Choosing a VC: Bigger Isn’t Better
You’re a founder or CEO looking to take your growing software company to the next level. You’ll need to build your team and expand your infrastructure, so one of the things you’ll need is money. But for many entrepreneurs, guidance from someone who’s been there before is just as important.
The temptation is often to automatically go with the biggest, brand name, “Tier 1” VC that wants to fund you. The idea is that their size proves that they know what they’re doing, and their brand name will help you succeed.
Don’t fall into this trap.
While a brand name investor might generate a little more buzz around your funding, your ultimate success is going to be mostly a factor of how well you serve your customers. For the most part, they couldn’t care less who your investors are.
Furthermore, all else being equal, the bigger the VC the less they’ll pay attention to you. Of course, most VC’s will tell you that you have their undivided attention, but the truth is that their time is scarce and your company is only one of many they focus on.
To cut through the B.S. and figure out how much you’ll really matter to your VC, compute the following number:
The size of their most recent fund is usually given in a press release or on Crunchbase, and a proxy for their number of employees can be found on Linkedin. The result is the proportional number of employees the VC has for an investment of your size. If high-level strategic advice from the partner is all you care about, number of VC partners can be substituted for employees.
Either way, higher numbers indicate a VC has more manpower to support you after the investment has closed, and if they score much smaller than 1, don’t expect them to offer you too much of their time.
Granted, there are many other reasons you’d want to choose one VC over another. Maybe all you’re looking for is a hands-off VC that funds you, makes a few intros, and then leaves you be, in which case you should be OK if they score low on the attention formula. But if you’re interested in operational support, you’ll want to know that a VC actually has the resources to carry it out.
Take a real-life case from OpenView’s portfolio. According to Crunchbase and Linkedin, our most recent investment in UnboundID entitles them to about 2.2 of our employees. We pride ourselves on the operational and decision-making support we offer our portfolio, and making sure we have the adequate manpower to provide it is essential. With all due respect to Andreessen Horowitz, who are great at what they do, there’s no way they can pay as much attention to a $1.5 million dollar investment that only scores a 0.05 on the attention scale. Hopefully, that company is going with a16z for another reason.