What I Learned From 263 Venture Capitalists

Over the years I’ve had the opportunity to meet, pitch, get rejected, and accepted by lots of investors. After building two companies that were venture and angel backed in aggregate of millions of dollars and then being a part of another that raised tens of millions in additional capital, I learned a lot about the world of venture capitalists. My latest position as head of B.D. at Alma has me reaching out to even more VC’s, many who I know, and others who I’ve never met before as we, like all companies, evaluate our funding options.

Over the last few weeks I’ve had a lot of time to dig into my old relationships with investors, explore new ones, and think through how I would approach my next round of funding (for my next startup) whenever that may be. I recorded the data of 263 firms in a Google spreadsheet and the following is what I discovered. Some of the information below represents general themes I noticed and while a few bullets represent hard data.

1. American Venture Capital is run by white guys. Of the 263 firms I looked into, I recorded 1 firm with a Black founder, 7 with female founders (one of which was based in London), 3 Indians, and 2 Asians. That’s 13 out of 263 firms that were started by someone who wasn’t a white male. That’s only 4.9% of the funds. This blew my mind. Now this doesn’t mean that the firm doesn’t have female/minority partners or employees, I’m simply counting the funds that had females/minorities listed as founders.
2. Wouldn’t it be great to know if the venture firm you’re reaching out to lists how much money they invest? $100K, $1M, $10? What I discovered is that most funds do not list how much they invest — very few actually tell entrepreneurs what their funding range is. I find this odd, but at the same time self serving for VC’s, who want to “know” everyone — even if they know that the amount of money the entrepreneur is seeking at the time is too little or too much. Much respect to the firms who provide that clarity.
3. Most of venture capital is still focused on web or software products. 95% to be exact by my count. There were several that listed industry specific challenges they wanted solved, but you can count the number of funds out there on one hand who will do hardware (for example) only investments.
4. Every fund website is basically the same with five key links. And when you click on them, they all look the same. I might of seen five or six sites out of over two hundred and fifty that were different. The five links you are sure to find are: Contact, Blog, Portfolio, Partners, and About. VC Tip: Would love for you to list all the investments that didn’t work out. If you want to be bold — you would be the first to do so. As an entrepreneur, I would probably want your money more than anyone else’s if a fund admitted how difficult their jobs were and that not every bet is a home-run.
5. A lot of times the math doesn’t add up. I noticed several funds who had less than $25M raised pitching themselves as growth equity, while $75M+ funds said they did seed investments. How can you invest $100K — $250K in seed deals and deploy enough capital in a year? You can’t! The same is true for smaller funds who want to jump in on bigger rounds. Unless the focus of your fund is to invest in 5 companies, you simply don’t have enough capital to lead growth or Series A rounds.
6. Most websites have a section (about us usually) in which they explain how they are “different” from other firms. Ironically, they all say the exact same thing.
7. One firm provided their term sheet online! I found this to be both good and bad. Good in the sense that you know exactly what you can expect. However it’s bad in the sense that every entrepreneur is different and you get bucketed with one group of people.
8. Everyone, and I mean everyone offers “the best” mentorship to help you grow your company. I think as an entrepreneur this would have been easier to accept or understand if they validated the specific type of mentorship they offer from their portfolio of founders directly. I don’t simply mean testimonials but rather a specific way a VC helped that founder in growing their company — very specific.
9. Almost every fund says they invest in “founders first” — but I’ve found this to be completely untrue. I can’t tell you how many times I’ve been rejected based solely on an executive summary or pitch deck without the VC even meeting me. The sentiment “founders first” is probably also true for everyone — if — and only if they have a prior, long lasting relationship with the entrepreneur. I can respect that. At the end of the day, a VC is an investor - and nothing — not even founders — come before the metrics or opportunity of the business. Sorry fellow entrepreneurs, if you don’t have relationships with VC’s, you better have baller metrics. In fairness to my VC friends, many of them have invested in founders without any business model or metric before simply based on knowing that entrepreneur. Don’t mistake this misnomer on their site for their lack of willingness to take a risk.
10. Is it me — or perhaps it’s the 263 firms I looked at, but I swear they all showcased generally the same wins. Which if you’re a numbers guy, should scare the hell out of you about the VC model. Half the firms listed, “Google, Facebook, Uber, Dropbox” (insert top 10 companies in the valley) as wins. There was effectively no diversity — which had me thinking about how broken the VC model might be if everyone is sharing from the same pot of gold. Where’s the diversity in wins? I read a great article by Aileen Lee of Cowboy Ventures which touched on this topic dubbed “Dragons and Unicorns” in the VC world. Here’s a link:http://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/
11. Not one firm lists their losses. I can understand this, sorta. They all talk about their risk tolerance and willingness to bet on “crazy ideas that change the world” — well, that means you have to bet on 50 that fail before you find one that makes it. Tell us about all of your investments — and why they busted out so we can learn. It isn’t a badge of shame — to me it’s a badge of honor.
12. I found several firms that specify an industry or sector they “focus” on — but the portfolio companies listed don’t always match that criteria. Sometimes, it’s the complete opposite.

I have a lot of friends who are investors, and many more who are entrepreneurs. My objective in writing this post was two fold. First and foremost, I’m an entrepreneur and my passion sides with my fellow entrepreneurs. As such, I hope this post provides a bit more clarity on some basic questions I get asked on a weekly basis from aspiring entrepreneurs about the VC world. My second objective is to provide my investor friends with a “different look” at the world they live in. Perhaps most of this information is obvious, but I have a lot of investor friends who are represented on my list (safe to say nearly 100 firms/partners) that are constantly looking to improve their funds, brands, and the quality of entrepreneurs they meet with. As an entrepreneur who’s gone back to the well a couple times, with the aspiration of building another company or two, my hope is that this post provides some insight they wouldn’t otherwise get in an unbiased way. I am not currently CEO, I no longer represent any fund, and my current company Alma is to date entirely founder funded. Since graduating college, this is the first time I am not represented by any fund so it provides me this unique ability to provide completely unbiased thoughts on the venture capital world from an entrepreneurs perspective.

I hope my fellow entrepreneurs and investors see this as a small opportunity to get better. We need to be able to answer a lot more fundamental questions about our businesses as entrepreneurs before seeking capital. Investors can do a better job of telling us what they would truly like to see before getting pitched with a bit more specificity. It will create a more efficient process that should drastically improve the quality of companies in the long run.