Hunting v/s Farming: A Founder Friendly Evolution of Venture Capital
Technology entrepreneurship is fuelled by the relationship between founders and funders. The question for both is: how to engage with each other to build an effective relationship?
Historically, the fundraising process has been founder driven across multiple axis: timing, quantum, target list of investors, location, etc. Within this framework, funders have been seen as passive subjects in a target list that are qualified in or out based on their level of interest of an initial exec summary, their responsiveness and often their perceived brand.
The future of fundraising will morph and evolve in a funder driven fundraising process.
In a world in which capital is becoming more of a commodity, there will be the emergence of a new kind of funder: the hunter.
Historically, venture capitalists have been more farmers than hunters and most of their deal-flow has been of in-bound nature (see Fig. 1). Within those in-bound activities, most funders tend to be focused on qualified leads. Some will make it as hard as possible to contact them through a cold email: founders have horror stories about the difficulty to engage with partners in venture firms.
Some funders argue that a key skill for a founder is his/her capability to network within the industry and therefore to find a fellow co-founder that creates a referral is a sort of test of such capabilities. Everybody is entitled to their own opinion, but I personally could not disagree more! Networking capabilities are not a defining element of the fit between the DNA of the founders and the idea they want to pursue (read more on this on previous post here). It’s simply a secondary skill that can be learned!
The funders of the future will be hunters, and the best funders will be the best hunters.
In order to become hunters there will be a need to reassess the skill set of a traditional venture firm. A from-scratch re-design of the technology layer to enable the creation of a well run out-bound data driven operational machine.
If the funders of the future will be hunters, the best performing European venture firms must become operational machines that thrive on operational excellence. Make no mistake, the best operational machines will also efficiently engage with in-bound activities.
Overall, this trend will have the significant positive effect of increasing the level of empathy between founders and funders. Empathy built on the shared goal of operational excellence.