When someone says, “Venture Capitalist” what comes to your mind? (throw your first thought into the comments) Early in Brad Feld’s career, his impression was, “that they were scary people who wanted to take over your company and screw over entrepreneurs.” Ironically early in my career, I thought they were simply people who would invest in your business and my first encounters with them were very positive – I never really understood all of the fear entrepreneurs expressed when talking about VCs.
Recently I began talking to potential investors about investing around $5MM in our ShopSavvy business and ironically I have stayed away from the usual suspects – venture capitalists. Why do you ask? Here are a few reasons:
- INDECISION: In times of uncertainty my observation is that they take a VERY long time to say no and even longer to say yes to an investment.
- TIME SUCK: In good times they consume a tremendous amount of your key team members’ time and energy.
- BUSY WORK: The sort of information they want entrepreneurs to compile is often very interesting, but building an investment thesis is supposed to be their job, not ours.
Of course, there are scores of venture capitalists who are great to work with, but in my experience, they are located on the coasts and prefer to invest in entrepreneurs who live nearby. I am not interested in moving. Brad Feld, a successful venture capitalist in Boulder (and a co-founder of TechStars) has an interesting post in Entrepreneur where he describes the sort of VCs that give VCs a bad name:
- Mr. Know-It-All–the venture capitalist who thinks he knows everything. He’s an easy guy to spot because everything he says is a directive about what to do. There’s never any dialogue; he says if you listen to him, everything will work out fine–yet, it rarely does.
- Mr. Know-It-All’s first cousin is the young venture capitalist trying to show everyone how smart he is. This is especially annoying when he actually hasn’t done much of anything except go to business school and manage to land a job at a VC firm.
- Mr. Know-It-All’s second cousin is an experienced entrepreneur who is now a venture capitalist. Though many experienced entrepreneurs think they can comfortably play both roles, the roles of entrepreneur and venture capitalist are totally different.
The point of his post really gets to the heart of my frustration. Brad realized early on in his career that he could not effectively play the role of entrepreneur and investor so he picked investor (I made the opposite decision for largely the same reasons). Brad describes the investor’s role, as “to completely support CEOs or founders. If I lost confidence in them for any reason, my first task was to confront them about it. If we could reconcile this, I’d continue to support them 100 percent and work for them. If not, it was my job as an investor to address my concerns at the board level.” I think my reticence or fear of raising money from venture capitalists comes from the fact that my perception of most VCs is completely opposite.
Brad explains, “Arrogance is often a product of the inverse of this approach, where the venture capitalist thinks the CEOs or founders work for him. Great venture capitalists recognize that their existence is dependent on entrepreneurs. Even when the venture capitalists are incredibly experienced and knowledgeable, they know how to walk the line of “you work for me/I work for you” appropriately–and how to check their arrogance at the door.”