Understanding VCs

I saw Joe Fernandez‘ tweet a few days ago and thought “he is making an important point.”

VCs are not heroes. We are just one part of the startup ecosystem. We provide the capital allocation function and are rewarded when we do it well and eventually go out of business when we don’t do it well. I know. I’ve gone out of business for not doing it well.

If there are heroes in the startup ecosystem, they are the entrepreneurs who take the biggest risks and create the products, services, and companies that we increasingly rely on as tech seeps into everything.

VCs do have a courtside seat to the startup world by virtue of meeting and getting pitched by hundreds of founding teams a year and sitting in board meetings for many of these groundbreaking tech companies. We get to see things that most people don’t see and the result of that is that we often have insights that come from this unique view we are given of the startup sector.

Another thing that is important to know about VCs is that we operate in a highly competitive sector where usually only one or two VC firms are allowed to make a hotly contested investment. So in order to succeed, VCs need to market ourselves to entrepreneurs. There are many ways to do that and the best way is to back the most successful companies and be known for doing that. There is a reason that Mike Moritz and John Doerr were invited to lead Google’s initial VC round. By the time that happened, they had established themselves as the top VCs in the bay area and their firms, Sequoia and Kleiner Perkins, had established themselves as the top firms in the bay area.

Another way that VCs market ourselves to entrepreneurs is via social media. And blogging is one of the main forms of social media that VCs can use to do this. And, given that VCs have this unique position to gather insights from the startup sector, we can share these insights that we gain from our daily work with the world, and in particular entrepreneurs. If anyone has played this blogging game well enough to get into the top tier, it is me. I know of what I speak.

So how should entrepreneurs use this knowledge that is being imparted by VCs on a regular basis? Well first and foremost, you should see it as content marketing. That is what it is. That doesn’t mean it isn’t useful or insightful. It may well be. But you should understand the business model supporting all of this free content. It is being generated to get you to come visit that VC and offer them to participate in your Seed or Series A round. That blog post that Joe claimed is not scripture in his tweet is actually an advertisement. Kind of the opposite of scripture, right?

But you should also know that there is data behind that blog post, gained from hundreds (or thousands) of pitches and dozens (or hundreds) of board meetings. If VCs are good at anything, we are good at pattern recognition and inferring what these patterns are leading to. And so these blog posts that are not scripture, and are in fact advertising, can also contain information and sometimes even wisdom. So they should not be ignored either.

What I recommend to entrepreneurs is to listen carefully but not act too quickly. Get multiple points of view on important issues and decisions. And then carefully consider what to do with all of that information, filter it with your values, your vision, and your gut instinct. That’s what we do in our business and that is what entrepreneurs should do in their businesses.

If you are at a board meeting and a VC says “you should do less email marketing and more content marketing”, would you go see your VP Marketing after the meeting and tell them to cut email and double down on content? I sure hope not. I hope you would treat that VC comment as a single data point, to be heard, but most likely not acted on unless you get a lot of similar feedback.

VCs are mostly not idiots and can be quite helpful. But we are not gods and our word is not scripture. If you treat us like that, you are making a huge mistake. And I appreciate Joe making that point last week and am happy to amplify it with this post.