Startup founders to VCs: Level Up!

Yesterday I asked a simple question on Twitter: “if you could make the “venture capital product” a better experience for founders — what would you change?” Boy, was I in for a treat.

Bryan Birsic’s comment gave me a clue” “I think I need a whiskey for this one ;)”. Some folks called that question the “elephant in the room”; in any event, a useful health check on how founders are feeling and what they want. Great summary from Del Johnson below, but the nuggets are in the details and the colour. I’ve hopefully preserved the “raw energy” of the thread. Enjoy!

Who do I approach and what do investors want?

One of the most cited issues is (a) knowing who to target and (b) knowing what they like.

Connor Murphy: “90% of investors appear to say the same thing. First time founders have very little data to go on to help them understand what funds and partners they should engage. There is no quantitative measure for how helpful a fund might be except for cash. Mainly qualitative WoM”

Entrepreneurs are asking for clarity on investment thesis and commitment to stick to it. “Most of the time it feels like founders have to fit the VCs’ cookie cutter, although it’s never exactly clear what the boxes are that need to be ticked”.

This game of cat and mouse drives founders mad: “we do mostly or only this, we don’t back that ever, we say early stage but really that’s a fixed $1m ARR before we speak, we don’t invest outside SF, we don’t do single founders, we don’t do deep tech, we don’t do e-commerce, we don’t….etc”. So many unspoken rules, constantly broken, and so little time.

Some (engineers?) would like an engineered solution: VCs should ‘set their primary thesis against a Myers-Briggs style indicator, so you can self evaluate fit quickly. ie: Software or Hardware, Product or Marketplace, Recurring or Non-recurring revs, Seed or Growth — and so my startup would be a SPNG.” Just give me an algo!

The general view here is the VC could do a lot better in defining their criteria, and that founders have a hard time navigating the universe of funds. Tough one to solve with real clarity though:

Suranga Chandratillake: “yes, but the honest answer IS ‘depends’. Sometimes the only way to see PMF is some level of revenue. Other times the VC, market, product, or some combo of above means that isn’t needed. Anyone who boils VC down to a series of boolean questions probably isn’t doing it very well.”

Can I just get a “no” ?

Founders want VCs to “stop wasting their time” are dying for shorter, continuous feedback loop and clear “no’s”. “So easy yet so hard apparently”.

Time and predictability are the most valuable things to a startup so any improvements that respect and improve this would be good. “Understanding timelines, faster and honest rejections, referrals to others that could be interested and some consistency around requirements.”

Another founder: “As a founder I have to put so much forward on a pitch/submission form. Most replies have been “this doesn’t fit my thesis” which could’ve been filtered by a few sentences on what the company is.”

There should be an “industry standard requirement for VC’s to provide founders a formal YES/NO/MAYBE IF YOU DO XYZ, (explanation optional), within 60 days of first contact, else they are publicly labeled as indecisive tire kickers lacking founder empathy”.

“ ‘Pass’ notes would be nice if founders agree to not be defensive. I’m friendly with plenty of VCs who soft-passed, but just learned that ‘not pounding for next meeting’ generally means ‘pass’.”

If you ask a founder to invest in a face to face, but decide it’s not for you, provide honest detailed feedback about how that decision came about. Tara Pham: “Founders actually LOVE honest feedback. It’s one of the winning traits of operators-turned-VCs.” Do we have to accommodate VCs who can’t brave being honest?

“VCs should say exactly what they think.” Saying “we want to see 500k ARR” to an early stage startup is the cowardly way of saying “we don’t believe you can do it”.

Ghosting is frequent: “consideration goes a long way. I appreciate a respectful response, even if it’s “No, this isn’t a good fit because of X.” Far better than radio silence or being led on for more info when the VC has no real interest.”

Leave it to Sumon Sadhu to sum it perfectly:

I love this one, “more uniformity than SS” :-)

Please improve your processes!

Founders are also clamouring for speed and transparency when it comes to the investment and decision-making process, as well as faster execution. Founders remark on how poor VC processes are compared to the startups that they back. This would help:

  • Continuous feedback loops and clarity on process; some VC’s are perceived as data hogs and one founder described the process as jumping “through the twelves hoops of fire”
  • Faster decisions and clarity on who makes the decisions
  • Explicit pre-funding discussion of objectives / milestones / financial goals if appropriate and discussing scenarios on how things go and how an exit would be managed.
  • Standardised deal terms — a frequent ask!
  • Standardised due diligence

For some the randomness of the final partnership discussion is frustrating: “As former founder and VC of 10 years, I’d say dump the “investment committee” for decision making. Having a small number of decision makers really invested and who know the founders and the business really well is a lot better than half a dozen who just read a paper.”

I want VCs to be more transparent about themselves

“The VC gets to see everything about my company, they should return the favour.”

Founders primarily want important and relevant data such as how much of the fund is deployed, how much dry powder is on hand.

Many would love info on how funds are doing and how successful they are with “clear data on previous investments, exits, successes and failures”, and “a little note on why they invested in a company, and in case of fails, why it failed…”. Not sure founders want their failures exposed, but more transparency would help; many VC LinkedIn profiles are heavily doctored in this respect.

Perhaps we should even turn the tables: “Every VC should have their own pitch deck focused on founders. Clarity about value prop, stage, investment criteria, LPs, future strategy and team. Also a good way to show founders the standard of clarity and ambition expected in their pitch decks”. Or let’s make this the norm: “reverse pitching in first meeting for all founders”.

Pushing this even further: “let VC aggressively market against each other with real IRR data. That would be fun to watch and would educate founders on performance expectations.”

Some founders are asking for transparency on who the LPs are, and where the money has come from. I dig the idea (“let’s avoid making bad people richer”).

Can I please speak to a former founder?

One of the most frequent complaints in the thread is that VC lands need more former operators and more diverse people.

Operational experience should really be a requirement. “You cannot become a GP at a VC until you have founded, operated and exited a business at a multiple of three times the fund size or capital you aim to raise (or have failed as an entrepreneur more than twice).”

In Europe in particular, “we don’t have enough GPs that have built and run early stage companies with expertise in product, software delivery, sales/distribution”.

Too much homogeneity & too little access

“I think the biggest problems with VC is the homogeneous group of people it attracts, so i’d look for people with a more varied background. Ideally folks who never thought of becoming a VC, but would be really good at it.”

“There is bias in access, evaluation and decision-making.”

VC should “remove the systematic bias against founders from underrepresented backgrounds in investing by making VCs more accessible and building strong ecosystem relationships to pull in founders that wouldn’t be on their radar otherwise.”

Perhaps, says Del Johnson, we should “side step warm intros altogether”. There are so many great/impactful businesses being built inside the 100s of business communities we support, who don’t have a classmate or colleague who raised capital or can make intros.”

“When founders are addressing a niche problem adjacent to a large market, it’s uplifting to a founder who is a woman of color, to see that the VC coming onboard (and will most likely sit on the board) *gets it* & can actively support the growth trajectory”

“Every VC should include at least two women who make decisions at the table — bonus for another underrepresented person. Don’t be all white, same aged men. The bias and perspective will immediately shift.”

Accessing VC is harder than accessing Delta Force, apparently !

Pitching is painful

Many founders are complaining about the endless drudge of pitching multiple times to multiple funds. Many ask for a “streamlined, standard way to pitch broadly”.

“Allow founders to pitch all the VCs at once. The idea of doing 5–10 meetings a week is keeping me bootstrapping!”

Disco!

“How about having an online platform that brings together VCs and startups to create pitching sessions, follow up meetings, and instant feedback?”

There have of course been a number of initiatives to address this issue (I remember the old Red Herring pitch battles in 1999 ;-) but there are also now more VC driven initiatives to do this such as Jordan Odinsky’s VC March Madness, Lolita Taub’s joint Startup Submissions or Vedika Jain’s Fundraise from Home.

The dreaded “deck”is coming under attack. Can we replace pitch decks with something else… something better. Maybe forms or video chats or something? A slick video pitch? A 1 to 3 page word/google doc?

No decks by email! Why can’t all VC’s be OK with Senddeck?

Special mention to our friends Pete Flint and team NFX for The Brief, Signal and VC Match. Boom!

Not everyone agrees with this though, as iteration and deep engagement have value. We need both.

“I just want to sit down, have a coffee and chat about my vision. Time is money to a VC, but a founder will take feedback seriously and return in better shape when given realistic goals. Chasing Angels/VCs is hard work and I’d pay GOOD money to be matched to a potential partner.”

My favourite tweet of the whole thread from Natty Zola:

Can you just please just … disappear?

Some founders have clearly just had it with VCs. Q:What’s the problem with VCs? A: VCs.

George Bevis is one of many suggesting a shift in board: “Remove board participation rights: make investing a passive activity. Could be done while insisting that board had qualified NEDs: they just wouldn’t be VCs.”

And another: “you provide cash, that’s the product. End of. Some require some thinking time / guidance, but that’s it. If you haven’t built and failed or exited your OWN business and your OWN cash, you shouldn’t own that Board seat…unless invited, like an NED.”

No Villain Lair

And finally, this made me chuckle:

The End. Thanks for making it so far.

Helping startups grow with money and mentoring to the sounds of Crystal Castles

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