to double down on other investments, a heart-to-heart chat won't change that.

Given that many startups fail, and a small fraction supply the vast majority of a successful fund's returns, entrepreneurs who believe their interests are unlikely to diverge at some point are being far too optimistic.

VC Firms Don't Back You, VC Partners Do

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