Charlie O’Donnell from Brooklyn Bridge Ventures has an interesting piece up titled VC Value add: Why it probably doesn’t matter, but I try anyway. Charlie, having been at First Round Capital and Union Square Ventures, which are two of the premiere venture firms, talks about how he believes 99.999% of billion dollar exits are due to the founders, and nothing to do with the investors. That’s an impressive statement from someone who’s been around the best in the business.
Personally, I haven’t seen a billion dollar exit, so I don’t know what it’s like at that scale. As for going from idea stage to seed to early to growth, I have seen a number of good examples. Here are a few areas where investors should add value:
- People – Great talent is one of the top challenges for entrepreneurs, and investors should have a strong network of people.
- Psychologist – Building a great company requires making a number of hard decisions, and sometimes the best help an entrepreneur needs comes from a good listener that asks the right questions.
- Processes – Growing a business is hard, especially as more employees are brought on. Putting in processes and procedures, like a Simplified One Page Strategic Plan every quarter, is part of every entrepreneur’s maturation process.
- Fundraising – One round of funding doesn’t guarantee another, and helping portfolio companies raise the next round of funding is an important role.
- Introductions – Making introductions is the most important value add for investors, especially in regards to helping find customers, partners, and employees.
I do believe the right investors can add significant value. Can they influence the outcomes on billion dollar exits? I don’t know. Can they be the difference between building a successful business and not building a successful business? Absolutely. Some investors add value and some don’t, and as an entrepreneur, the key is to figure that out in advance of partnering.
What else? What are some more thoughts on VCs adding value?