simple.Capital() is a UK-based company founded by a South African group of entrepreneurs who aim to simplify the capital raising process for entrepreneurs worldwide.
As a company, we have had the privilege of working with and getting to know great founders. We have a dedicated team that ensures an excellent experience for the Founders that we engage with, irrespective of whether we are interested in investing or not.
We have recently engaged with several of these great Founders and asked them what they have disliked the most about the Venture Capital firms they have dealt with. Understanding this helps us to provide a great experience to Founder teams as they embark on the biggest journeys of their lives.
Here are the top six points that stood out:
1. VC’s state that they are people-orientated, yet they rarely ask questions about the Founder’s journey.
Andrew Chen once tweeted that at the Pre-seed stage of an investment, investors need to back the Founder first and then proceed with the team, the product/market fit, the scalability and only at Series C bet on the unit economics.
At the early stages of a company’s lifetime, everything is based on the founder team, their experience, ability, and determination to turn their idea into a success.
VC’s should not only focus on business-orientated questions. They should start from the Founder’s journey and understand why they started their business to ensure its success.
2. VC’s aren’t practical or operational.
Too many VC’s wear the investor hat without being on the other side of the coin. The lack of experience in the market/industry can create a misalignment of goals between the Founder and VC, leading to VC’s insisting on a need for change in the business model or strategy.
This often results in Founders chasing feedback from investors rather than their clients. VC’s do pattern recognition and compare businesses to other investments they make as a way of de-risking themselves.
At simple.Capital(), our team is a group of entrepreneurs who are all currently, or have previously started their own businesses. This helps us have an understanding of the Founders perspective of their business.
3. The period between due diligence and finalising the deal is too long.
Raising capital is a timely exercise for any Founder. It keeps them away from what matters most – focusing on their product and growth. We all have to appreciate the irony that VC’s love to see fast growth but take up a significant amount of Founder time in finalising the deal.
For example, VC’s would save a lot of time if there were a discussion on the viable investment terms before the Due Diligence and Investment Committee approval process.
As a VC, there is a fine balance between moving fast and ensuring a thorough due diligence process. Thus, VC’s should set a measurable time goal to get the terms done, from the date of meeting the Founder for the first time to the signing of the term sheet.
4. VC’s act like the Founders parents
Founders like to be treated as peers by VC’s and be empowered to make decisions that impact their businesses. It is essential to appreciate that Founders, as well as VC’s, do not know everything. By creating a solid working relationship and leveraging networks and experience, VC’s can help founders grow their business instead of telling them what to do.
simple.Capita() believes in empowering and helping Founders in their process, rather than overseeing them.
5. VC’s delaying the process when they are not interested.
VC’s can delay the process and conversation when they are not interested in committing to the investment. Founders need regular and transparent communication. Rather say no immediately and give the Founders constructive feedback.
6. What value-add?
Many VC’s sell their ‘value’ in addition to their funding, yet there are very few VC’s which deliver on this. Start-ups generally need help with resources such as product adoption, marketing & sales, business operations and finances in the early stages of their business, and VC’s are not always in a position to assist.
A recent report published by Forward Partners and Landscape VC reveals that 92% of VC’s claim to provide a value-add beyond the money they put up, however 61% of founders rated their ‘value-add’ experience as below average. VC’s therefore need to understand that Founders require more than ‘a few introductions’ and ‘monthly check ins’. They require a partner that guides them in running their business without overpowering them in their decision-making.
Author: Daniel Swiegers | Head of Investee Company Experience @ simple.Capital()