Inspired by Ben Horowitz’ excellent “Good product managers, unhealthy product managers” publish and Stefan Smalla’s “Good leader, unhealthy leader” masterpiece I’ve tried to put collectively my ideas on what I believe makes an important venture capital funding capital investor. Thanks go to my colleagues at Point Nine Capital for their invaluable suggestions, specifically Michael, Mathias and Rodrigo, who reviewed an early draft of this publish and supplied a number of great feedback.

This publish represents our current considering, which can evolve our time, and a few components are nonetheless work in progress. Feedback and dialogue with different VCs and entrepreneurs may be very welcome.

We’re totally conscious that we don’t always reside as much as the perfect of the “good VC” described below, but as Stefan Smalla mentioned in response to a comment on his management manifesto: “Nobody is precisely like that, however it's good to maneuver in direction of that ambition. Inch by inch.”

A superb VC does all the things she possibly can to help her portfolio corporations

A great VC is truly value-add

An excellent VC is offered for her portfolio firms almost 24/7. If a portfolio founder wants her, she is going to do every little thing she will - roll up her sleeves, use her social capital, get on a airplane - to help. A good VC is sometimes a recruiter, typically a beta tester, generally a personal mentor, and isn’t afraid of getting her arms dirty. Not scalable? Screw scalability. If a portfolio founder needs your help in placing out fires, the last thing she or he cares about is how this scales from a VC enterprise model perspective.

A very good VC doesn’t solely react to requests from the founders. A good VC knows the current challenges of her portfolio firms and is proactively on the lookout for solutions on a regular basis.

Good VCs create corporations where portfolio founders have equal entry to all companions and never just to “their” companion.

Knowing that there are limits to the help she will be able to present to founders herself, a very good VC tries to leverage the knowledge and expertise of different individuals. Particularly, she facilitates data change between the founders of her portfolio by way of numerous boards, online and offline.

A bad VC overpromises in the deal-making phase and underneath-delivers as soon as the deal is done.

“We view ourselves as a companies firm. We attempt to earn our fame and model every single day. We follow the art of including worth and we want to be the highest executing board member that founder has and we’re on the market everyday trying to earn that reputation.” Bill Gurley General Partner, Benchmark Capital

A very good VC is humble and doesn’t try to run the show

A superb VC is conscious that there is a large data gap between founders and VCs with respect to the founder’s business. He understands that the founder has thousands of hours of expertise in his industry and with his customers and intimately is aware of the people on his team, whereas the VC’s data of the startup is commonly far more superficial. He understands that many if not most of the ideas he will come up with are issues that the founder has already thought of and is aware of that whereas he can provide great enter, recommendation and a different perspective, he ought to neither try to micro-handle nor attempt to make choices for the founders.

A great VC is aware of that managing traders may be time-consuming for founders and tries to seek out the suitable stability between being shut and providing worth on the one hand and getting out of the way however.

A bad VC overestimates his insights, tries to micro-handle, tries to exercise management and turns into a maintenance burden for the founders.

An excellent VC goes all-in and avoids battle throughout the portfolio

A great VC doesn’t spend money on two or extra corporations which might be straight competing against each other.

A nasty VC, as an alternative of going all-in into one company and giving his undivided consideration and support to her portfolio company, tries to hedge her bets by investing in a number of corporations in the identical area.

An excellent VC tries to maximise the scale of the cake vs. his slice of the cake

If a company desires to deliver on board other investors, whether or not in the same spherical in which the VC invests in the corporate or at a later stage, a great VC helps the founders to attract great co-investors. An excellent VC additionally does this pro-actively - suggesting to ask worth-add co-investors to a financing round whenever he sees an incredible potential match for a company.

A bad VC worries that if co-buyers be a part of a company, he will get a smaller stake in the corporate. So he discourages founders from working with different traders, maximizing his stake in the corporate fairly than trying to do what’s best for the corporate as an entire.

A very good VC doesn’t take unfair advantage of the founders she invests in

A good VC uses simple term sheets. An excellent VC could negotiate arduous, however she doesn’t attempt to screw founders by sneaking in onerous to know provisions that can harm founders. A superb VC tries to keep contracts easy, figuring out that in an business the place the bulk of returns is produced by one of the best outcomes, there’s not much worth in trying to guard herself in opposition to every thing which can go incorrect anyway.

A good VC additionally doesn’t overly use leverage, which she would possibly gain over portfolio founders in different situations throughout the company’s life.

When a foul VC negotiates a time period sheet, she spends way a lot time (and authorized fees) on micro-optimizations of all sorts of unlikely scenarios. She might even try to fleece the founders by imposing phrases that are unfair, unusual and hard to know.

Whenever she gets leverage over a portfolio firm, e.g. when the company runs out of money and asks its buyers for a bridge financing, a nasty VC exploits her leverage to improve her position.

A great VC treats every entrepreneur with utmost respect

An excellent VC respects the value of the founder’s time always

external page A very good VC not often re-schedules conferences with founders and is almost at all times on time. In meetings with founders, his phone stays in his pocket.

A nasty VC re-schedules conferences with founders on a regular basis, often at the last minute. Once the assembly lastly occurs, he often arrives late. Within the assembly, he will start to verify his electronic mail (or Facebook feed) on his phone the minute he gets bored.

“If anyone isn't on time I'll advantageous them $10 a minute. That comes from my expertise as an entrepreneur. If you end up an entrepreneur you might be dwelling and dying with your company. You're working extremely laborious and the last thing you want to do together with your time is to take a seat within the foyer of a venture capital office.” Ben Horowitz General Partner, Andressen Horowitz

A superb VC handles “passes” professionally

Knowing that she has to go not less than 99% of the time, a superb VC has built a staff and established a deal evaluation course of that ensures that founders get timely responses. An excellent VC also tries to provide a proof on why a company will not be a match for her, although sadly time constraints could make detailed feedback not possible in each case.

A foul VC takes perpetually to answer inquiries, and often she doesn’t reply at all. When she passes on a potential funding, she doesn’t attempt to present the entrepreneur useful feedback. A bad VC additionally usually delays the decision forever, attempting to maintain her options open.

Side word: That is the realm the place the space between reality and ambition is the biggest for us at Point Nine. We're making an attempt to get higher, but with ~ 200 potential investments to evaluate per 30 days, it's tough.

A superb VC solely signs a term sheet when he’s going to make the deal

A great VC solely signs a time period sheet when he’s going to make the investment. After having signed a time period sheet he only bails out if really dangerous issues come up within the due diligence, which happens extremely rarely. A superb VC also tries to be transparent within the deal evaluation section before, trying to offer the founders a sensible evaluation of his curiosity level and timing requirements.

A nasty VC sometimes signs a time period sheet to safe the choice to invest - at some extent in time at which he just isn't but sure about his intent to take a position. A bad VC often additionally conveys a deceptive impression as to how shut he's to making a positive determination and how fast he can move.

A superb VC aligns her interests with the interests of her LPs

An excellent VC is incentivized by carry, not by management fee

A great VC optimizes for increased carry and decrease management price. A very good VC also invests a lot of the administration payment in a means the place it leverages her means to make nice investments and helps her portfolio corporations (e.g. by constructing a group of associates and advisors and by offering resources to the portfolio) slightly than drawing a big wage. A very good VC invests heavily into her fund and doesn’t view the GP commitment (1) as a burden.

A nasty VC needs to make some huge cash even when she doesn’t make her LPs(2) some huge cash. She tries to attenuate her GP dedication while trying to maximise her wage.

A superb VC is focused, courageous, humble and wishes diversity

A good VC is focused

A great VC is targeted on a number of funding theses built round expertise in a certain stage, geography and/or industry.

A foul VC invests broadly across all stages, geographies and industries. Rather than understanding quite a bit about just a few things he knows nothing about the whole lot, which prevents him from offering efficient portfolio assist and from seeing the perfect investments in the first place.

An excellent VC is courageous

A great VC makes bold strikes. She has strong opinions, and although she values other investors’ opinions she often invests in firms which many other investors have passed on. A very good VC additionally isn’t afraid of admitting mistakes and failures.

A nasty VC’s main driver is FOMO (“fear of missing out”). She doesn’t have the expertise or courage to assume independently, but as soon as other investors need to put money into a deal she will get excited. If an investment fails, she tries to supply a PR story to make it seem like a hit.

An excellent VC is humble

An excellent VC is aware of that luck and serendipity play a big role in investing. He knows that he has to continually show his worth and that he’s only nearly as good as his final investments. A superb VC additionally doesn’t have a giant ego, is a superb listener and says “I don’t know” very frequently.

A bad VC, after having made one or two lucky pictures, thinks he’s a genius. A bad VC has an enormous ego and is one of those people who make Board Meetings inefficient as a result of they love to hear themselves speak.

A good VC desires and appreciates variety

A very good VC desires to work with people and spend money on founders from a wide number of languages, cultures, colour, origin, gender, religion, age, persona and orientation. He is aware of that “these people can open up new markets and new geographies, and create potential outsize investment returns from alternatives that others may overlook or not wish to risk going after”, to quote Dave McClure.

A bad VC prefers to spend money on people who find themselves like him.

“Our Commitment to Diversity stems from an irresistible want to discover, from a burning curiosity to be taught extra concerning the world, from a ethical imperative & mental humility to help each others and ourselves develop into half of a bigger, extra enlightened world neighborhood and international household.” Dave McClure Founding Partner, 500Startups

A very good VC invests for the long-term and provides back

A superb VC invests in lengthy-time period relationships

A very good VC optimizes for the long term in all the pieces she does. She is aware of that you simply “always meet twice in life”, as the German saying goes, and tries to create win-win situations.

A bad VC tries to achieve quick-time period advantages over other people, sacrificing relationships and long term positive factors.

A very good VC shares data (however retains private information confidential)

A good VC overtly shares data with startups and buyers, knowing that the tech community is just not a zero-sum sport.

An excellent VC by no means, ever shares confidential information like pitch decks with people outside of his firm, until the founder explicitly gave him permission to do so.

A nasty VC is secretive with regards to sharing information with the community - and leaky with respect to confidential information.

A very good VC wants to make the world a better place

An excellent VC cares about others and is aware of that there’s extra in life than financial returns alone. Whether it’s investing in clear applied sciences, giving to charity, doing group work or one thing else - she has a robust urge to make the world a better place. When she’s made money she doesn’t overlook that as a lot as her wealth is the results of decades of onerous work, it’s additionally the results of being born and raised in the right place and having had alternatives that billions of people on the planet never have.