Early Stage Funding · Fundraising

How much guidance can I expect from a big VC firm with a small investment in us?

Pardeep Sumria Lovely Group

May 11th, 2017

We’re always putting together a working list of investors we’d like to keep an ongoing relationship with. A number of names on our list are VCs attached to big firms. If we were able to land an investment at these superfunds, we expect it to be small but powerful, given the name value attached and expert guidance that we could receive. Is it accurate to expect that guidance? Or would a big VC just tacking onto a small round not be able to offer much in terms of guidance?

Christopher Chen Co-Founder @ The Resolution Co.

May 11th, 2017

Dear Pardeep,

So, what I am gathering from your post is that you would like to know the following:

Should I expect a significant amount of expert guidance from a 'superfund VC' and a significant 'reputation/credibility' boost to my business, even if the investment is relatively small for that firm?

As a rule of thumb, each VC firm operates differently (or at least claims to), so these will be generalizations that I am applying to Tier 1 & Tier 2 VC firms, which I assume you are referring to when you use the term 'superfunds.'

My answer is: Don't expect too much expert guidance, unless you ask for it.

While top-tier VCs may offer you high value legal services, both before and during the fundraising process, as a general rule, they tend to be more 'hands-off' and will leave the governance and management of your company to you (C-level execs) and your board of directors. In other words, if they choose to invest in you, it is safe to assume that they place at least a moderate amount of confidence in your company and your board, so they will leave you to your own devices.

Another generalization I will make, but will also defend, if need be, is that top-tier VCs are primarily concerned with making money. Therefore, if they are only tacking onto a small round of financing, then they only have so much upside with investing in your company. Therefore, they will only be incentivized to give you minimal 'expert guidance,' commensurate with their perceived upside.

Of course, if you find a partner in a VC firm who really likes you and becomes an advocate for your company, then the sky's the limit! However, in my opinion, it would be imprudent to expect a significant amount of 'expert guidance' that exceeds their level of investment, or 'skin in the game.'

Lastly, when it comes to the name value of a top-tier VC firm, it really depends on your audience. In Technology (especially SaaS these days), Health Sciences and other 'hotbeds' of VC investment, the 'name value' will go a long way in terms of building credibility & reputation. However, for industries VCs are less active in these days, the 'name value' may be diluted by a lack of awareness from your audience.

Hope this helps!

Christopher Chen, Esq.

Co-Founder @ The Resolution Co.

Dane Madsen Organizational and Operational Strategy Consultant

May 12th, 2017

They will not bother. Large fund do not make small investments.