A close friend of mine likes to joke about how entrepreneurs & operators who become venture capitalists are “trading in their blue light sabers for red ones” – it’s a funny analogy…naturally, comparing investors to Sith Lords seems to fit pretty well some days.
But the benefit of switching from one side to the other is that perspective can sometimes be illuminated. After nearly 20 years of operating at places like Mozilla, Reactivity, Trilogy & Apple, I still tend to think like an entrepreneur myself, so some of the assumptions of life inside a VC are maybe a little more obvious to me than folks who have been around longer.
So here are some observations about my first year of VC life, and then some of the ways that being on the “inside” has changed the way I think that entrepreneurs should think about approaching investors – things I wish I had understood myself when I was pitching.
A Year of Observations about VC Life
Life as a VC is a sea of meetings. Really, it is a lot of meetings. Most of them are single meetings, with no follow-ups. Most don’t result in an investment in a company at all. In 2011 I had first meetings with just over 350 companies, plus another 100 more as parts of business plan judging and demo days. Those meetings resulted in just four investments for me (Tumblr, Dropbox, Clearslide and Citrus Lane) plus a handful of seed investments.
That’s a massive “bias-to-no” for any profession – 99% or so. It’s a tough negative bias, and every investor I know is affected by it in some way. But that one percent is like a lightning strike: those meetings can form the basis for some of the most interesting and meaningful work you’ll ever do.
High fidelity communication is impossible. Because so many meetings are one-offs like I described, it’s very hard to communicate effectively. As an operator, you get good at being direct with the people you work with – or you fail.
In the context of a startup, relationships are developed over a period of months or years, so that candor can be better understood and more nuanced, resulting in communications that are efficient and effective, without hurt feelings from misunderstandings.
Venture meetings aren’t like that. They’re incredibly overloaded: you’re trying to have a really good communication about who you are, what you’ve built, and how you want to grow. And you’re trying to do it in what is very often an extremely emotionally significant context of someone putting everything at risk to change the world. All with no existing relationship context to fall back on.
As an investor, I feel that a situation like that deserves my fullest possible attention, and my best questions about and suggestions for the business. But since we’ve never interacted before, there’s the danger of seeming too harsh in cases like that – we don’t have the shared context, vocabulary and trust frameworks in place that you do in longer term relationships. I think that’s why so many investors are often vague or non-responsive in their interactions afterwards – something I’ve tried very hard to avoid, although with imperfect success so far.
Timing is everything, and everyone is multi-tasking. This applies to both the startup and the investor I’ve found – because each has their own set of work going, and any number of competing projects and priorities. The right thing coming by at the wrong time can be as challenging as an investment that just isn’t a natural fit. Life as a VC has different patterns and rhythms than life for operators – the nature of VC work is that you’ve got multiple companies and entrepreneurs you’re working with all the time, plus a constant stream of new folks to meet, and often in wildly different domains.
This means constant context switching, and there are times when excellent entrepreneurs and startups come through when it’s just hard or impossible to take focus from existing or in process investments. That creates a severe asymmetry: as an entrepreneur, you’re thinking about one thing (broadly defined as your startup), deeply,all the time, while investors that you’re talking with are trying to juggle many at once.
Venture firms and partners are idiosyncratic and highly personal. When I raised money for my own startup, I didn’t know much about how to think about approaching VCs. I knew folks at various firms, and mostly went to talk with those who I knew and then went through their process over the subsequent several weeks. I figured that VCs were all mostly similar to each other.
I’ll say candidly that in my case, I was extremely lucky when that “strategy” worked – my investors were Mitch Kapor and Peter Fenton when they were both at Accel Partners – they were incredibly great for us, and I’ve had fantastically productive relationships with both for more than a decade now. But at some level it was really just dumb luck. I could easily have found a firm and partners who wouldn’t have worked.
Every firm has different culture: some are collaborative, others more solo practices; a small few (including Greylock) consist of former or current entrepreneurs, other firms consist of people who have been investors most of their careers; some are progressive, some are conservative. And even in partnerships, everyone there is different. Different in interests, skills, capabilities, stage in life, and temperament, at the very least.
But here’s the thing: meeting with an amazing entrepreneur can change your whole year.
That’s why you do it. To find people to change the world with. I’ve been very lucky this year to work with some incredible entrepreneurs and teams, not just limited to the companies we were able to invest in. And that’s what we’re all looking for: not just the opportunity to make great investments, but the chance to work with people who are setting out to make the world the way they want it. There’s no more optimistic and hopeful endeavor, and it’s 100% addictive.
Suggestions on Interacting with VCs
Given that context on what it’s like to be on the inside of a VC firm, here are some things I wish I had understood when I pitched myself.
- Be human; be yourself. Be prepared and have a pitch, but be willing to go off script. Talk about the parts of what you’re doing that are the most exciting to you! And in general, it’s probably best not to just jump into a PowerPoint deck. Take a few minutes to introduce yourself, and hear a bit from who you’re seeing. Don’t get too informal, of course – you’re still in a business context – but try to interact in as authentic a working style as you can.
- Seek out investors who lean forward, who engage, who ask you tough questions. Tough questions aren’t always fun, but they’re ultimately what makes your company better.
- You should ask questions, too, particularly to understand how the investor thinks about businesses like yours. I personally love getting questions and like a spirited debate. Helps us get to know each other.
- Be resilient. A “no” from a few partners or firms doesn’t mean you won’t get funded. As mentioned above, a lot of times it’s context.
- Be persistent. A “no” on this round doesn’t mean that an investor won’t be better, or more able to work on your company in the next round.
- Remember that relationships are progressions. Don’t read too much into any particular interaction. Some investors ask a bunch of questions in first meetings. Some listen more and engage more as the process goes on. Everyone is different. When in doubt about what they’re thinking, ask!
- Above all, don’t think of fundraising as a transaction to get finished and move onto the next thing. It is important to get the funding you need, but you’ll live with your investor for the life of your startup (and really beyond, relationship-wise). Think about it like the balancing act when you’re trying both to attract and evaluate an all-star member of your team.
Your mileage may vary, of course. But hopefully this bit of context will make the difference for you between just a pitch meeting and the start of a world-changing new relationship.
This article was written by John Lilly, a partner at Greylock Partners. Prior to Greylock, John was CEO of Mozilla, makers of Firefox. In addition to leading Greylock’s investments in Tumblr, Dropbox, Clearslide and Citrus Lane, he’s also on the boards of directors of Mozilla and Code for America. He has written articles for Pandodaily, as well as maintains his own blog.