Next to the reputation of a Venture Capital (VC) firm’s principals, CEOs top evaluation criteria when choosing a VC is the ability to add value to the portfolio company beyond funding. No surprise. However, looking at the prioritization of qualities of a VC, there is a disconnect between the VCs and the customers. According to DeSantis Breindel CEOs tend to disagree with VCs on the importance of ‘hands-on’, ’emerging’, ‘analytical’, and ‘experienced’ – whereas VCs pay less attention to ‘entrepreneur-friendly’, ‘trustworthy’, ‘collaborative’, ‘supportive’, ‘influential’, and ‘visionary’.
This means opportunities for the VCs who see the eroding power of VCs (as companies get cheaper to build, VCs have to adapt to counter). Recent VC brands arose from transparency and founder-friendliness. As stated by Naval Ravikant, YCombinator gives new, young, technical talent an entry into Silicon Valley; Marc Andreessen and Ben Horowitz back Founders to be Public Company CEOs; AngelList gives away investor and talent introductions for free; First Round Capital builds and operates an internal platform; etc. Interestingly enough, these VCs also seem to be among the few that generate shareholder value.
VCs can no longer survive by offering more of the same. It is time to tell your promises, to deliver a service level agreement, to understand that VCs are no longer the customer of the entrepreneurs. So, at our firm, we have changed the proposition, the transparency, and the terms. We made the hard choices up front. We propose a term sheet in which we guarantee all promises are delivered ‘or all shares back’. Contact us for more insight on how the proposition to entrepreneurs ought to be.