The 7 deadly sins of VCs

Source: http://hubpages.com/religion-philosophy/The-seven-deadly-sins

Over the past two years I’ve been exposed to most of the VCs in Paris, be it through co-investments, events, my personal networking efforts or discussions.

The first thing I can say is that I haven’t been blown away by many of them (note: I’m not often blown away by myself either). How is that possible that an industry which attracts so many people and is actually composed of so few is not filled with overwhelming minds and hearts?

It’s been a vague sentiment, but I tried to isolate some of the traits that were disappointing to me.

1. Intellectual laziness
   - VCs “have to cope with” thousands of opportunities per year, which distribution follows a power law (see chart above). So it’s perfectly rational to spend as little time as possible on the long tail of less promising deals and reallocate time heavily on the potential fund returners. I encourage every initiative that goes in this direction.
   - YET, screening out opportunities based on a priori judgments like ‘I don’t like IT Security / eCommerce / market-maker model / etc.’ without looking at it a bit is simply intellectual laziness.
   /!\ This holds true until you have committed to a precise, consistent, and track record-backed investment thesis, which requires a slightly greater maturity and discipline. And even then, I do believe part of the job is highly opportunistic.
2. Outright laziness
   - Some VCs seem to have given up on the carried interest and made the choice of living comfortably by working 9–5 and getting management fees (if you want to understand better the balance between leisure and payoff, go read this one-in-a-decade essay by Paul Graham). You can invest in 1/100 startups that are coming to you (come on, you won’t bother about proactive sourcing!) to show your LPs you’re doing your job, and just live like that until the fund liquidates (10 years on average) and if you are good at flattering them, you’ll be able to raise the next fund. Nicolas Colin brilliantly described this here.
   - As a consequence, some don’t go deep into the details and don’t make sure they have a clear and full understanding of the business, its numbers, its market, its competitors. Be sure to think enough to avoid silly basic questions to founders. Sometimes this even happens for companies they sit on the board of. I personally don’t even understand how this is possible.
3. Lack of sincerity
   - Every VC will tell you that the first criterion for investing are great founders / team. Yet, when VCs inform founders why they pass on deals, the team is rarely mentioned as a reason. Sounds illogical, right?
   - So of course, it’s easier to say so in the US where there’s a culture of switching from an opportunity to another easily and of not taking it too personally. But on many, many other topics, some VCs lack sincerity. One tough moment I had was a harsh discussion with a banker during the fundraising process of one of our portfolio companies. I think we’re now very happy we had this sincere argument, and have now established trust between us.
4. Misplaced pride
   - As the inimitable nicolas debock puts it, VC is about ‘investing other people’s money in other people’s businesses’. So it’s basically about making decisions based on what you deeply think is going to provide a return. Not about presenting things only on their bright side, as it’s often the case in consulting. So basically it’s foolish to pretend you understand the business / market / tech of a company when you really don’t. Don’t be complacent with bullshit, even if it’s hard in an industry stuffed with buzzwords (‘FinTech’, ‘FoodTech’, ‘Dealflow’, …)
   - My former boss at XAnge, who graduated from the top schools in France (which, unfortunately, means a lot here) and is brilliant used to ask seemingly dumb questions until he could fully understand every element of a company and make his own opinion. I admire this behaviour, but it shouldn’t sound so unusual.
5. Lack of availability
   - People tend to think VC is not a real job. That’s why there’s so many micro-VCs / corporate venture initiatives blooming these days. Even my girlfriend thinks I’m playing around with cool apps on my smartphone and having coffees with people all day long, my working day being 3 hours shorter than hers. Truth is, VC — at least as I picture it — is indeed a real job, but the level of commitment and stress is less visible and more pervasive. You have to be available 24/7 for the founders of your portfolio companies, and be proactive in helping them. Even when you don’t brag about ‘beyond board meetings’ and this kind of stuff.
6. Lack of communication
   - Based on Sin #1, many VCs complain about ‘receiving’ deals that are out of their scope. OK, but how do you want entrepreneurs to know your scope if you don’t communicate on it? VC is a people business, it’s a decision business, it’s about conviction. So just disclose who you are, how you think, and what you’re interested it.
   - Contrary to the US, very few VCs in France try to formalise their thinking in writing and share it. Even less go beyond a purely descriptive content and give their own opinion. Notable exceptions are Jean de La Rochebrochard of Kima, Jean-David Chamboredon of ISAI. In the younger generation, Marie Brayer and Daphni Chronicles are trying things that are interesting so far.
7. Lack of passion
   - VC is a job like no other. You’re in a position where you have to create strong ties with the founders of your portfolio companies that go beyond professional relationship. You have to be here for your founders for better or for worse. You’re in a position to live unique human stories. You’re in a position to have a unique position to meet the smartest and most creative guys of a generation, working on potentially world-changing projects. How can you not be passionate, wholeheartedly into your job?!
   - If your personal and professional life aren’t at least partly entwined, if other people in the ecosystem aren’t becoming your true friends, if you don’t obscenely enjoy finding out about startups, if you don’t play around on BuiltWith, ProductHunt and the likes, go beyond the ugly UI of HackerNews, read Pocket-saved articles late at night, then I don’t think you can be fully good at the job. Live it or leave it.

Note: of course I’m also falling into some of these traps every now and then (except #7). My purpose here is precisely to identify the seven things that disappointed me, to try to avoid them myself.

If you see any other sin or disagree with one, please share it in the comment section or on Twitter @bartjjj