ExitsStartup general interestVenture Capital

Chris Sacca talks value add from venture investors

By September 27, 2010 One Comment

Many of you will be aware of the ‘angel gate’ saga enveloping the US ‘super angel’ scene which started a week or so ago with Mike Arringtons’s A Blogger Walks Into A Bar post which describes his encounter with a bunch of ‘super angels’ who he alleged were meeting in secret to collude on deal terms and other matters.  I have been loosely following the posts, but haven’t commented because I think the whole thing is a bit far-fetched, but I’m pleased to say that now at least one good thing has come out of it, and that is this long email from Chris Sacca posted on Techcrunch today.

I love the way he talks about how he and other ‘super angels’ work tirelessly for the companies they invests in and for the startup ecosystem in general.  I’ve never invested alongside him and he might be talking out of the side of his mouth, but I really don’t think so. 

He also argues that adding value by serving entrepreneurs is the only way to make money in the venture capital business:

Entrepreneurs outnumber us and they talk more than we do. The good opportunities are more than any of us can handle. There are legions of investors at the gates hucking checks at today’s founders. The only possible way any of us can stay in business is by serving. If we are not demonstrably and materially helpful to entrepreneurs, we are dead.

This isn’t quite true in Europe yet as, regrettably, we don’t have ‘legions of investors’ here, but we are definitely headed in this direction.

That said, there is another side to the venture industry that is important, another group of people who we need to serve, and that is the Limited Partners (LPs) who invest in our funds (and this makes us different from angels).  Just as there is no venture industry without entrepreneurs, so there is no venture industry without LPs and as fund managers we need to work hard to deliver to both groups, and sometimes to balance their conflicting needs – something a lot of VCs don’t like to talk about. 

Perhaps the most important example of where the balancing act can get difficult is the need of VCs with closed end funds (which is most of us) to exit companies as our funds come to the end of their 7-10 year lives.  This need can put VCs at odds with entrepreneurs who would like to run what is often called a ‘lifestyle business’. 

I think it is important for companies considering taking venture capital to understand and consider this constraint and the others we operate within when considering taking on venture.  I would even go so far as to say that considering the constraints is as important as considering the value add you will receive, although the constraints talk more to whether it makes sense to raise venture at all and the value add talks more to which VC you should go for once you have decided to raise money.

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