Thanks to Atlas Venture for supporting Venture Hacks this month. This post is by Fred Destin, one of Atlas’ general partners. If you like it, check out Fred’s blog and tweets @fdestin. I’ve also generated an MP3 version of this post. Let me know if it’s useful. – Nivi

Below is the summary of all the answers I received to my recent post, “Tell me why VCs are disliked by entrepreneurs”. There is a shorter and easier to stomach version on Xconomy if you prefer, here. I have tried to keep my role as editor limited to re-organising, so this remains true to the commentary. I would add that most or all of these entrepreneurs had real, hands-on experience with (often prominent) VC’s, sometimes through multiple companies and fundraising. And yes, I also plan on writing a feature about the “good side” soon…

The VC-Entrepeneur relationship seems damaged. Whilst business partnerships gone bad and company failure can lead to fallout, this is different. I wanted to find out why and used my blog to ping the entrepreneur community to try and understand this better, listen to my audience as it were, and share the feedback.

As with all articles of this kind, it is plagued by generalizations and simplifications. In trying to do justice to the sixty detailed and mostly confidential responses that I got, I probably lost some of the color and detail. But for anyone interested in rebuilding the social contract with entrepreneurs and getting our VC mojo back, the scale of the problem should be apparent.

Clearly as VC’s our job is not be loved but to contribute in building great business and return money to our shareholders. Read on regardless; as you will see, the status quo is not an option.

A common answer I got was “sour grapes”. As Richard Jordan put it, “failures breeds frustration” and there is a natural tendency to spray the blame around. Externalize guilt as resentment, combine it with some old fashioned finger pointing, and there you go.” Many VC’s excel at that too. Sometimes anger stems from the “sheer exhaustion from being told ‘no’ too many times”. Now let’s dig deeper.

Poor first impressions

Richard Jordan (read him) says: “probably more than half of the VC pitches I have done have involved participants on the VC side who have behaved in a rude and disrespectful manner“. Arriving late, cutting out early, reading their blackberry, constantly interrupting pitches, taking calls, you name it. Some of the pitching experiences border on the ridiculous, as evidenced by a young founder who got invited to pitch for fifteen (yes, fifteen) minutes with five minutes Q&A, only to find the meeting started ten minutes late and was not to be extended…

The absence of feedback loop is a common theme with entrepreneurs griping about “dozens of unanswered calls and mails, from people they met. If nothing else works, what are your PA’s for?” Another common gripe is the need to be dealing with an Associate who needs to sell his deal internally and is often insecure and not clear himself on his chances of getting the deal done.

Even in early meetings, the lack of “empathy with and experience of the startup and the sacrifices involved” can leave entrepreneurs fuming. Finally, many entrepreneurs complain about a lack of confidentiality with their pitches sometimes “landing on competitors’ desks days after the meeting”. In a recent example, a well known General Partner interrupts 50 minutes of cross questioning with this casual statement, “By the way, I am personally invested in a new startup that is targeting this segment”.

Getting strung along or left at the altar

“Raising capital depletes far more energy than investors realize”, says one entrepreneur. “Getting a ‘no’ is actually fine from an entrepreneur point of view (one has to be rejection-proof anyway), but to preserve their opportunities many VC’s tend to string along entrepreneurs forever, blatantly lying about deal status only to let it fall apart at the last minute, wasting an entrepreneur’s time and energy.”

Many investors appear to be “vague on their decision and engagement process, which tends to be liquid.” Some VC’s promise term-sheets that never come, others withdraw at closing (the worst I personally heard was an SMS turndown by a “tier one” VC followed by a competitive investment), others still don’t bother checking conflicts of interest. “VCs are too opportunistic in their behaviour,” says one experienced entrepreneur.

A common gripe concerns the lack of clarity (or absence) in the rules of the game. Some companies are forced to jump through endless hoops to get a tiny round done whilst others raise a ton of money at seed with no substance. VC’s pretend to do seed but then say no to everything that is early and want revenues, customers, a business model, and a team. Entrepreneurs are confused and sometimes angry about this, as they feel fundraising is like a marathon with no end, when the hills keep getting steeper along the course. “The whole process leaves me with this feeling that landing funding is nothing more than getting lucky with the right pitch on the right day with the right person in the room,” says D. It makes you feel like “a sort of magic and certain incantations and artistry is required,” yet despite that, “investors often still fail to ask the right questions, the hard questions”.

Getting a raw deal

“Taking capital does feel a bit like making a deal with the devil after all.” Entrepreneurs fundamentally want to change the world and dealing with the Money Men is often a compromise they would rather do without.

“The entrepreneur is a bit like a child who’s just learned the rules of chess — he’s studying the current move intently, but he’s rarely thinking far ahead. The VC is an old hand at this game — he knows its patterns intimately and can see how it’ll develop far into the future. The entrepreneur tries to play well, but the terms he fights for often turn out not to be important, while the terms he thinks are innocuous can surprise him in unexpected ways. Unless things at the company go astoundingly well, the entrepreneur comes away feeling like he was played — taken advantage of by someone far, far more experienced at this particular game.” Clauses like participative liquidation preferences, anti-dilution, aggressive reverse vesting, board control or simply shareholders’ rights come up frequently, with good reason.

“My own VC’s have been great. That said — like many entrepreneurs, I’ve only realized some of the longer-term implications of the documents I’ve signed well after the fact. This was enough to make me wary.”

Great (but misguided) Expectations

“Many entrepreneurs want an investor to fund the idea (equivalent to a TV production house looking for funds from a commissioning editor to make a show, and generate a profit from it). It often takes them a long time to realize that such VCs don’t exist. By which time they are bitter and tired and blame the VCs, rather than their own lack of understanding” of what it takes to get VC funding.

David Smuts believes there are two kinds of VC’s: “Careerists VC’s” and “Entrepreneur VC’s” and two kinds of Entrepreneurs: “Real Entrepreneurs” and “Wannabe Entrepreneurs”. “Entrepreneur VC’s behave in the best interests of the business they are investing in,” whereas “Careerist VC’s put their own career prospects first.” “Wannabe Entrepreneurs either hate all VC’s because they reject their business idea,” or “suck up to all VCs because they want their money.” Long story short: The goal is to match Real Entrepreneurs with Entrepreneur VC’s.

Continued in Part 2 with unwanted advice, arrogance, and the dark side of the force… (I’ve also generated an MP3 version of this post. Is it useful?)

If you like this post, check out Fred’s blog and his tweets @fdestin. If you want an intro to Atlas, send me an email. I’ll put you in touch if there’s a fit. Finally, contact me if you’re interested in supporting Venture Hacks. Thanks. – Nivi

Topics Sponsor · VC Industry

7 comments · Show

  • Peter Kazanjy

    Sounds like a lot of this behavior is certainly surfaceable, and correctable, through robust feedback through sites like (which, yes, has tons of flaws, but is better than no feedback loop…)

  • Itamar Weisbrod

    “By which time they are bitter and tired and blame the VCs, rather than their own lack of understanding” of what it takes to get VC funding.”

    It’s a great piece, and this sentence stuck out for me. The issue is that many entrepreneurs look to VC’s for advice on how to approach them, and probably get too many “Careerist VC’s”. You can see the quality and substance of start-up advice coming from Careerist VC’s is dramatically different than Entrepreneurial VC’s, so much so that you feel Careerists disseminate false information on purpose to perpetuate the cycle of clueless first timers to take advantage of them.

    Kudos to the more entrepreneurial VC’s like Mark Suster, Jason Calacanis (was an EIR once 😉 ), Harsh Patel, Fred Wilson, and many more, for giving quality advice that if followed by more first-timers, would result in far less mistakes and resentment.

  • Richard Kligman

    I think the main problem is that even though entrepreneurs need to know how to handle rejection, no one really enjoys it. So if you take the percentage of entrepreneurs that get funded from those that approach VC’s (and most entrepreneurs get multiple rejections from multiple VC’s) then you just have an overwhelming bad taste in your mouth. And since there are many more entrepreneurs than VC’s, the buzz on the street is going to anti-VC.

    I think frustration is there from an entrepreneur point of view since there are not many options for funding for start-ups. Angel is the best way to go, but it’s not as streamlined as other ways to raise funds.

  • Matt Rosen

    A brass tacks explanation of the Investor/Entrepreneur disconnect from David S. Rose:

    Read the full post, but the key takeaway:

    “Let’s look, therefore, at what it takes a VC fund to get that elusive 20% IRR. Well, it turns out (in case we didn’t already know) that investing in entrepreneurs is indeed a Risky Business. VC’s fund fewer than one in 400 deals they look at, but even with that discriminating judgment they are resigned to the fact that between 30% and 50% of their prized investments will crash and burn. Completely. And another 30% or so will end up being “walking dead”, that is, making just enough money to keep themselves alive, but not enough to provide any return on the investment. Indeed, statistics over many years have shown than virtually ALL of a VC fund’s returns will come from fewer than 10% of their investments. It’s the one home run with Google that makes up for all the WebVans, and eToys.

    Thus, continuing with our math lesson, and taking into account the facts that: one in ten companies in a VC portfolio need to come up with all the return for the portfolio; the average holding time for a VC investment is 5-7 years; and the return for the whole VC portfolio needs to be 20% or so, we can calculate at the end of the equation that ONE company needs to deliver an ROI after six years of something north of 20X! And therefore, since the VC doesn’t know WHICH of his investments is going to be The One (otherwise, of course, he wouldn’t invest in the other nine!), EVERY one of his investments must have the potential to hit a 20X return.

    It’s because of all the forgoing realties, concepts and math that there is typically an enormous disconnect between entrepreneurs and investors. The former figure that ‘risk adjusted return’ means that an investor should be delighted if his/her/its investment brings back a 20 PERCENT profit (which is five to ten times the return from less risky asset clases), while the latter realize that if they don’t aim on each deal for a 20 TIMES profit (which is required on a deal basis to deliver the 20% return on a portfolio basis), they will be out of business.

    The result? A two-order of magnitude misunderstanding.”

    • Joseph B

      I think most entrepreneurs are more intelligent than they are given credit for and most understand the venture capital model where it takes one in ten to be a home run (10X) return for the portfolio to be a success.

      What entrepreneurs don’t like is VC’s with limited operating experience who are rude, arrogant, and disrespectful. I found most VC’s have a brand name MBA and a few years experience operating experience, much of which is usually in a big company, and they are often extremely arrogant. More often than not, they add negative value to the companies they fund.

      I think VC’s would be far more successful if you had more VC’s that were successful entrepreneurs or had 20 years operating experience with substantial experience in startup environments.

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