This will likely get classified as a rant. So be it.
I love VC associates. I love VC Principals. I was myself one until not too long ago. I don’t believe VC firms need to be just partners. Associates do play an important role at VC firms, and for companies VCs end up investing in. Associates are not only good eyes and ears into the community (esp among younger founders & entrepreneurs) but they also provide a helpful outside-in perspective to VC firms. They also provide valuable day to day help to portfolio companies (e.g. in recruiting). In my experience VC associates who do well typically have a few characteristics:
- they are startup enthusiasts. In another life, another time, and perhaps in the future, they aspire to be entrepreneurs
- they work hard, not just long hours, but really spend their mental energies understanding core businesses, themes, spaces, business models
- they do their research in spaces they are looking into to sound genuinely ‘knowledgable’ and ‘thoughtful’ when they reach out to companies
- they know their limitations and are upfront about the intentions. i.e. ‘I want to learn enough so I can put this in front of a partner and see if there is interest at our end’
Recently as more VC firms have gone towards late-stage VC and growth equity investing, I have seen a rapid increase in the number of dial-for-dollar VC associates. These are not the same as the associates I describe above. I am ranting below to possibly help them get their dirty job done better, without wasting precious time of entrepreneurs they reach out to.
Such associates are typically hired fresh out of college with no real interest in startups per se. Don’t get me wrong, they are smart, driven, and work long hours. But they are the ‘finance-types’ who see VC and private equity through the same lens. Its all about ‘deals’ and working in VC is a job. They are managed not by partners but by other Principals etc, and are often on a budget to make x number of lead-generating calls per week (number x often reaches 20-30!). They are usually given a script that explains in a few minutes what their investment firm is known for, and are let loose with all kinds of databases, access to tech-rags/blogs, and a Salesforce account. They reach out to CEOs of all kinds of companies with similarly scripted emails. I have seen a bunch of them show up at my portfolio companies in recent weeks:
“I am from firm X. We were investors in x, y, z and have backed prominent founders like a, b c in the past. Love your space and what you are doing, and would love to hop on a call with you for 15 minutes to learn more and share our insights in the space”.
Anyways…problem is not that these associates are doing their job, and going gangbusters at it. Problem is that such a cold-call to CEOs may end up fulfilling their quota needs, but ends up wasting a CEO’s time. CEOs who receive these emails often don’t realize that they are one among 5-8 others who got such an email the same day from the same person. They look at the investment firm name and think it is a firm they should not ignore and hence end up taking the call, only realizing after spending 30+ minutes on the phone that (a) the person they spoke to barely knows what their business even does, (b) their ‘insights’ amount to nothing more than names of a few companies listed in an article alongside CEO’s own company’s name, (c) now their company is in some investment firm’s database, and seen to be potentially ‘fundraising’ by a prominent fund when that is not true.
I generally advise CEOs to look up the name of the person reaching out to them on the investment firm’s website to gauge how senior they are so they understand where such a conversation will rank in the investment process. CEOs realizing that this is a dial-for-dollars call don’t have to be rude in their replies, but they may return the email with something like:
“Thanks for reaching out. We are not fundraising right now, but if you have a strong interest in the space, have one of your partners either reach out to me or one of my Board members he/she would likely know.”
I understand that there may be amazing, profitable, growing companies in off-the-beaten-path sectors based in Kansas or Dakotas that no VC has ever heard of….and who would make for great growth equity investments for investment firms…and associates should try to find who they might be…but that should not be the case for previously VC-backed companies in already well understood areas of technology. If you are going to reach out to a CEO, esp if it has already been invested in by other investors, do the industry and your firm’s image a favor and learn a bit more about the space first so you can genuinely say you have an interest in the space; know what the company does, makes, sells, or holds dear; learn who the competitors might be in the space; and help the CEO understand in the email itself that this is a call to learn more and your goal would be to inform a partner if it is worth taking up any more of the company’s time. Depending on the situation, a CEO may actually find that appealing and get on the phone, or a proverbial coffee, with you. Or at least the email text I described earlier.
Again, it is a rant…but not against all associates. And in fact not against dial-for-dollar associates either. This is a practice that simply hasn’t adopted & changed much from its small/mid-cap private equity days to now being deployed for access to ‘hot’ companies in the tech sector. It can be improved much, and I hope it will.