Founders: Kings and Queens Of Venture Capital
Founders are the new Kings and Queens. Limited Partners (LPs) are source of capital. The key to superb returns is identifying and attracting the best entrepreneurs.
Whilst the above might seem obvious, there are a few key points that are worth further analysis:
1. Service organisations to entrepreneurs — usually a service company provides services in exchange for the remuneration function of a market price. Professional funders don’t (should never) charge entrepreneurs, but instead they invest in them. At first glance, you could say that funders pay in order to provide a service. In my view, early stage investors in fact pay to be at the table.
2. Identifying and attracting the best entrepreneurs — Funders tend to have an inflated view of themselves. In the end, in this business there is only one thing that matters: identifying and being able to back the right entrepreneurs. Nothing is more important for funders than DEAL FLOW.
3. Key to superb returns — words are cheap, but good funders can only be measured by one thing: superb returns. Obviously those superb returns are the key business alignment between funders and their LPs.
Often funders tend to run their business mostly focused on LPs as the end customer. They ultimately feel that LPs are the source of their management fees and therefore their immediate source of income.
Over the years, I have observed that LP centric funders tend to optimise for management fees more than for returns. Often decision are driven by “what’s the best for the next fund” and this is the beginning of the end.
In order to optimise for returns, the only key actor is the founder. Yes in this world founders are the new kings, capital is the commodity and funders need to rethink their business models. At InReach Ventures we put founders at the centre of our universe and we are rethinking the whole model for Europe from the ground up:
1 — We do not wait for founders to knock on our door. We proactively reach out and engage with them throughout Europe every day.
2 — We work as hard as founders and try to qualify each opportunity in the most professional way. Working hard is also our way to build empathy.
3 — We reply to each single email exactly like any professionally run business would do. We have a Service Level Agreement in place and if a founder answers the questions we ask, they will receive a prompt answer.
Often founders find it difficult to engage with funders. How can this be conceivable? Amazon makes it easy for potential customers to engage with them. Similarly funders should make it easy for founders to engage with them and solicit that engagement.
Funders must re-think their models and create founder centric service organisations. Too often in Europe funders tend to be LP centric and as such drive the wrong business behaviour. Let’s change that!