Does your VC suck?

Paul Jazefak has an interesting post on VC bashing. I was at the TiECon last week chairing a panel around fundraising, when the ultimate happened – a VC on the panel started bashing VCs! How much worse can it get :)

I think part of the issue here is a lack of understanding of the VC business – VCs are not angels (as much as angels arent – no pun!) They are in a business. However, in my view, there is a “value system” to each business and each individual. For VCs, my list would include integrity, empathy, access, humility, partnership and fairness. Not just because its good human nature to have these (which is true of many other things I didnt put up here, such as transparency,) but because these are values that IMHO help build a great VC business.

For folks out there who have pitched or tried to pitch to VCs, what have been the biggest frustrations and delights? For people who actually have VCs invested in their companies, what do you appreciate about them and what is it that you’d like them to change?

Update: Someone commented on this article on facebook, saying VCs suck because most of them have no operational experience. Does that really matter? Check out this analysis by pehub – doesnt seem to say so. But then, nice rebuttal here.

13 Responses to “Does your VC suck?”

  1. Alok Mittal says:

    Hah! If the time period to exits is getting longer and longer, can this be far behind http://austin.bizjournals.com/austin/stories/2009/09/28/story5.html?ana=from_rss – interesting approach.

  2. Alok Mittal says:

    @curious_mind: I think the fundamental issue with the venture industry globally has been the lack of returns over past 10 years. This could result from the model being broken, or just a down cycle (albeit a long one.)

    My reading on the model is that venture capital doesnt lend itself well to scaling up “funds per partner” – that number has worked well in the past at around $50M or so. Increasing that number substantially forces larger deal sizes, either moving people to later stage investments or to pushing more money where less can do. It perhaps also encourages investors to keep putting good money after bad. In essence, it takes away the notion of capital scarcity at a unit level of the industry (i.e. the fund). Simultaneously, exit sizes have been going down over years – so its harder to generate returns on larger funds.

    I think there are few things that could happen differently in India. The size of exits in general could be even lower than US. Startups need more attention and guidance. Both these could point us to even smaller funds, which means smaller fees, and that is a point of resistance here. The flip side is that I am not seeing Indian companies take lesser capital in general. One key risk I see here is under-capitalization (in my view, its happening today with small sized funds.)

    The positive black swan in India could be a higher success rate of startups (yet to be seen) – India could well turn out to be “3 moderate successes in 5 investments” rather than “1 blockbuster in 5 investments” model. Yet to be seen. The overall growth in the market, and relatively lesser competition could lead to that.

    VC success – depends on from whose perspective and by what metric. VC business is ultimately “successful” when it makes money for investors (LPs), and thats a longer term determination – though you can look at follow-on financings and estimated values there as some indication of how portfolios are doing. From an entrepreneurs’ standpoint, sometimes very different things matter such as access, conviction, experience etc – all of which are observable in smaller time periods. Talk to other entrepreneurs that the VC has backed in confidence – they might be able to give you useful dope on how the VC behaves…

  3. curious_mind says:

    Dear Alok,

    I have heard you couple of times saying in public that you believe that the “US VC-model is broken”.

    As somebody who is deeply into the startup-VC scenario for some time now, it would be really great if you can share your thoughts on the following:

    1. What are Indian VCs doing differently from their US counterparts ?

    2. What is the kind of VC-model that you see emerging for the Indian markets ?

    One thing i have always found difficult (especially in the Indian scenario) is to decide whether this VC is successful or not. (I guess that’s primarily because of the age of VC-industry in India)

    I mean I know for sure that startups have milestones to be achieved. And if they are doing so, one would say that they are on track to be successful.

    3. But how can an outsider identify the milestones for a VC or how well he/she is doing ?

    It would really great if you can share your thoughts on the above.

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