Writing the check

Entrepreneurs love to give VCs a hard time. Often it’s over beverages with their peers and the standard lines are about how so and so VC isn’t willing to take any risk or how investors want to get rich by taking as big a piece of a company as they can. There’s a lot of complaining about how VCs will drag conversations on forever without committing (true) and how they all claim to add value but few really do (maybe true too). Ironically, there’s also a lot of complaining about how there’s not enough of these VCs in the areas outside Silicon Valley and the greater Northeast.

It’s easy to pick on VCs.

Many of them are very handsomely compensated with management fees for managing portfolios whose expected returns are opaque at best and downright horrific at worst. And we all think we could do the job — like the everyday Joe who’s convinced he could hang in Vegas if he just had the right bankroll.

I’ll confess that I’ve had the same thoughts before too.

And then in recent years I’ve had the great experience of an unpaid advisor role with a small fund. I’m a part of a small investment committee that helps look at deals and, ultimately, help decide whether to make investments in early stage and growth companies.

And I’ll tell you — the funniest thing happens when it comes time to put a stake in the ground and actually write a check. The bravado and hubris vanishes and is replaced by a ping pong battle of pro vs. con in your brain that vacillates between whether this company could be a fund maker or whether there’s a chance it could be an absolutely zero. With early stage deals its often easy to make a case either way.

When you factor in a limited number of overall bets in a portfolio and no liquidity during the hold period (which can last 7 years or more) it takes real conviction for an investor to actually write the check. Not to turn VCs into heroes (the best VCs realize the entrepreneurs are the real heroes) but it’s worth remembering this when pitching to the money crowd. For all the talk of bubbles and sky high valuations, every financing round is at some level a marriage of this conviction and the promise of an unknown future.

It’s a beautiful thing when the two come together, but it’s not always easy getting there.

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