It may come while sipping a cold press juice at Mortimer’s in London or over a post-lunch espresso at Hotel des Grands Boulevards in Paris, but the VC is very clear: “We could raise more if you just positioned the company better.”
Invariably, there is some truth to this assertion — every pitch can be improved — but startup CEOs should also feel empowered to quickly turn the tables and highlight the hypocrisy of their VC backers.
Even as many VCs offer armchair advice to portfolio companies, most fail to follow key business basics themselves.
In fact, few industries present themselves in a consistently and demonstrably ineffective manner as the world’s VC firms. These are not just poor executions of a good idea, but many VCs fail to communicate critical information in ways that occasionally verge on comical.
Take the perspective of a newly minted LP deploying cash from selling the beloved multigenerational German business. The family wants to know a few things about the fund run by that fast-talking VC you met late last night at Klub Kitchen in Berlin: How big is the fund? What is their ticket size and what, exactly, is their sector expertise?
Basic as these may seem, don’t expect to easily find such details amid the website’s great photographs of well-groomed people in stylish offices.
The first step for many VCs is to make your strategy explicit. It does not help to say: we invest in a range of sectors
From a quick survey of a dozen European VCs designated as “prominent” by Dealroom, two-thirds do not clearly define their industry vertical. Three-quarters fail to highlight their in-house experts and advisors who could support a portfolio company in scaling their HR or other function.
The classic VC pushback is, of course, that investing is all about relationships and longer-term conversations, not just a quick glance at a website.
Consider, however, the plight of the founder of a hot new AI company looking for funds. Beyond the cash on offer, the founder needs to know whether she can count on the VC for operational support, how good their network is and what they really know about AI.
To raise the round, she will need to select among hundreds of potential investors, meaning that just 10 minutes spent qualifying 200 VCs from their websites would take a full week of work away from poaching staff out of DeepMind.
Last April I spoke at an AGM that gathered 30 VC funds and felt like a doctor administering vile medicine. Of those attending, less than a third had any readily findable updates about their thinking, skills, or knowledge. Less than 15% of the sites referenced media coverage, an important external indicator of relevance or expertise.
Comically — and almost uniquely to any industry — many VCs do their best to confound inbound queries by presenting staff in a randomised photowall that often fails to include their title or even name. Unlike the children’s game “Guess Who?”, there is rarely a filter, leaving our AI company founder to click through the individual images until she stumbles on the relevant person and finds their email.
“We have no hierarchy”
It must also be considered what underlying message VCs hope to send through a randomised staff photo wall. Is it “We look great, trust us” or “We have no hierarchy”? Unfortunately, the photo walls mainly serve to reinforce the industry image of a male bastion.
By erecting barriers and failing to communicate clearly, VCs deny themselves deal access, may lose out on follow-on capital for their funds and potential partners for portfolio companies.
When asked about the role of clear positioning, marketing and communications for their fund, VCs tend to arch an eyebrow and explain — as if to a child — that “in this industry, people just want to know our numbers” or “our story comes through our portfolio companies” or “we succeed based on our reputation”.
Indeed, reputation is key to success.
But VCs should take into account the findings from the Stanford sociologist Mark Granovetter in the 1970s, that most people land new jobs through people with whom they have weak ties, not close friends.
The power of weak ties has been amplified in the digital era and remains foundational to the multibillion-dollar marketing and advertising industry that builds brands and reputation.
Granovetter’s findings also show the path for VCs to find new investment and great portfolio companies: expand the number of people who know and understand what you do.
The first step for many VCs is to make your strategy explicit. It does not help to say “We invest in a range of sectors”.
Focus on the specific information needs of those least knowledgeable about your firm. That means a website that states which industries you invest in (i.e, “We only invest in early-stage software businesses”).
On your “Team” page, include name, job title and expertise (“John, our general partner, has expertise on scaling software businesses”).
Highlight media coverage on your front page, even if you think The Wall Street Journal is not qualified to comment on your investments or that Sifted merely qualified your firm as a player in a particular sector: “Bethnal Green is an early-stage tech-for-good VC fund”. Potential portfolio companies and peers will see a firm that the media finds worth quoting.
In other words, as you look to attract funds and companies, dear VC, believe it or not, there are way more companies and LPs who do not know you, than those who do.
That sounds like the kind of tough love advice you might tell your portfolio companies.