The Value-Add or the Value-Suck

Below is the ‘Tip of the Week’ transcript from the Podcast Ep35: Developing Startup Ecosystems & High-touch Screening (Eric Gasser)

On today’s installment we talked a lot about the relationship between investors and entrepreneurs. We’ve even had previous guests on the show that have discussed the value-add that one should bring to a startup as an investor and/or advisor. But this is a polarizing topic with some distinct positions. While many speak on the benefits of investor-founder fit and the tremendous value that investors can bring to the table, others disagree. Fred Wilson has said for years that the contribution from investors is very limited and any startup worth their salt should not be choosing investors for what they contribute. The good startups don’t outsource responsibility. Charlie O’Donnell recently wrote about how entrepreneurs select VC’s and, not surprisingly, the founder decision-criteria had nothing to do with what value the investor was bringing to the table.

If we take a step back and ask, “Can an Investor help a startup achieve their objectives faster and cheaper?” I think the answer is yes. But if the question changes to “Is an investor the difference between startup success and failure?” the answer is more fuzzy and should probably be no. Remember that bets are made on exceptional teams building tremendous value and expansive networks. I question whether the difference between success and failure really comes down to the facilitation of a venture capitalist. It seems that if these teams are truly exceptional, they will find a way.

But now let’s look at the other side of the investor-coin… The “Russ Hanneman” character from the latest episode of HBO’s Silicon Valley. The valley douchebag is alive and well and won’t be going away anytime soon. While this character is an amalgam of personalities and represents an extreme, it also reveals, maybe even a more common scenario… The value-suck investor. These are the investors that require frequent status conversations. Attempt to influence major decisions based on their experience which may or may not be appropriate. Setup meetings, introductions or side-projects that are a complete time-waste. We all have probably encountered the obvious versions of these investors or, at the least, had a boss that fits this profile. While their money may be good, the experience thereafter will be anything but.

So, while we often hear the encouragement of the VC blogging community to find the best investor. One that understands the sector and business-model and will provide this huge value-add… Today I say, dodge the bullets. If one finds the perfect investor, that shepherds the startup to success, more power to them. But maybe instead, find the investor that doesn’t get in the way, that lets the entrepreneur be the exceptional leader that they are. As a co-investor, I’d rather avoid bad money than find great money.

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Thanks for listening today and remember to overprepare, choose carefully and invest confidently.