The entrepreneur hierarchy of needs
Here at Oxford Capital Ventures HQ, we’ve been doing a lot of soul searching about what entrepreneurs want from their VC partners. This is a big question. It informs everything about our brand and what we should prioritise in order to deliver the best service to entrepreneurs.
To help me tackle it, I’ve found Maslow’s hierarchy of needs a helpful framework (see also: related memes). The idea is to represent the attributes entrepreneurs look for in VCs in order to ascending importance. Attributes at the base of the pyramid are fundamental, with each higher level a secondary concern to the one below it. There is no particular science to my pyramid, its just based on gut feel and discussions within our team (but more on this at the end). Its been an interesting exercise for me (and a good excuse to browse memes for half an hour), but I’d love for this to be a jumping off point for a wider discussion; this is all super subjective and I’d love to hear from others on this, especially if you disagree!
This is what I think the entrepreneur hierarchy of needs looks like:
So the base of pyramid is just Money, plain and simple. Similar to Maslow’s hierarchy where physiological needs form the fundamental levels of the pyramid; entrepreneurs need capital to build products, and win (and defend) markets, just as humans need sustenance, shelter and water to develop. Entrepreneurs need a VC with adequate capital, and immediate access to and control of this capital. It’s not just about this round either, but the ability to follow on in future rounds and bring other investors to the table. I sometimes meet entrepreneurs who claim they “don’t need the money” and are just looking for VCs “who can add value” — perhaps in a few cases, e.g. exceptionally profitable companies, but raising VC investment is an unusually high friction, time consuming approach to securing knowledge and expertise.
Next: Don’t be an ass
For an entrepreneur, a VC is a long term partner; choosing a VC is a decision more akin to choosing a spouse than to choosing a employee or colleague (the average VC investment holding period is 8 years, the same length as the average marriage that ends in divorce). VCs have a lot of power; most VC termsheets effectively include a veto right on any corporate action. An actively unhelpful VC can make your life hell, or even a disengaged one could block a funding round. Therefore for an entrepreneur, finding someone you trust has to be the next step in the hierarchy.
Personal connection and value add
Entrepreneurship can be a hugely disorienting, tiring and lonely vocation. Entrepreneurs want a VC who can provide emotional support, empathy, and a healthy dose of perspective gleaned from having ‘seen the startup movie’ many times before. A VC’s breadth of experience and pattern recognition can also be easily leveraged to add value on a strategic level. It is likely that a given VC will have encountered an analogous problem to the one your startup is facing, and will have learned from any mistakes (and successes) made as a result!
I’ve chosen operational value add as the final stage in my pyramid. A lot of VCs seem to position themselves as “hands on”, offering operational support like access to developers, marketing resource or an entire platform. Many entrepreneurs may not want this, they’re looking for investors not busy bodies.
Open questions: where do valuation & terms fit in the hierarchy? And brand?
There is a disconnect between what investors and entrepreneurs believe is important. Many VCs in the market today differentiate on the levels of operational support provided to their portfolio companies, while entrepreneurs are more concerned about personal fit and access to capital. Some research conducted by US B2B brand consultancy Desantis Breindel in 2013 supports this.
I’d be really interested to see data on this topic from today, and with a European perspective (watch this space…). But access to money isn’t always a given; funds have lifetimes, and even if a VC has raised a new fund, that fund might have crossover restrictions precluding it from investing in deals from an earlier fund. And what about not being an ass? Should be easy, but as recent and current events show this is difficult for many.
