The Debate Over VC Associates

As an Associate at a VC firm, it’s hard to tell whether I’m the most important person at the firm or the least deserving.  It seems to deviate from week to week.  Let’s look back over the past 6 weeks –

Earlier in September, Paul Graham started the attack:

Investors will try to lure you into fundraising when you’re not. It’s great for them if they can, because they can thereby get a shot at you before everyone else. They’ll send you emails saying they want to meet to learn more about you. If you get cold-emailed by an associate at a VC firm, you shouldn’t meet even if you are in fundraising mode. Deals don’t happen that way…

But an associate is not a VC. They have no decision-making power. And while they may introduce startups they like to partners at their firm, the partners discriminate against deals that come to them this way.  I don’t know of a single VC investment that began with an associate cold-emailing a startup. If you want to approach a specific firm, get an intro to a partner from someone they respect.

But October came to our rescue with a number of high profile wins.  First Brian O’Malley a General Partner (and, imo, one of the smartest people in venture) let it slip that Battery’s math showed associate driven deals performed better than partner deals.  Literally the same day, Roger Ehrenberg took to Quora to defend the junior members at IA Ventures:

I also find that my younger colleagues have a level of empathy for founders that is both refreshing and helpful, particularly because many of our founders are much closer in age to them than to me. They also dive deep into the guts of our founders’ businesses and those in which we are considering investing, giving them a level of clinical knowledge and “vibe” of companies that is hugely valuable when either deliberating over whether or not to make an investment or to make a specific recommendation to one of our companies.

But as an entrepreneur, or even an aspiring VC (pre or post MBA, as the lingo goes…) what are you to make of this?  When one of our partners refers you to me, is that a sign of disapproval, or is it a good sign?

Let’s start here.  Over a year ago, when I was somehow greener than I am now (I still feel green), we had considered making an investment in a company.  They were pretty early, I’d met with them along with a partner, but it was still intriguing.  A few months later, they’d started to gain some traction & were putting together an impressive syndicate.  They asked for a meeting – the partners were busy, but asked me to vet it and give my recommendation.  When I tried to setup a meeting with the entrepreneur, the response was:

Ezra — Thanks for the kind words, and great to hear from you!  See below for more.

[Partner] — I know you’re busy.  The meetings we’re booking right now are 2nd and 3rd meetings with decision makers, so if you want to jump on a call a different day or in the next couple of weeks, let me know.  Ezra is welcome to join that call.

Now that is a pretty diplomatic note if I’ve ever seen one.  It’s a very kind way of saying – “Sorry, Ezra, but you’re not important enough.”  But we didn’t do the deal.  And although there were many reasons, the partners would later tell me they felt it was a bad sign that an entrepreneur would be disrespectful to any part of the investment team.

That’s the negative.  What about the positive?  From my (relatively biased) perspective, associates are extraordinarily valuable – whether early stage or later stage.  Let’s start with later stage.  In these positions, associate compensation is often tied to the # of deals sourced & sometimes even performance.  Many of these associates are hitting the phones, cold calling, etc, trying to find proprietary dealflow.  It is true that the partners are the ones who write the checks.  But these firms demand a great degree of analysis, financial modeling, market analysis, etc.  And I promise you that the partners – who sit on multiple boards, are constantly networking, and fundraising! – don’t have time to do most of the math.  Who does?  Your new best friend: the lowly associate.  These associates rarely have operating experience and are typically investment professionals. While that may be offputting, they still deserve a lot of respect, and very rare is the deal that will get done without them.

On the early stage, things look a bit different.  Post-MBA associates often have some operating experience.  Often they were backed by the same VC they’re now working for.  They may be thought leaders in a certain space with popular blogs.  Or they could just have a strong entrepreneurial mind.  But I’ve met very few early stage VC associates who are pure finance driven investors.

Still, VCs cold call.  Or e-mail.  I initiated contact a year and a half ago, with our latest investment, TempoDB.  Now they just closed a $3.2M round of fresh money.  Here’s what that first e-mail looked like:

Hi [Founder],

I’m an associate with Chicago Ventures.  I’ve been following Tempo for a couple of months now, especially with a number of friends over at Catapult who have great things to say about the team.

I’m sure things are pretty hectic but wanted to know if you’d have an hour to grab coffee/drink downtown over the next couple of weeks.  I’ve been spending a lot of time looking at innovative big data companies (crazy that there are now non-innovative big data companies!) and would love to get to understand what you’re doing a bit better, particularly who the mass time series dataset can benefit the most.  Congrats on all the recent successes and let me know if something might work.

Thanks,

Ezra

Since joining Chicago Ventures full-time five months ago, I have personally led three investments.  It is definitely true that I can’t sign the check.  But it is also definitely true those investments would never have happened without me.  Not that I’m some brilliant prodigy – simply that my partners really respect me.  We see thousands of deals a year.  There is so much noise.  They are busy fielding calls from the press, our Limited Partners, serving on boards, and, of course, thinking about a lot of companies we’ve met with recently.  They have no choice but to give me a lot of autonomy and independence.

Of the last 5 investments made by Chicago Ventures (of which only 2 are public), 4 of them started with the associates, either myself or Jason.  In one of them, I was told no at least four times over the course of 12 months.  But I persisted and finally got approval.  Most recently, a founder we backed wrote a blog about fundraising – and s/he noted that associates can be a waste of time.  So I wrote him/her a note…the response:

Dude you are the exception to the rule by far, and honestly I didn’t think you were an associate until you just told me here. Didn’t mean to generalize my friend. You do not do any of the things associates would in my opinion.

But that’s exactly the point.  If you feel like you’re dealing with someone who is highly competent and gets your business, it shouldn’t matter what their title is.  I’m not a partner because I haven’t yet paid my dues.  I have a lot to learn, and a lot of growth to achieve.  Frankly, I shouldn’t have that title, and wouldn’t believe it (use it) even if I convinced someone to give me $10M to launch my own firm.  What matters in the process is whether someone gets you, can relate to you, and wants to advocate for you.

For those looking to break into VC, that’s how you will move up the ladder.  At the early stage, it’s not about being great at term sheets or running a DCF.  It’s about relationships.  It’s about paying your dues.  I can now campaign for companies with confidence, because I’ve built up a lot of credibility with my partnership over the two years I’ve been working for them.  That should be your goal – If you can build credibility and build legitimacy, entrepreneurs should be excited to work with you, irrespective of the title.

About the author

Ezra Galston
Ezra Galston

Consumer focused hustling @Chicago Ventures, Young Entrepreneur @Foundation Capital, Class 18 @Kauffman Fellow, and Chicago Booth MBA. Former professional poker player, with 4 years experience doing marketing/biz dev in the online gaming industry. Launched a "poker hedge fund" in 2011, a record label in College, and produced a festival screened short film in 2006.

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