Beyond Money: What Startups Need From Investors
Posted on May 30, 2013 by nina
Published by Mashable
As creatives, we might imagine investors to be souless suits behind Excel spreadsheets who do little more than sign checks — but that’s far from true. Increasingly, VCs are people who used to be entrepreneurs (Kevin Rose, Mark Suster, Josh Kopelman). Many startup founders actually prefer to take money from someone who has been in the trenches. You might spend most of your time competing for funding — trying to stand out from the multitude of startups hoping to raise a round — but don’t forget that for VCs, they must compete for the best startups as well. One way they do that is through value-add, or offering additional services to their portfolio companies. Atlas Ventures VC Dustin Dolginow says these services are no longer “above and beyond” — they’re crucial.
“Capital is a crappy differentiator,” Dolginow says.
What should a founder expect from a VC firm, aside from financial backing? Mashablespoke with a few investors to find out what was standard in the space.
What Is Value Add?
A VC firm’s value-add services will typically include introductions to potential partners or clients, marketing and PR, and recruiting — but how that plays out depends on both the size and style of the specific firm you’re working with.
Andreessen Horowitz has both a talent agency and college program to bring in developers to assist portfolio companies as needed. First Round Capital has a platform team to support entrepreneurs, plus an internal digital network that allows portfolio companies to interact and help each other. Kleiner Perkins recently brought in design fellows to work with its portfolio companies.
“It’s becoming a common feature of the larger funds to have these value-add services,” Dolginow says. “So the larger guys seem to be trying to scale it, make a process out of it, and almost make it an explicit service.”
How Value Add Can Vary
Dolginow explains that Atlas, comprised of a smaller team, takes a different approach. He might not have a professional recruiter on hand, but he’s constantly doing recruiting for his startups. Of course, startups generally will have VC funds of varying sizes participate in their round, and would benefit both from Dolginow’s active approach and a larger fund’s standardized service.
“If I was a founder, I’d want both,” Dolginow says.
“In the back of my mind, I’m always thinking of introductions,” she says. “Even if I’m not in meetings I’m thinking of how I can help the company.”
Flybridge’s Caitlin Strandberg agrees. “It’s not uncommon for board members to interview potential hires,” she says, noting this is especially the case as a company ramps up to an exit — bringing in the right CTO or CFO is key.
At an early stage, startups can also benefit from a VC’s experience on strategy decisions.
Finding The Right Fit
Getting help from your VC is great, but you want to get the right help.
“It’s important for investors to be concious and self-aware of overhelping,” Strandberg says. “It can be detrimental to scale at certain stages.”
Jobanputra says it is important to note when the entrepreneur needs to be heads down and executing. Typically, board meetings will be once a month or every six weeks.
The relationship between the VC and founder should be set intentionally, early on, as every person has different expectations. Dolginow offers some advice for those early meetings with VCs:
“Don’t be afraid to ask questions that are very basic and can tell you a lot,” he says.
“To me those include, when did you last raise a fund, how big was it, tell me about other startups at this stage you’ve invested in, how do you guys work together.”