Some Buy-side Perspective on Venture Partners

More and more these days I hear from entrepreneurs who are looking to bootstrap their new startup ventures. Many cite bad experiences in prior dealings with venture capitalists. This is their motivation for seeking alternate funding. I have my own horror stories about “vulture capitalist” behavior from my last company. One of the VC’s preyed on the naiveté of the CEO and diluted the other two venture partners (as well as the company founders) in order to gain a greater equity percentage. However, having spent some time in corporate development for my current company, I’ve come to appreciate many of the benefits of working with venture partners.

Venture capitalists naturally place a premium on cultivating their reputation and their network. Many view their credibility and integrity as the only means to achieving long term sustainability in their business. On several occasions, venture partners have backed off a proposal, once I explained my objectives and they understood the deal would not result in good business. One partner once encouraged me to pursue a build option even though the deal involved one of his portfolio companies. His fear was that if the transaction turned out badly, it would negatively impact his business as well as ours.

Venture capitalists pride themselves on their matchmaking abilities. One partner was invaluable in brokering a multi-party agreement in which I participated. When discussing his portfolio company, I mentioned that I would value any synergy the deal created with another company with which I wanted to partner. Not more than fifteen minutes passed after I got off that call, when the VC partner called me back and reported that there was mutual interest and that he had brokered a meeting where we could explore the opportunity. Also, I’ve found in some cases that it is easier to cultivate discussions with an early stage company by working it through a venture partner on their board, than talking directly to the founders. This approach usually applies when the entrepreneur is focused so intensely on the uniqueness of their specific technology, they experience difficulty getting a broader perspective on the value of their product.

Those who have been in the venture capital business for a long time have a tremendous wealth of experience available to their partners. When presenting to our board of directors, I really value the feedback from our own venture partners. They always spot significant issues right away and offer great perspective. Their suggestions are based on similar experiences drawn from many years of deal making.

Lastly, the stereotype of the silicon valley VC is that they are aware of (and know everything about) all the potential deals in the works. Well, it’s true – at least for the really established VC’s. I spoke on a Garage Venture panel discussion on Business Intelligence a year and a half ago. The moderator posed a question to the panel asking for predictions on future M&A announcements. I happened to be sitting next to representatives from Brio and Hyperion (this panel discussion took place prior to Hyperion’s acquisition of Brio). Just to bring some levity to the discussion, I whimsically proposed that Brio would be a great fit for Hyperion. The resulting laughter from the audience was a sure-fire indication that many of the venture partners in attendance knew this deal was far along. Steve Jurvetson even came up to me after the event and confirmed it.

I am not suggesting that the term “vulture capitalist” is entirely undeserved. However, I think entrepreneurs that shut them out completely are doing themselves a disservice. There are many benefits to doing business with the right venture capital partners. And it’s not just about the funding. I’ve found plenty of value in the intangibles. You just have to remember to take advantage of the benefits that venture partners have to offer.