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Just like every other industry, there are the middle-of-the-pack venture capitalists, and then there are those at the top of their game. Not all VCs are the same, and the difference between a B-lister and a rockstar lies in the delivery of the oft-promised “value add.” Every VC talks about how he’ll be a game-changer for an entrepreneur who takes his money, but not every VC then follows through and is able to walk that walk. As I think about my peers, I realize that providing capital is simply not enough – that’s just the ante to play. The best of the best do so much more, beyond writing checks. A smart entrepreneur will only take money (and give up equity in exchange) from someone who’s actually demonstrated his ability to follow through on these aspects, just like the VC would expect a proven track record from the startup founder, too. Accountability is a two-way street, and here are some of the ways that can affect the outcome the most.
The best of the best do these things in addition to providing capital:
1. Share with friends. Ultimately, the goal is to bring in other deep-pocketed investors for a future round or an exit strategy. A strong VC should be able to provide a strong intro to other VCs and strategic investors, and in turn, add credibility by standing behind their companies.
2. Fuel the pipeline. For a startup to keep the lights on, the company needs to make sales. At first especially, clients can be difficult to close, especially coming on cold. By making important sales and biz dev introductions, a VC can warm up a lead to trust the company. At that point, it’s the founder’s job to seal the deal and impress the client beyond the sale.
3. Assemble the A-Team. It’s risky to join a startup, especially for people in cushy, well-paying, stable jobs. However, with the right assurance that a new company is well-funded by an actively-involved investor, plus offers tons of upside, a top recruit is more easily persuaded to join a team. Helping to recruit top talent is one of the most important aspects that a VC can do to give the company a serious boost.
4. Go hard… Know when to push - when a company is thriving and operating on all cylinders, great VC's push them outside their comfort zone to reach new heights. Without an extra oomph, startup leaders run the risk of settling for “good,” when they could be “great.” It’s our job as investors and coaches to challenge them to realize that “good” is never good enough.
5. …Or not. Know when to back off - if the company hits a rough spot, pointing fingers and being critical add zero value. It's easy for those who view themselves as "money managers" to distance themselves from the entrepreneurial process and sit back, point fingers, and criticize startup leaders when they miss a number. Much akin to a Monday morning sports fan who has never played the game and has 40 extra pounds in his beer gut, it’s much easier for a VC to complain than get his hands dirty. By contrast, the best VC's are supporting and understanding in times of crisis.
6. Play chess, not checkers. The best VCs choose to think long-term. They are less concerned about some quarterly target and more interested in creating big, impactful, sustainable value. They help coach entrepreneurs to think like this too.
7. Be there. The top-tier VCs don’t see themselves as outsiders, and the entrepreneurs who have been funded by them don’t either. Instead, they’re viewed as coaches and problem-solvers. These investors are more than that, as they serve as sounding boards and trusted advisors to help think through tough business challenges.
If entrepreneurs simply want cash, they go to family/friends, the bank, non-profit organizations or even crowdfunding sources. When an entrepreneur engages with a venture capitalist and is willing to offer a portion of her business to that firm, the expectation should be higher. As VCs, we demand excellence from startups, but these startup companies should demand the same caliber from us. How do you stack up?
For an inside view into my world as a VC, entrepreneur, author, and keynote speaker, visit JoshLinkner.com and order my new book, “The Road to Reinvention,” on Amazon.
