Not too long ago, I came across a question on Quora that I had to double click on: Why should founders care about VC brand? Money is money, isn’t it? While the question itself seemed to have a come from a less-informed perspective, I found it to be a useful exercise to once again go through the checklist of founder-investor fit.
Money, frankly, is just money. A Benjamin will look the same and work the same as any other Benjamin out there. Assuming you don’t need anything else other than money, I’d recommend other sources of funding other than venture funding, i.e.:
- (Equity) crowdfunding,
- Rev share,
- Angels – high net-worth individuals who write checks in the 1000s to 10s of 1000s of dollars;
- Also worth looking into, but are representative of the VC model, are super angels and solo capitalists. Many of whom might be leading their own rolling funds (more context) now;
- SBA Loans;
- Friends/family – small sums of money, unless your dad is Chamath Palihapitiya;
- ICO;
- Government (public) and private grants – really small sums of money, but money nonetheless;
- Accelerators/incubators – less upfront capital. But the partnerships they have with other startup services save you a lot of money (i.e. AWS, Adobe Suite, etc.);
- Selling domain names (yes, I have a friend who initially funded his business by doing that, but other than that, I’m kidding);
- And I’m sure I missed some others out there.
On the other hand, most founders who raise VC funding want something more than just monetary capital, including, but not limited to:
- Mentorship/advisorship –
- Ex-operators who can give you tactical advice,
- Former founders who can empathize with you,
- VCs who can check your blind side and had previous portfolio founders who have gone through what you’re going through now,
- People who have access to resources that will aid you on the founding journey (ideally not distract you),
- And frankly, people who’ll be there for you when you have to make the tough calls,
- Highly recommend Harry Hurst’s tweet about the CS:H ratio (check size: helpfulness, which I elaborate on here) as a mental model to figure out which VCs depending on fund size/check size can help you the founder the most at the stage you’re at.
- Network – downstream investors, sales pipeline, potential hires (eng, executives, growth, product, marketing, etc)
- Brand/PR –
- If you’re trying to fill up a round, a brand name investor can easily help you fill in the rest of the round with their network and their participation alone. They’ll also help you raise downstream capital – directly or indirectly.
- It’ll be easier to find customers. With a brand name VC, you also get quite a bit of media attention from Forbes, TC, NY Times, and so on. Customers are more likely to trust you knowing that you’re backed by a recognizable brand, especially the folks on the other side of the chasm on the adoption curve.
- It’ll be easier to hire world-class talent. Your business, in their mind, is less likely to go out of business tomorrow. And while you’re not looking for candidates who seek stability, it does give the candidates you do want to hire a peace of mind and confidence that you have external validation.
There’s a saying that the difference between a hallucination and a vision is that other people can see the latter. It’s really a chicken and egg problem. I’m not saying a VC’s brand will guarantee the success of your startup, but I do believe it will help, with the underlying assumption that you pick the right VC. Whereas it used to be a differentiator a decade ago, all VCs these days say they’re founder-first or founder-friendly. But unfortunately not all are. They might be if things are going well. But the true tells are what happens when things don’t go well. Here are some of my favorite questions to ask portfolio founders before you work with a VC. And how to find founder-investor fit.
Photo by Luca Bravo on Unsplash
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