Second post in the series of blogs about some of the skills to look for in a VC. This one is about what services a VC can actually provide that will add value to a startup.
I’ve spoken to a number of VCs recently about this topic. The consensus (of which I’m a part) is the following:
- Network (Rolodex)
- Team building
- Skill building
- Customer development
- Business analysis
I imagine that there is a blog post to be written about the value of every single bullet point, so what I will say in summary is that except for the technology / product, these are the building blocks used to create a company.
Entrepreneurs I see most of the time are very technical. They are superior at building a product because of years of practice at coding or tons of experience designing or lots of time spent in a particular industry. They tend to know less about accounting, HR, legal, marketing and sales. Sometimes they don’t even know what the don’t know, although rarely.
Even outside of raising venture funding, good entrepreneurs are always up front about what they don’t know. They ask for help and they surround themselves with folks who compliment their skill set. After all, it’s not a crime to have focused on one skill to the exclusion of others in order to become excellent at it.
Similarly a venture capitalist today should know how to position a product, how to coach an entrepreneur, what an organization should look like at it’s different stages of development, how to get the right people and how to make the right introductions to the right people any in number of industries at the right time. The days of simply believing in the talent of an entrepreneur are coming to an end.
When fundraising, it’s a simple conversation. The entrepreneur tells the VC what she/he needs (besides money) to build a business. The VC tells the entrepreneur what she/he is capable of providing. The entrepreneur and the VC both look for personal chemistry and complimentary skills. If everyone is honest and fair it’s a good experience.
Back to the point: not all money is created equal (NAMCE) because not all VCs have all these skill sets – they all have their strengths and weaknesses. So the entrepreneur needs to make sure she/he understands the services that VCs have to offer (besides cash) and find the right fit .
Bonus thought: it is always on the entrepreneur to pick the right VC and not the other way around. The reason is because the entrepreneurs startup is all she or he has – if the startup fails, that’s the end of it. On the other hand, the VC still gets to go into work the day after one of their portfolio companies goes out of business. Their risk is diversified.