I was sitting on a panel discussion a few weeks back amongst VCs and Entrepreneurs where the topic of who to talk to within a VC firm came up. One entrepreneur asked if he should waste his time talking with an associate or just try to work with a partner directly. At the end of the day, it’s the partners who make the decision, he said. Several of the VCs in the room made a case for why associates were a valuable part in the fund raising process.
At the time, I did not have a strong opinion either way. Having raised over $10 million in venture capital in my career, I have seen both channels work. Sometimes, an associate becomes an internal advocate for your start-up and convinces the partners to invest. Other times, associates were either too young or inexperienced to make a good assessment of a start-ups value.
I asked several other entrepreneurs what their experiences were during fund raising and most of them said that it’s much better to go directly to the top and talk with a partner as opposed to working from the bottom up. Here are the top three reasons why:
Time: The fund raising process can take a long time for many start-ups. The best way for an entrepreneur to raise funds is to get several VC firms competing for the term sheet around the same time. If you end up first working with an associate, he or she will have to convince the partners to meet you or learn more about your start-up. I have heard from entrepreneurs who said that associates kept them dragging along for weeks saying that the firm was interested and needed time to evaluate the deal. In the end, nothing happened. It’s much better to get a clear no from the partners in the VC firm than a “maybe” or “hold on” from junior associates that only drags out the process.
In fairness, I noticed that it’s usually not the associates fault in these cases. Many of them have told me that they loved certain companies and tried for weeks to get the partners to see the potential. In some cases, this persistence works to change the partners mind, but in most cases, it results in a frustrated entrepreneur.
Qualifications: Nearly every entrepreneur I spoke with said the number one reason they prefer to work directly with a partner was that they are more experienced. They believe a partner will be a better judge on their concept and industry, given their experience. Also, a partner will be able to make a better and faster investment decision.
Many times, associates are entry level MBAs who have no experience running a start-up or even knowing how to evaluate a concept in the real world. Some experienced entrepreneurs blow off initial VC meetings if they are with an associate. They consider it an insult to their time and accomplishments.
One time, an entrepreneur just got up and left a meeting with an associate when it became clear to him that the associate did not know anything about the online advertising industry, which is what his start-up was going after.
One entrepreneur told me that getting introduced into a VC firm is like getting introduced into the Mafia. If the boss of the family brings you to the dinner table and introduces you to “the family”, everyone will pay more attention to you. If someone low in the organisation introduces you, than you will not get the same level of respect or attention.
Another thing several experienced entrepreneurs told me was that the first person you interact with at VC firm usually gets attached to the deal if a fund raising event happens. If you worked with a senior partner and they invest, then the senior partner is usually the one who joins your board. Smart entrepreneurs always want the best partner from the firm on their board. An experienced and well-known partner can bring a lot of insight and resources to the table. One entrepreneur told me he made the “mistake” of having an associate as a board observer. After the first two board meetings, he told the associate to not come anymore since he was not adding any value. That must have been awkward!
Incentives: Sometimes, associates are measured by how many deals they bring to the partners attention. The last thing an entrepreneur wants to be is one of a dozen startups that the associate brings to fill his quota. Other times, when associates are in a meeting with a partner in the room, they try to impress their bosses by asking tons of “MBA type” questions to the entrepreneur. This usually does nothing but waste time for the entrepreneur and distract from the flow of their pitch.
Most associates usually work at a VC firm for two years and then either go work in an operating role at a startup to get more experience or get an MBA. Very few rise up from the associate level to partner. The last thing an entrepreneur wants is an associate who is learning on the job.
Over half a dozen entrepreneurs I spoke with who have raised over $50 million in venture capital in their careers believe that when possible, try to work directly with the top partners at a VC firm.
At the same time, they all said that while they would not want to work with an associate during the fund raising decision making process (e.g. should we invest in this start-up or not), they were more than happy to work with associates post fund raising on a multitude of things such as:
Due Diligence: When a VC decides to invest, they have 30 days to do due diligence, during that time associates are really helpful to a VC firm in collecting data, interviewing references, and running numbers. Most entrepreneurs are happy to work with associates during this stage since they know that the VC firm is relying on the associate to get all the data necessary to close the deal.
Hiring: Associates at VC firms are usually more closely connected with the types of people a newly funded start-up will need to hire (young engineers, MBAs, junior sales staff, etc). Many times, entrepreneurs leverage associates to help them recruit and sometimes actually hire the associate into their start-up.
Intel: Since associates are usually tasked with looking at a lot of startups, going to conferences, and doing a ton of research, some entrepreneurs leverage associates by having them keep close tabs on potential competitors, or new start-ups that might impact them.
Having seen both ways work for me, I wonder if it would be possible to get data on how many “Associate introduced deals” get funded vs. “Partner introduced” deals within the VC industry. That would help put this debate to rest.
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