Startups · Venture capital

Are most VCs followers?

Himanshu Agrawal Marketing | Business Management | Customer Life Value Management | Business Analytic | Speaker

September 15th, 2016

I am tired of hearing VCs saying they are “committing“ as opposed to coming forward and leading the round and putting money on the table. Why are all VCs followers and what kind of value do these followers bring?


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Jennifer Ernst

September 15th, 2016

When a VC or other mainline investor says they will "follow," it means:

1)  We like the proposition, we can bring something to the deal, it fits our profile, but...

2) we don't have the immediate expertise to set the valuation or we don't want to spend our time negotiating with the founders/inventors.  

It's often a simple matter of bandwidth. Deal looks good. We'd be interested in coming in.  Need a lead, though, to take care of the messy stuff.  Leads investors come in more easily if there are followers ready to round out their investment.   Just understand the roles and find the right players for each.

Ben Mackinnon Co-founder & CEO

September 16th, 2016

You're just talking to people that don't truly believe in what you're doing, but if someone else believes in it then they'll join. You need to find an investor that really thinks what you're doing is worth investing in, because if you do then they'll put their money where their mouth is

Irwin Stein Very experienced (40 years) corporate,securities and real estate attorney.

September 15th, 2016

All VCs are not followers. Many do not want to fund as much as you want and want some company. i.e. other funds to share the round. This is especially true when the VCs are not spending their own money but represent a fund of investors. If you fail they want the comfort of being able to tell their shareholders that other VCs saw what they saw in you.  According to the SEC the statistic is that 90% of startups that raise an average of $14 million are gone within  2 years. Startups should stop complaining and show investors a little respect.   No matter hoe good you think you are, you probably aren't.

Matthew Mausner

September 15th, 2016

or they just tease and leave you with investor-blue-balls and never actually invest and you waste time chasing them. or they do invest, take too much equity, interfere or push out founding members, push for early or premature exits, or otherwise decrease chances of success  (i heard of a study of thousands of startups that non-vc- funded succeed about 1 out of 9 times and vc-funded only 1 in 13..)

Matthew Mausner

September 15th, 2016

even without leading the round , they bring capital, 
connections to clients and new hires,
 credibility that further funding for later rounds is likely, or sometimes explicitly promised, even. 
sometimes there is mentoring and legal and infrastructure help.

Martin Omansky Independent Venture Capital & Private Equity Professional

September 16th, 2016

We investors often haven't the subject matter expertise to conduct proper due diligence, but if we think that a particular deal is worthwhile we will co-invest (follow) if a specialist validates it and elects to be the lead investor. Here is a real world example: there is a VC here in Boston that only invests in its specialty -cardiac surgery- and we would typically follow in after they vetted, approved, and invested in a project. Sent from my iPhone

Peter Stone Attorney at Hopkins & Carley

September 15th, 2016

There's nothing wrong with investors following other investors into deals. In fact it's a necessity of the ecosystem. VC firms have very limited bandwidth compared to the number of deals presented to them, so they leverage their own human capital by letting other investors who they respect find good deals that they can participate in.

Joanan Hernandez CEO & Founder at Mollejuo

September 16th, 2016

Well ... I once heard:

VCs behave like a 6 year old soccer game: Everybody goes where the ball is :-)

Cheers!

Scott McGregor Advisor, co-founder, consultant and part time executive to Tech Start-ups. Based in Silicon Valley.

September 15th, 2016

They bring money + expectations. If you don't need the money don't take it - you don't want the expectations. If you need the money you just need to accept the expectations. You can whine about it with other Entrepeneurs if you like, but it is just about as empowering as whining about the need for good weather when sailing. Scott McGregor www.smcgregor.com Entrepreneur, start-up advisor, entrepreneur coach and product innovation consultant in Silicon Valley. mcgregor94086@me.com, scott@soundfit.me, (408) 505-4123 Every moment we face the choice to do something ordinary or extraordinary. Fill your life with extraordinary choices. Sent from my iPhone

Philip Miller Founder at Hempies™ Paper Inc.

September 15th, 2016

Your question has the answer in it.