Whose opinion should you really trust regarding what high-tech entrepreneurs want and need from their venture capital investors? The VC investors themselves? Consultants and advisors? Financial or market analysts? The many service providers that cater to startups? All have good data and strong opinions, but no one takes the same risk or faces the same hurdles as the entrepreneurs themselves.
At Illuminate Ventures we knew that we could not afford to leave this question unanswered or to leave it to guess work. As a small firm made up of investors that have all been tech founders ourselves, we are well-aware that we need to be laser focused on the things that would be the most valuable to the entrepreneurial teams within our early stage enterprise cloud and mobile investment portfolio. We wanted to identify those things that entrepreneurs want and that we might be best suited to deliver. As a result, earlier this year we decided to reach out to early stage tech entrepreneurs and ask them to voice their opinions to us directly. The question we asked was simple: "Other than cash--what do you most want from your VC investors?"
Our outreach to a few hundred successful tech entrepreneurs that we have intersected with in recent years resulted in nearly 200 responses. The high level of response was a clear indicator that entrepreneurs were eager to share their perspectives. We were thrilled to have earned the trust it took for them to offer their candid thoughts about what really matters.
The results of our survey confirmed our beliefs in some ways and surprised us in others, further validating the need to ask for input rather than presume that we know all the answers.
We started by asking for help from two directions: from VCs with early stage investing experience and from entrepreneurs directly. We used the recommendations we gained from other VCs to formulate the structure of our survey. We poured over it for days to try to make sure that it was unbiased and left room for people to express their own opinions. You would have loved to be a fly on the wall as we, VCs, not marketing experts, voiced our opinions and collaborated on how best to conduct this survey.
In the end, the results speak for themselves. Nearly 60 percent of the survey recipients responded. Sixty-five percent of the respondents had been the founder of a venture-backed company. Most were highly experienced tech entrepreneurs: 33 percent had more than 15 years experience, 27 percent had 10-15 years experience, and 30 percent had 5-10 years experience. More than 30 percent were women. We were thrilled with the overall response rate and very excited by the diversity of the data.
Many of the venture capitalists we talked with thought that entrepreneurs primarily want operational advice and recruiting help. Our survey found that's not necessarily true. The most important thing sought by entrepreneurs is assistance in getting easily and successfully through their next round of financing.
It comes as no surprise then that the two next most critical areas identified by entrepreneurs--helping accelerate the acquisition of early customers and relevant business partners--are things that can help demonstrate the progress of their company--and therefore help ensure a smooth financing path. Today's entrepreneurs seem to value venture capitalists for their networks, even more so than their operational experience.
More disconnects to ponder
The National Venture Capital Association (NVCA) released their first ever survey on venture capital branding mid last year. Among other topics in their survey, they asked entrepreneurs what they sought from venture capitalists--including personal attributes. With a sample size of 158 CEOs--their survey results found a similar disjunction between what VCs thought entrepreneurs needed and what they actually sought.
The NVCA survey found that entrepreneurs wanted a firm that was "entrepreneur friendly," "trustworthy," and "collaborative"--whereas VCs thought entrepreneurs valued "experience" and being "hands-on."
Likewise, venture capitalists have long assumed that the gender of investing partners doesn't matter--but the NVCA survey showed otherwise. Only 10 percent of VCs thought that the gender make-up of a VC firm mattered to CEOs, but 25 percent of CEOs overall and 66 percent of women CEOs said that having women partners was important.
Impact for VCs and entrepreneurs
At Illuminate, we are using the learnings we've gained from both surveys to shape how we interact with entrepreneurs and try to add value to our portfolios going forward. It's clearly time for us VCs to listen carefully to the entrepreneurs.
There are several things we already do that we will continue. We'll continue to only do a small handful of new investments a year, so that we have sufficient time to spend with each portfolio company to do whatever is needed. We'll also continue to offer founder-friendly terms in the financing rounds that we lead and maintain the high level of respect and integrity that we have always shared with the founding teams.
In addition, however, we're working to add some new value-add resources in the areas that entrepreneurs seek most--introductions to customers and business partners. One example of this is the new customer access system we're creating. Leveraging our world-class 40+ member Business Advisory Council, we're enabling a resource that will give our portfolio companies direct introductions to thousands of prospective customers and business partners for their enterprise-focused products and services. In spite of the access we always had, we may never have thought of doing this if not for the vocal response to our survey.
We listened, and will continue to work on adding value in ways that are most desired and helpful to the entrepreneurs we seek to support.
The most important result of both our and the NVCA survey was to show that nothing should be assumed when it comes to understanding what entrepreneurs need from their investors. A frank dialogue has been opened up in our industry--and at Illuminate we'll continue to listen closely to the entrepreneurs themselves. We hope they continue to speak up and tell us what they need. This isn't Family Feud--we want both the VCs and the entrepreneurs they support to be winners.