Saturday, November 9, 2013

VCs pitching to entrepreneurs - how well do they connect?

What do entrepreneurs want from a VC vs what VCs think they want!?

There is just so much noise in the start up world. So many people giving so many other people advice, solicited or otherwise. So many blogs to read. So many forums, panels etc where investors explain how entrepreneurs should most effectively do this, that or the other. Some of this is well informed, some not. Being a small part of this noise generating equation myself I do my best to add value where I can, or shut up! But when it comes to what entrepreneurs value and what VC investors think they want are "they" and "we" aligned?

In answer to this question a recent National Venture Capital Association (NVCA) commissioned survey provides some hard data, which I discuss below. And I supplement this with some more anecdotal observations from the recent Capital on Stage event in New York.


FIRST THE HARD DATA: The "Brand Gap"

In a piece this past summer Russ Garland at the Wall Street Journal dissected a NVCA/DeSantis Breindel survey that looked at the claimed and desired attributes of VCs vs entrepreneurs with a view to identifying and quantifying any "brand gap" - hence the title: The Brand Influence Guide For The Venture Capital Industry

Russ noted:

"Venture capitalists like to describe themselves as “hands-on” when it comes to portfolio companies, but that’s not what entrepreneurs want to hear. While 22% of venture firm representatives said “hands-on” is a phrase that best described their firm, only 1% of entrepreneurs thought that was an important quality when evaluating a VC firm ..."


and

“Entrepreneur-friendly” was the top quality for entrepreneurs, selected by 58% of those surveyed, followed closely by “trustworthy.”


Here is the detail from this intriguing study framed in terms of a forced ranking of entrepreneur favored characteristics with the VC derived ranking view overlaid on that:



Gender: A big disconnect

In terms of other brand gap issues the survey revealed, an important one was gender based. Specifically in answer to the question: 

"Does the gender make-up of a VC's partner base matter to CEOs?" 

1 in 4 of CEOs surveys said "Yes" ... but only 1 in 10 of the VCs gave the same answer. And, urgent memo to non diverse VC teams (i.e. most of them, see some of the data in my post on VC Backed Boards), 2 of 3 women CEOs said the gender make of a VC's partner base mattered.

The survey also found that by far the most important channel cited by CEOs in terms of influencing their perception of VCs was ... word of mouth from other entrepreneurs. So if you don't get the reality of the adverse perception of your partnership gender mix with women CEOs then look out, because it's on their agenda.


SECOND SOME MORE SUBJECTIVE DATA: Capital on Stage New York

On Thursday 11/7 Capital on Stage (CoS) held their 2nd NYC conference, hosted by Goodwin Proctor ... where VCs are literally put "on stage" presenting to a room of entrepreneurs. Credit and thanks to Arjen Strijker for bringing this great event to NYC for the second year. 

At CoS, rather than just filling in a survey, here were some 20 VCs face to face with potential investees and having to present their wares one in rapid fire format. How did this face to face experience compare to the DeSantis Breindel survey? What did the VCs say they had to offer? 

Five observations

My totally personal assessment was as follows: 

1. Just because you see and opine on a lot of pitches doesn’t make you any good at pitching yourself. Many of the pitches would not have got beyond the first round of most investor pitch competitions I have been to or judged based on delivery style and content. But I guess that is another version of the "golden rule." (ie he/she who has the gold makes the rules.)

2. For those who provided some substantive rationale around their value added (beyond money), which was not much more than half, the most often mentioned items were:

  • Network/support: "we help with intros, recruiting etc.; we connect you with other investees to share experiences around challenges, successes" etc.
  • Expertise/focus: relevant domain expertise, geography, stage, diverse founders, mobile consumer vs. B2B etc.
  • Level of engagement: some talked about being “very hands on” … others stressed being hands off esp. those which, as a matter of policy, do not seek Board seats.
  • Financing advice/strategic: getting you to the next round and working the exit.

3. About a third cited some version of the “We understand your pain” talking point. ie highlighting the extent to which senior team VC members are former entrepreneurs/operators and can thus relate to the experience of their investees based on personal experience.

4. In my view only one of VCs fully spoke to the "examination question". So really focused on WHY entrepreneurs might want to work with his fund. As such he (my personal plaudit goes to Rob Go of NextView Ventures) explicitly framed his pitch in the context of “know your customer”. So laying out how his fund processes are all about his team's assessment of what entrepreneurs actually need, then ensuring relevant expertise is thus brought to bear and that there is both strong alignment and empathy along the way. 

5. One other VC, although less heavy on the empathy, also had (or more to the point actually communicated) a thoughtful analytical approach to how they invest in resources that de-risk parts of their investees’ execution challenges, thus allowing the portfolio companies to focus on business specific risk. 


Some Conclusions

Yes, having sat through CoS and discussed this issue with eight CEOs afterwards, the DeSantis Breindel data does seem to make directional sense to me. So ...

More: 
Empathy, trust, collaboration and support needed from VCs. Definitely some vision and influence too. (Neither of those last two items got a clear mention in any of the Capital on Stage reverse pitches.) 

Less: 
"Hands-on" thank you very much! (Well, a balance anyway.) 
As one CEO at the event put it to me afterwards: "I don’t want to hear “hands-on,” because it implies that a lot more work is in store for the CEO just to keep the meddling investor tightly in the loop." And explaining why the issue of trust ranked so high in their own thinking another CEO noted: "You want to trust somebody before you want him/her to get involved hands-on, which could potentially mean that they really mess things up. So trust and trustworthiness are for sure more important than activism." A third CEO set out the tension nicely with this assessment: "The "hands-on" vs "hands-off" is hard. On one hand you do not want a VC micromanaging you, especially if they are not experienced in the space you are in. On the other hand as a first time entrepreneur you want feedback and guidance. So like most anything, its all about balance." Yep: younger first time founder? Most likely hands-on!; older serial founder? Most likely hands-off!