The venture capital community has been getting slammed recently for moving too slowly.
And these accusations, no matter how well-founded, are beginning to stick. Entrepreneurs loathe the idea of fundraising for protracted periods of time, and therefore they are particularly susceptible to this form of VC bashing. But I don’t think that the accusations are fair. There are many of us in the venture community who are willing to work hard to get entrepreneurs a quick and definitive answer.
For a long time VCs have been lambasted for taking an unreasonable period of time to get to “no.” Yet now the mantra is that VCs take too long to get to a “yes.” Entrepreneurs are being trained to expect an answer during a first meeting and anything shy of that is officially “slow.” I remember playing gin rummy with my grandmother as a small child and having her urge me to “play fast and make mistakes.” It would appear that some in the startup world would have VCs do the same around funding these days. Needless to say, that strikes me as irrational.
To my mind, there is a distinction between being too slow and not being irrationally fast. Many venture investors, myself included, would characterize ourselves as people investors. We bet on teams. And while we can get a great initial read on an entrepreneur or team of entrepreneurs in a first meeting, that is assuredly insufficient information to fully understand the individuals building a company, let alone the team dynamic. Taking time with a team of entrepreneurs is not about slowing things down. It is all about gathering information: How well do these entrepreneurs work together? How well do they understand the competition? How responsive are they to advice and introductions? etc. etc. Getting to know the people you are considering backing is an invaluable part of the investment process and most VCs take it seriously.
What’s more, even if you are confident that you have a good read on the folks you are planning to back, there is no substitute for due diligence. Anyone who’s been in the venture business for more than a few months has learned a surprising thing or two about a would-be CEO by making a few phone calls to former colleagues, bosses, classmates. Those calls are important—sometimes to validate your good impression of an entrepreneur and sometimes to disabuse you of it. And no matter how powerfully good your intuition is, there’s no substitute for making the necessary diligence calls.
None of this should be taken to suggest that we VCs need months of time to get our work done. We don’t (at least many of us don’t). A few meetings and a bunch of phone calls can be compressed into a short period of time. But for those of us who are betting on teams of people with whom we intend to build big companies over the coming months and years, there are no shortcuts. It may be clichéd, but it is a marriage. And there are very few marriage proposals made on first dates and fewer still that result in lasting and prosperous matrimony.
David Hornik has been a venture capitalist at August Capital since 2000, carving out a specialty in enterprise application software and infrastructure software, along with software and services aimed at consumers. Reach him at Hornik@augustcap.com