Third post in the series of blogs about some of the things to look for in a VC. This one is about a VCs network and Rolodex…
An omniscient entrepreneur I know recently declared that the adage, “It’s not what you know, but who you know” is dead. His argument was that an in an information economy an entrepreneur can build something that is really great and users/customers will gravitate to it. Everything will flow from there.
Okay. If you manage to bootstrap a truly original product for the next generation Internet or datacenter – you might get enough buzz or traction or whatever to get the resources you need.
But… you may not, and if you do not, your company may starve in time without capital, customers or talent. And you will wish you had someone you could call that would introduce you to the head of business development at company XYZ or an amazing Data Scientist or the right investors to take your company to the next level.
It’s not just knowing Larry Ellison or Marc Andreesen. They are going to funnel and filter and pawn off all the thousands of requests on their lieutenants and gatekeepers. If you choose the right VC, someone who is in the trenches with you, they will be able to know what you need and plug you in at the right level with people who can help you move forward.
What you need probably depends on your stage as a company. If you are Series A, you might need technical talent, or outsourced back office or some initial beta customers. If you are Series B, you might need to hire a business development person or a controller. If you are a Series C, you might need a good COO or an experienced head of sales. And what about if you are raising a Series B or a Series C? You will want someone who can help you decide which investors are the right fit for your particular type of company and then make you a personal introduction at the partner level.
That’s a lot of different people and a lot of different ecosystems. An early stage VC I know recently told me he spends nearly 20% of his time recruiting for his portfolio companies. One needs to be pretty plugged in to do that.
So how, as an entrepreneur, do you find out if the VC that you are interviewing is connected to the people you care about? The best way is to walk through examples of situations with your perspective VC. Ask questions like the following:
- What process do you go through when you companies are fund raising?
- Who is the last executive that you brought into one of your portfolio companies?
- How do you suggest I set up my accounting and legal functions?
- As a technical founder, in what ways do you like to help on the business side?
You will get a pretty good idea right away what the VCs approach is and who she/he knows. And if you don’t… talk to the CEOs of some past or present portfolio companies and ask them point blank, “Is this person well connected?” “What are the strengths and weaknesses of her/his rolodex?”
I personally think that this gets back to the argument I made in an earlier post. VCs with operating experience probably are more tied into operators and other business folks than VCs with financial backgrounds. This is a generalization, but it matches with my experience.
Back to the topic: not all money is created equal (NAMCE) because not all VCs have the right connections to be successful. Of the things a VC can add, connections are probably the most obvious and important.