“What percentage of your investments have raised legitimate follow on rounds?”
Entrepreneurs have become a lot more savvy about fundraising over the past decade. And that’s a very, very good thing. Thanks to bloggers like Brad Feld, David Hornik and Mark Suster, founders have a legitimate window into how VCs assess people, theses, even financial returns.
Further, because horror stories still abound, founders have become very good at optimizing for people they can trust. That’s why newer investors (and firms) such as Hunter Walk at Homebrew and Jon Triest at Ludlow Ventures have quickly emerged as a top target for founders raising money – with said founders often eschewing the bulge bracket firms (and deep pockets) in favor of those personalities. Why? Simple: founders know they won’t get screwed. They have a material window into the firm’s personality via Twitter & digital content, and they know they’ll have a tireless advocate as they do the hard work of going from zero to one.
I’m glad founders are optimizing for good people and avoiding jerks. That’s how I try to live life too. But here’s the thing – what actually is the role of your seed investor? Is capital sufficient? Is being “nice” sufficient?
I believe there is only one truly fundamental role of a seed investor – to ensure your company doesn’t die. That’s the #1 metric of how I judge myself as investor: what % of my investments either raised a sufficient amount of follow on capital to reach profitability/next milestones or happily exited voluntarily. But here’s the thing – investors have different opinions on how they should run their firms to give entrepreneurs the best possible shot of getting there – some want to offer you tons of “services,” others want to get dirty with you on go-to-market or hiring, others may think that “brand” or press are paramount, or that networking with other VCs is foremost.
I am ultimately agnostic as to which strategy[ies] a fund wants to employ. But I do care about results. And my personal conviction is that good results will be found in funds that employ a healthy mix of all the tools: focused on building their own brand as a value-additive smart-money fund, strengthening relationships with upstream investors, broadening local networks to help with hiring, etc.
Hopefully this gets the conversation started about what a good benchmark is (I really don’t know). But I do think it’s an important metric for founders to focus on because it really answers the question: will my investor be able to do the job they’re selling me on? Appreciate any feedback or conversation.