The four breeds of VCs

Seeing a lot of healthy debate on Venturewoods regarding  the VC – entrepreneur relationship and even some amount of VC bashing in comments, I thought of summarizing my own experiences so far.Having talked, met and pitched to several Indian VCs, I have discovered four distinct breeds which are obviously broad categorizations based on my own perceptions.My gut feeling is that most VCs will be alternating between these breeds depending on not just their own personality/motivation but also by what reaction they have to your team, plan, business. Evolution from one breed to another breed over time is also observed.

Disclaimer: Some of my very good friends are VCs and some of the best people I know 🙂

So here they are : 

1) The Time-Wasters

The most common breed, the “Time Waster” replies to your 3rd email, schedules a call 2 weeks later, and then when you ping him/her several times offers to meet you.

He/She kicks off the meeting with an associate or analyst talking to you and comes into the meeting late, answers phone calls during meetings, walks out early, tells his/her associate to continue the discussion / follow up. You can also identify the time-wasters by the questions he/she asks which are so basic that you wonder whether he/she has even bothered to Google you or your company. After the meeting, the Time-Waster will seldom get back to you with feedback, and even if he does, it will be so generic (stuff like we are not investing in early stage internet) that you will scratch your head wondering hmm… he could have told me that in reply to my first email.

The Time Waster makes you feel like he/she is doing you a big favour just by giving you some time, or that you haven’t come from the right school, background or pedigree to merit his/her attention. Even if you are lucky enough to keep pursuing the Time Waster patiently until a termsheet , it is likely that the Time Waster will find other worthy things to do at that point or will come back with some absurd terms/valuation since he/she never got enough time to do any diligence to build a solid enough case.

This breed is an inefficiency in the VC ecosystem, and in seed/early stage can harm the company more than they good to it since the company has very little time on hands. Also, it shows serious lack of both professionalism and mutual respect for time. 

2) The AntiThesis Believers

These VCs have already formed a belief that your business/space/stage of business sucks and is not worthy on investment. Most of the time, this is a direct result of their belief that an alternative business model / related company will work out, or as a result of burnt fingers in your space.

This breed will want to talk to you and question you to confirm their belief that your model is failing or fairing average just as they expected it to. Besides being very stiff, skeptical and reserved (they will never tell you what is going on at the back of their head), they might sometimes also voice their skepticism in a more direct manner, encouraging you to try something very different – “have you looked at the X space?”, “Why dont you try to build Y instead?”, “I would be quite interested in someone doing Z in your space.” Some will go to the extend of shaking their head and saying – “How will you ever make money?” or the more direct and demotivating “I doubt if someone will even invest $100K in your business” etc.

You can identify this breed by their general casual attitude, less questions asked about your team/capabilities, sometimes not having done much homework on your model/product either. It is unlikely that a meeting with them will last beyond 30 minutes, and most of the time you will know they fall in this category right after the first meeting.

This breed is the one most likely to pass on the next Google & Facebook because they might believe in a Yahoo! or MySpace.

No grudges against them at all – entrepreneurs work passionately to prove them wrong everyday. But please, O anti-thesis believers, don’t try to tell the poor guy all his dreams and hard work are worth nought.

On the other hand, entrepreneurs should listen very closely to what these naysayers have to say and try to understand why they are saying it. Some of their feedback might be right, and you might end up being on the wrong side of history if you dont fix it 🙂 

3) The Partners

And then there is the third kind – also known as the Mentors or the Good Guys. This rare breed is my favorite and are the ones I would always want to work with. These people are rational, debating, honest, upfront, friendly, warm, supportive and are in the VC business to “genuinely” help build an entrepreneurial ecosystem in India.If they dont like something, they will explain in detail why. These people want to undertand your business on a whiteboard and dont want to waste much time on powerpoints / excels.

The partners are quick to identify since they would have done research on your space and will ask you a lot of relevant questions about your team, product, tech, model etc. and make you meet their partners / team with willingness. You can identify with them. Most of these have been entrepreneurs themselves or appreciate what the entrepreneur is going through at any point in his/her lifecycle. Most of all, they give the entrepreneur the respect and support he/she craves for and try to work as a team even during the pitch. After all, whether you fund the idea or not does not mean you cannot help the entrepreneur overcome challenges and offer him suggestions for improving his model, upside etc.

Despite their biases and skepticism, these people take some time out to understand your idea, your team and your business model better and will tell you in the first or second meeting where your challenges are. They will also want to spend time with you to help you overcome those challenges. They will make introductions that help your business grow. Whether they invest in you or not is usually just a function of tweaking your model / timing / stage / expected return.  They will keep tracking you.

It is this breed that gives the VC world their good reputation and that keeps the ecosystem flourishing !

4) The Sniffers

The fourth kind is very very rare breed and VCs will question their very existence; entrepreneurs with horror stories tell you about them all the time and you run into them yourself once in a while.

The fourth kind looks, dresses, smells, behaves and acts like the third kind but is actually a mix of the first and the second kind. His objective to meet you and look at your plan was just to get valuable information to support/debunk a thesis he had been working on or do groundwork for investing in another company in your space, or to just improve their “intelligence” about your space/company.

I sincerely hope that natural selection will make the fourth kind extinct soon or evolve into the third kind. I also hope entrepreneurs will find a way to identify the fourth kind.

To sum up, my thesis is that VCs keep metamorphosing between these breeds depending on the situation, the partner leading the deal, the deal itself, or the stage of company.  My antithesis believer  could be your time waster, and your time waster could might as well be my partner.

Alok – Keep up the good work keeping the open discussion between VCs and entrepreneurs going !

Aloke

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