The VC landscape has changed more in the past three years than in my almost 20 years as a VC. It is a truly exciting time. For entrepreneurs, there's never been a better time to start something. For early stage VCs, the investing space is becoming more competitive, which is healthy and good for the startup ecosystem.

VCs who see themselves as stewards, or coaches of their founder's creativity and talent, will retain their value. By contrast, VCs who seek to control companies, slavishly adhering to a numbers game, may very soon find themselves replaced by other sources of investing that allow them to retain more ownership of their idea. Below are five things VCs need to remember in the changing landscape.

1. There are two kinds of VCs

In my experience, I've encountered two main types of venture capitalists:

  1. VCs who think that the entrepreneur works for them
  2. VCs who think they work for the entrepreneur

Avalon Ventures believes in the latter. We take a "hands in, eyes in" approach and let the founding team lead the company. We see our role as one of coach and mentor, engaging at strategic points, rather than at every opportunity.

2. People are the most important part of the equation

Not surprisingly, we put an emphasis on the quality of the people we are investing in over the product itself. In truth, truly great entrepreneurs are hard to find. Not everyone is cut out for the journey. We need to be able to trust the founder, understand where this venture fits into their life's story arc, and know if they are in it for the long haul.

The same goes with our co-investors. We need to know they're not going to run at the first sight of blood. We've co-invested with over 80 different firms and place tremendous value on the relationships we've built - some going on 25 years.

3. Your reputation matters, now more than ever

Whether you're a first time entrepreneur or a veteran VC, reputations are earned on a daily basis. Especially in today's salient, interconnected world, your reputation matters more than ever. Every interaction of every day is an opportunity to either build up or tear down your integrity. Shortcuts--on both sides of the table--are always costly and the true cost are only known too far down the road. People of integrity are rare because it is easy to compromise values to get ahead. If you are true to who you are, especially when tough decisions come around, you will be well served.

4. Base executive compensation upon company needs 

There is a delicate balance between providing incentives to make the company succeed for the long term and ensuring that leadership feels valued in the present. People rarely feel adequately compensated. Strategies like requiring Founders to re-vest ownership have proven effective for the long-term health of the Founder and the company. It assures both parties are continually invested in the company for the long haul. The bottom line is to do what the company needs to grow to the next stage and to recognize that those needs change over time. Especially in the early stages, it's best to spend more time on growth metrics and less time on financial metrics to determine compensation.

5. Retain the covenants that you will use, lose the others

Many venture capitalists stress the importance of protective provisions and subsequently control over the companies they back. Instead of overloading young companies with options you will likely not employ, revise traditional provisions covenants to ones you will actually use. VCs should look to the ways they can be most productive and offer help as the company grows without making the entrepreneurs feel too controlled. While protective provisions are standard features of venture capital agreements, entrepreneurs should be wary of VC firms that pile them on. As one writer puts it, "Working for an investor-backed company isn't indentured servitude."

The takeaway:

With the emergence of new funding platforms, we don't know what corporate governance will look like 3, 5, 10 years from now. VCs who realize their job is to coach their founders to success, value relationships, are full of integrity, and cut the traditional deadweight to give their teams the most room possible will retain their value. At its best, this relationship comes down to entrepreneurs and their mentors, which is why it's always better to have someone with you in the foxhole.