Transcript follows and video above. This is Part III. You can view Part I and Part II here
In the dance with an entrepreneur both in the decision making process of funding a startup and then in working with those startups what are the necessary qualities that make a good venture capitalist. Some of the talents mentioned: Would you trust your gut instincts and feelings that happen within the relationship with the entrepreneur as signs about what’s happening in the business, in the startup? Or would you ‘manage by influence or persuasion’?
Here’s what I would say about it! To me there are two core qualities that make great VCs versus not so great VCs. Actually there’s three. Number 1 (which I can’t map for you) Are you really good at picking investments? Success tends to breed success, right? But the two core qualities for me are being a good mentor through the difficult phase.
Being a good mentor relies on a true ability to listen and to show empathy and to not focus on you but to focus on the business at a fairly fundamental level. The people who are good VCs, who I’ve seen being good in boards are the ones who fundamentally take the time to listen, understand, go deep before they’ll trust their gut! Because ultimately data can only take you so far. If you are entirely totally data driven, people can pull the wool over your eyes very easily. It’s human nature in our business to make it go wrong. So the ability to empathize, listen, analyze information and take the time to really integrate what a business is trying to do before we come to diagnostics. And without preconceived notions, is to me the core trait of the people that I think are outstanding.
That would be number one. Number two, is whether you lead by influence or persuasion, there are some VCs who have the ability to influence outcomes and some who don’t. Those who don’t, usually try and do too many things, don’t create a following in the company or amongst the board members as to what they’re trying to achieve and have no ability to fundamentally move things along.
By the way sometimes, this is where it gets difficult, sometimes a company has to change, an entrepreneur is going to hit the wall? And there is an art in both getting the person to realize and internalize the fact that they have a problem. At the same time applying enough pressure so that it’s being taken seriously. And this is where it’s a real fine line between VC’s trying to run the business: it’s disastrous and the ability to point an entrepreneur in the right direction.
I will tell you that for me there’s a third skill which I think we should focus on. Is the VC willing to put their his proverbial component on the line for the business? I think this is not a female concentric statement, I apologize. Are you willing to take responsibility for a company? The number of people I’ve seen put some money on the table and then not stand up for that business when the time comes in front of their partnership or whatever it may be when the going gets tough.
And then essentially they start arbitraging their internal perception inside that firm which may be right for the company: an inability to take risk on behalf of the company. This is not a skill per se but if I was an entrepreneur I would watch really carefully if somebody when they believe in my project will take a risk on me rather than optimizing their own options. So do you have a venture capitalist or investor of any ilk that is willing to take a real risk on you and will fight your corner if they feel that is the right thing to do.
Fred Destin
It sounds like some sort of commitment, commitment and follow through.
Yes I think the thing with startups is that they take 5, 6, 7, 8, 10 years to grow to fruition. All of them will go through a really tough time. They’ll move really close to bankruptcy, they’ll lose some of their core execs, an acquisition that was planned will fall through, whatever it may be. There’s always going to be a time when the going gets really tough. Or you think you won’t make it. It’s in these periods that you find out what they’re probably really like. I’m in a really tough spot, are they sticking with me because they really believe in the project? Are they taking advantage financially from the situation? Or are they giving me a fair deal because they understand that in the long term that is what matters? There’s a whole host of issues that arise in tough times when you realize that some people just don’t have the backbone to see their businesses through tough times.
Fred Destin
I have followed your blog for some time now and you have written some inspiring and enlightening posts. I noted the post Rise of the European SuperAngel “Poor European entrepreneurs. They can only dream of SuperAngels, salivate from afar about the land of Ron Conway, the cool shirts of Sacca and the awesome dollar power of AngelList, whilst they’re stuck with old school business angels or fee-charging networks, whilst European VC’s, never a risk taking breed as we know, have all retreated back to the safer havens of “venture growth”. They can only wish there was a seed bubble. No wonder that governments feel there is an “equity gap” they need to fill, or that entrepreneurs feel compelled to leave for the promised land. Everyone wants to be Bart Decrem (with better glasses, like mine), move over there and make it happen!” Could you give any advice or encouragement to European startups who are facing even more challenging difficulties raising venture in this current economic clime?
Well the first thing I’m going to do is write shorter sentences because I realize it was a bit of a mouthful!
Fred Destin
I think that they were very descriptive and there was great imagery there.
Thank you. The purpose of the post, as it goes on, was to say that there are actually a number of good initiatives there. They have two benefits there a) they give money to younger projects b) they are typically more accessible. So there is a new ethos of accessibility which means you can actually get to these people fairly quickly by being smart about how you leverage your social network. Now having said that, the reality of it is (I am almost thinking about writing a follow up post) because yes we have Kima and Jaina Capital in France and Atomico etc. But the reality is the majority of angel money you’re going to get is really slow and is not socially connected and it’s sometimes more painful to get $100,000 out of these guys than it is to get a couple of million dollars from a venture capitalist, most of the time it is more painful. So I think the reality of that market place is that it lacks liquidity however and the liquidity tends to be highly concentrated. So my advice to the European entrepreneurs would be if you just follow this path to money because they’re relatively narrow. SeedCamp: Atomico just did the Founders Conference in Dublin, Techstars is wondering whether to come over to Europe. There is sort of a bunch of well identified avenues into this fast “early stage” funding you can get to. And now you find the European entrepreneurs are not aggressive enough about asking for help and asking for intros. I sometimes get still today, I get emails over the transom from people and I’ll take the time to read whatever I can and most of the time I do, even though they come without an intro. And you know sometimes, I have an obvious touchpoint that I can identify that they haven’t used. There is Linkedin, you can go on Hashable these days. You can use the Seedcamp Mentors who are easy to get to. You can use my blog whatever it may be. I’m getting a little bit tired with the notion that early stage entrepreneurs cannot get to the money because its getting way easier to get to that cash. Now has Europe reached critical mass, you bet! Should I go and talk to Dave McClure and try and get on AngelList even though I’m based in whatever it may be in Europe? Yes I think you should, I think you should absolutely go to the US and try and leverage these funding channels because Europe has reached critical mass. Europe has a lot of sleepy people doing early stage investing. There’s some good projects coming out, but the reality is it remains slow.
Fred Destin
You definitely have to be a little more adventurous over there and just like myself when I won that spot on TheFunded.com and came over. You just have to step totally outside the box and just go for it! So that’s good advice.
The other thing I would say, so here’s a typical Europe phenomenon. You find a great guy in Germany and you find another great guy in France and they’re working on essentially the same segment. Neither of them is completely backable on their own but they both manage to find a way to get to government money. Hence you have two companies started in both markets. They both do reasonably well. They both raise venture finance. Now you have two proper competitors in separate markets blah, blah, blah… Sometimes you wish you had stronger founding teams and the US is much, much better at putting together stronger founding teams.
Yes I agree the networks are much better here.
Fred Destin
Thank you so much Fred for your time and your fantastic feedback. I really do appreciate it!
My pleasure, I’ll speak to you soon and good luck out there.
Fred Destin
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