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The VC-Founder Split

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Does VCs really add value? This is a study about the venture capitalist’s value-add. By Carl Fritjofsson (Creandum) and Henri Deshays (NewFund) in collaboration with Kauffman Fellows.

  • Venture Debt and the Reverse Search Fund are more aligned with an Entrepreneur class that can Google all the myths of this asset class. Vc are localized in SV, because it perpetuates the myth of value added. LP's must wake up to this gap, and square it with the distributions they are promised, Directed Venture Creation like the Canadian model is also appealing. Looking for new Booth classware on this to come online.
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The VC-Founder Split

  1. 1. 1 THE VC / FOUNDER SPLIT
  2. 2. 2 Survey format, participants, and main findings Methodology and Big Picture Results
  3. 3. 3 Survey format: questionnaire to Founders and VCs 10Questions,incl. Most & Least important factors to decide wheth to partner with a VC or founder Perceived frequency of contact Operational support functions offered from VC ENTREPRENEURS VCs Mirroredquestions Independentanswers Questionnaire with questions in different formats Ratings 1-10, factor ranking, etc. Adapted to the respective participant Same question type, but adapted to entrepreneur / VC category
  4. 4. Diverse survey participants across VCs and Founders 4 GEOGRAPHIES Voluntary, unpaid survey Disseminated by social media and direct contact throughout H&C network, February and March 2018 FOUNDERS 121 VCs 98 AUM <30m$ to 2bn$+ Pre-seed to Series D Investment stages
  5. 5. 5 VCs overestimate the value of their contribution Founder 5.3 VC 7.0 VCs score their level of “impact and helpfulness” 32% higher than entrepreneurs score their own VCs On a scale of 1 to 10, VCs average self-score compared to Founders’ scoring their VCs 20.7% 13.4% 60.3% 27.8% 19.0% 58.8% Founders VCs Once a quarter Once a month Once a week or more VCs report weekly communication 3x more often than Founders How often do you speak with one of your VCs or one of your portfolio companies?
  6. 6. 6 Based on rankings by percentage of Founders and VCs rating characteristics as top-three most important criteria for choosing a VC or investing in a startup Least important factors for partnerships mirrored the findings for most important Most Important Factors for Partnerships
  7. 7. 7 Founders rank deal terms and speed more highly Personalrelationship &chemistry DealTerms Speed Referencesfrom otherfounders Network/rolodex intheindustry #1 Personalrelationship &chemistry DealTerms Brandofpartner Generalexperience ofpartner Network/rolodex intheindustry Founders VCs
  8. 8. Personal relationship & chemistry Deal Terms Speed References from other founders Network / rolodex in the industry Personal relationship & chemistry Deal Terms Brand of partner General experience of partner Network / rolodex in the industry Most important factors for partnering or making investments Speed General experience of VC Track record Brand of VC Operational support Investment sector focus References from other founders Track record Operational support Investment sector focus ImportanttoFounders ImportanttoVCs
  9. 9. 11 -30% -20% -10% 0% 10% 20% 30% 40% Personal relationship / chemistry Deal terms Speed Network / rolodex within industry References from other founders Brand of VC / Partner General experience of VC / Partner Track Record Operational Support Investment sector focus ImportanttoFounders ImportanttoVCs Large differences for factors like deal terms, speed, and brand of partner VCs and Founders value different factors Differences are ranked by % of respondents that reported this as the top-3 most important characteristic
  10. 10. 12 Founders and VCs checked off which operational support functions they either received or offered Perspectives: Operational Support Functions Received vs. Offered by VCs
  11. 11. 13 Hire-Out vs. Hire-In & Biz Dev Functions 0% 20% 40% 60% 80% Finance, legal, admin. Marketing / Growth Talent / Recruiting Sales / Biz Dev Founders VCs Hire-Out Functions are similar Founders report receiving slightly fewer services than VCs offer, but they are relatively similar Hire-In Functions diverge Founders report receiving less than half of these services VCs report offering to Founders, especially for network-intrusive hiring and sales functions Indication of VCs selectivity in offering these functions only to the most successful portfolio companies In which functions does your VC provide you with support?
  12. 12. 14 Founders and VCs opinions differ depending on continent and financing stage Trends Nuanced Across Geographies and Stages
  13. 13. Top 5 Differences between USA and Europe (Founders) Both share personal relationship / chemistry and speed as first and third most important Personal relationship & chemistry Deal Terms Speed References from other founders Track record Personal relationship & chemistry General experience of VC Speed Operational support Brand of VC Focus on VCs’ experience, brand, and operational support May indicate a premium US startups place on signaling through the VCs they choose to work with Focus on deal terms Perhaps because European startups are less dependent on financing for operations, as they are more often bootstrapped and cash flow positive
  14. 14. Top 5 Differences between USA and Europe (VCs) European and US VCs share 4 of the top 5 most important characteristics Personal relationship & chemistry Brand of Partner Deal Terms General experience of Partner References from other founders Personal relationship & chemistry Brand of Partner Deal Terms Network / rolodex within industry General experience of Partner Factors ranked differently were separated by only a few percentage points
  15. 15. Top 5 Differences between Stages (Founders) Personal relationship/chemistry and deal terms are consistently ranked the highest Personal relationship & chemistry Deal terms General experience of VC Track record References from other founders Personal relationship & chemistry Deal terms Speed Network / rolodex within industry References from other founders SEED STAGE – SERIES A SERIES B – C STAGE Speed is more important for Seed stage and Series A than for Series B – C deals
  16. 16. Both share personal relationship / chemistry and brand of partner highest Personal relationship & chemistry Brand of Partner General experience of Partner Track record Operational support Personal relationship & chemistry Brand of Partner Deal Terms Network / rolodex within industry General experience of Partner Focus on deal terms and industry network Indicates early stage companies have less negotiating power compared to VCs Focus on experience and track record May indicate a focus on execution of growth strategies SEED STAGE – SERIES A SERIES B – C STAGE Top 5 Differences between Stages (VCs)
  17. 17. 19 Appendix
  18. 18. 20 0% 10% 20% 30% 40% 50% 60% 70% 80% %ofRespondentswithAttributeinTop3 Most Important Attributes for Founders &VCs Founders VCs Most Important Attributes for Founders & VCs – Slides 7 – 10
  19. 19. Least Important Attributes for Founders & VCs – Slide 7 – 10 21 0% 10% 20% 30% 40% 50% 60% %ofRespondentswithAttributeinBottom3 Least Imporatant Attributes for Founders &VCs Founders VCs
  20. 20. Support Function Perspectives – Slide 13 22 0% 10% 20% 30% 40% 50% 60% 70% 80% Talent / recruiting Sales / biz dev Finance, legal, admin, etc. Marketing / Growth Engineering Design None Other %ofRespondentsbyFounder&VC Support Functions Performed byVC, as Perceived by Founders &VCs Founders VCs
  21. 21. Ranking Differences Across VC AUM Size is Minimal 23 AUM <$300 Million AUM >$300 Million 1 Personal relationship / chemistry 58.3% Same Personal relationship / chemistry 76.0% 2 Brand of VC / Partner 48.6% Same Brand of VC / Partner 68.0% 3 Deal terms 41.7% Close General experience of VC / Partner 32.0% 4 General experience of VC / Partner 34.7% Close Deal terms 24.0% 5 Network / rolodex within industry 30.6% Same Network / rolodex within industry 20.0% 6 References from other founders 27.8% Close Track record 20.0% 7 Track record 22.2% Close References from other founders 20.0% 8 Operational support 18.1% Close Investment sector focus 16.0% 9 Investment sector focus 15.3% Close Operational support 16.0% 10 Speed 9.7% Same Speed 8.0%
  22. 22. European vs. US Founders – Slide 15 24 0%10%20%30%40%50%60%70% Personal relationship/chemistry Deal terms Speed References from other founders Track record Network / rolodex within industry Operational support Brand of VC / Partner General experience of VC / partner Investment sector focus European Founders (n=75) 0% 10% 20% 30% 40% 50% 60% 70% 80% Personal relationship/chemistry General experience of VC / partner Speed Operational support Brand of VC / Partner Investment sector focus Deal terms References from other founders Network / rolodex within industry Track record USA Founders (n=37)
  23. 23. European vs. US Founders – Abs. Differences – Slide 15 25 Attribute Abs Difference % Greater Importance For: 1 General experience ofVC / partner 19.1% USA 2 Operational support 9.2% EUR 3 Track record 9.1% EUR 4 Personal relationship/chemistry 7.6% USA 5 Network / rolodex within industry 7.1% USA 6 Speed 5.0% EUR 7 Deal terms 4.6% EUR 8 References from other founders 3.7% EUR 9 Brand ofVC / Partner 3.0% USA 10 Investment sector focus 2.9% USA
  24. 24. European vs. US VCs – Slide 16 26 0%10%20%30%40%50%60%70% Personal relationship / chemistry Brand of VC / Partner Deal terms General experience of VC / Partner References from other founders Network / rolodex within industry Track record Operational support Investment sector focus Speed EuropeanVCs (n=45) 0% 10% 20% 30% 40% 50% 60% 70% Personal relationship / chemistry Brand of VC / Partner Deal terms Network / rolodex within industry General experience of VC / Partner Investment sector focus References from other founders Speed Operational support Track record USAVCs (n=44)
  25. 25. European vs. US VCs – Abs. Differences – Slide 16 27 Attribute Abs Difference % Greater Importance For: 1 Speed 13.7% USA 2 Investment sector focus 11.6% USA 3 References from other founders 10.7% EUR 4 Deal terms 10.4% EUR 5 Network / rolodex within industry 9.6% USA 6 Track record 8.6% EUR 7 Personal relationship/chemistry 5.3% EUR 8 Brand ofVC / Partner 3.3% EUR 9 General experience ofVC / partner 0.7% USA 10 Operational support 0.4% USA
  26. 26. Early vs. Late Stage Founders – Slide 17 28 0% 10% 20% 30% 40% 50% 60% 70% 80% Personal relationship / chemistry Deal terms General experience of VC / Partner Track record References from other founders Speed Brand of VC / Partner Investment sector focus Network / rolodex within industry Operational support Late Stage Founders (n=8) 0%10%20%30%40%50%60%70%80% Personal relationship / chemistry Deal terms Speed Network / rolodex within industry References from other founders General experience of VC / Partner Track record Brand of VC / Partner Operational support Investment sector focus Early Stage Founders (n=113)
  27. 27. Early vs. Late Stage Founders – Abs. Differences – Slide 17 29 Attribute Abs Difference % Greater Importance For: 1 Brand of VC / Partner 22.6% Late 2 Deal terms 14.8% Late 3 General experience of VC / partner 12.7% Late 4 Speed 11.8% Late 5 Network / rolodex within industry 8.7% Early 6 Track record 7.9% Early 7 Personal relationship/chemistry 7.7% Late 8 Operational support 6.1% Early 9 References from other founders 5.2% Early 10 Investment sector focus 3.8% Late
  28. 28. Early vs. Late Stage VCs – Slide 18 30 0%10%20%30%40%50%60%70% Personal relationship / chemistry Brand of VC / Partner Deal terms Network / rolodex within industry General experience of VC / Partner References from other founders Track record Investment sector focus Speed Operational support Early StageVCs (n=66) 0% 10% 20% 30% 40% 50% 60% 70% 80% Personal relationship / chemistry Brand of VC / Partner General experience of VC / Partner Track record Operational support Deal terms Investment sector focus Network / rolodex within industry References from other founders Speed Late StageVCs (n=31)
  29. 29. Early vs. Late Stage VCs – Abs. Differences – Slide 18 31 Attribute Abs Difference % Greater Importance For: 1 Network / rolodex within industry 17.2% Early 2 Operational support 16.9% Late 3 Deal terms 16.6% Early 4 References from other founders 14.2% Early 5 Personal relationship/chemistry 11.9% Late 6 General experience of VC / partner 11.6% Late 7 Track record 10.9% Late 8 Speed 8.9% Early 9 Brand of VC / Partner 6.5% Late 10 Investment sector focus 1.0% Late
  30. 30. Thank You. 💪 👊

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