Who not to take money from…

VCs are a popular target for the media, bloggers (and even fellow VCs) to hate on. I know MANY VCs and for the most part, they are awesome, smart, engaged people. Still you always run in to the odd exception to that rule. In good times and bad, you should avoid these exceptional few douche bags. Here’s my completely biased and unscientific checklist of who not to take money from.

The banker: aka – Someone with zero operating experience: You’ve probably met those Ivy league banker types. I’m sure they can rock a spreadsheet and know the secret handshake at a lot of places but they haven’t lived in your shoes and can’t add much value as a result.

The name dropper: You want your VC to be connected. In fact one of the primary value adds we bring is making connections. But unless a potential investor is listing people he plans to intro you to, you shouldn’t be hearing names.

The dude on 20 boards: Check a partner’s background to see how many portfolio companies he or she is responsible for. If the list is big think hard about how much value you’re going to get. And speak with existing portfolio companies to see how much value they are getting.

The guy with a yacht club membership: Yep, you’ve met him. He wears fancy loafers with no socks and has a sweater wrapped around his neck. This person will not get the plight of a penniless, desperate founder.

The generalist: If you meet a VC who does software, clean tech, biotech and every other kind of tech, run. She will add no value whatsoever. We live in a specialized World. Only work with VCs who get your space.

The celebrity: Ashton Kutcher seems to have a good eye for angel investing. Still, I wouldn’t want his money.  It creates too much hype. If you do take celebrity money, don’t do it with any expectation of value add.

The ‘non seed’ VC: On a similar note, it’s pretty fashionable these days to see party rounds with lots of investors each putting in a small amount of money. Mark Suster calls this collecting logos. The problem here is none of these investors are actually committed to helping you build a company. For many, you’re just an option. They will wait and see how you do before deciding to “really” invest.

The outsider: If you come across a potential investor who’s not plugged in to the funding ecosystem, avoid them. Maybe they’re great, but VC is an insular, hyper-connected World. If they’re not in, they’re out.

The penniless VC: It is unfortunately common to get “interest” from investors who don’t have money. Whether its new funds that have not actually closed or existing funds that are out of money and don’t have the returns to raise a new fund, qualify potential investors as hard as they qualify you.

The opaque VC: This is the person who does not answer questions as directly and transparently as you are expected to. The person who does not invite you to contact every founder he has ever backed. Avoid.

The blabbermouth: This is the person who shares insider knowledge gained from other companies she’s looked at. While that might be useful info for you, you can’t trust her. You have to assume she’ll be sharing your info far and wide. Loose lips sink ships…

Who am I missing? Help me complete my list of VCs to avoid…

 

  • JM

    The Condescending VC-Talks at you not to you. Says things like “a good CEO/Founder would…” Treats you like an inexperienced noob that is wasting his time.

    • http://startupcfo.ca/ Mark MacLeod

      I have met many people that fit this description

  • http://www.skiddmark.com Steve Davies

    Well I can see two of those I would disagree with, the outsider and the generalist, which seem to reflect your lack of experience rather than stand as genuine principles to avoid.

    In fact anyone who uses a list to dictate their choices in life has questionable credibility.

    Everyone needs to start somewhere, and therefore everyone at some stage was an outsider – my advice, use your own brain and judge people on the value they are able to bring, not which club they belong to.

    And as far as specialists-vs-generalists – let’s clarify the meaning of those descriptions. A generalist who knows nothing in depth, then sure, don’t be stupid by asking someone for help who has no experience of your sector, but we don’t live in a world of specialists – there are many people whose talents extend beyond a single facet of expertise, so don’t dismiss someone just because they know too much – that would be the most stupid mistake of all..

    • http://startupcfo.ca/ Mark MacLeod

      My lack of experience? You’re funny. I’ve been in this space since 99. What’s your bar for when you consider someone to be experienced?

      • http://www.skiddmark.com Steve Davies

        Since when do years equate with experience? As I said, I very much disagree on those two points which I presume must reflect what you’ve experienced in that time.

        • http://startupcfo.ca/ Mark MacLeod

          Add the 12 years prior raising VC.

        • http://startupcfo.ca/ Mark MacLeod

          OK, so I need to ask how would years not have an impact on experience? And what is your experience in this? At least you’re scottish…

        • http://www.skiddmark.com Steve Davies

          Really? Is that a serious question? I was investing in startups back in the early 90s, running incubators and large industry JVs in media and telecoms, but I don’t measure my experience in years – some of the most important lessons were learned in a 3-5 year period.

          Anyway, the perhaps the point I took most issue with was in reference to generalists (or multi-skilled specialists as I read your definition). I’ve met a lot of very talented people over the years who can stand toe to toe with the best expert in a particular field and yet do so in ‘many’ fields – don’t be so quick to write them off as generalists..

        • http://startupcfo.ca/ Mark MacLeod

          I didn’t check your experience. It was you who was questioning mine.

          I’m also just winding you up a bit

  • Anatoly Durov

    Now I’m looking for investors

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  • Rapid Genesis

    The perception is that a start-up must have a VC on board before anything can happen…my argument is that the time spent to engage VCs is much better spent to engage potential customers…as the latter is more crucial to sustain a real business… Once there is a customer base and revenue coming in, start-ups will be in a better position to negotiate with VCs and other investors…

  • http://twitter.com/Kevin_Lee_QED Kevin Lee

    Found the Celebrity VC comment particularly interesting. How About VCs who won’t let you talk to their current investments and those that exited.

    • http://startupcfo.ca/ Mark MacLeod

      You need to avoid investors who won’t let you speak to their portfolio CEOs. BTW, an interesting thing I have observed is that founders are very honest with fellow founders. A VC may think he’s going to get a good reference, but founders that like their VCs will still dish out the good, the bad and the ugly to other founders.

  • http://www.jonasbrandon.com Jonas

    The hairball: This person layers on legalese every time the financing is discussed. It gets progressively more difficult to understand the economics. Even if the round eventually closes the hair will scare off future investors.

    The shark: This predator attempts to purchase majority control of your company in the first round.

    The simon: This is the know it all who thinks he is Simon Cowell, constantly shitting on everyone around him.

    The broker: This person (possibly posing as a penniless vc) promises to raise a financing for you for a % of the dollars raised and often a monthly fee (which only increases your burn). Your company is dead on arrival when introduced by this intermediary.

    The clueless: This person doesn’t understand your business or the investment risks.

    The angry: This person has a history of losing their temper… startups are a roller coaster, cool heads prevail.

    The drone: This corporate pencil pusher may want to help, but internal politics will get in the way of the financing. Even if the financing closes, it isn’t a true partnership, so the long term interests can get misaligned pretty quickly. Especially avoid the drone in an early financing.

    • http://startupcfo.ca/ Mark MacLeod

      Awesome additions Jonas. I have met a bunch of these in the past

  • http://twitter.com/yostar Yoav Schwartz

    Great list Mark – I’m able to visualize a person in my circle for most types you describe. Nice to have a checklist for future reference!

  • Artin

    We need more posts like this. It’s easy to get distracted by the money and forget who is giving it to you.

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  • http://www.facebook.com/ericgalen Eric F. Galen

    Great post, Mark. I’ve personally felt the pain of raising money from the wrong types (a few of whom are identified above), and I’ve seen plenty of clients do the same. On the subject, my friend Patrick Vlaskovits wrote a great post about not getting screwed from lack of an investor’s value add, which I like to recommend http://vlaskovits.com/2012/08/how-not-to-get-fcked-by-an-investors-lack-of-value-add/

    • http://startupcfo.ca/ Mark MacLeod

      Thanks for sharing that post. very interesting

  • http://www.facebook.com/torimaclean Tori MacLean

    Love this list Mark. I’d add the VC or angel groups that charge entrepreneurs to pitch. I see quite a bit of that happening in Alberta, especially in the past couple years.

    • http://startupcfo.ca/ Mark MacLeod

      Yes, I should have had them. But that’s more with angel groups than VCs. Super lame…

    • http://myindigolives.wordpress.com/ Ellie K

      Hi Tori, I am in Arizona, so I’m off the beaten track even for the U.S.A. I want to make sure I understand your comment. so I’ll rephrase it: There is increasing prevalence of VC and angel groups charging entrepreneurs a fee, a cash payment, in order to pitch. This is specific to Alberta, Canada in your experience, but might be elsewhere in Canada too.

      Mr. MacLeod said this is primarily with angel groups. That seems especially disreputable. I worry that they might prey on small or less promising ventures, taking money from people who are desperate, or young, and are already short on strict budgets. It isn’t illegal (I guess…), but it certainly IS disreputable!

      • http://startupcfo.ca/ Mark MacLeod

        It’s not unique to Alberta. See this all too often unfortunately

      • http://www.facebook.com/torimaclean Tori MacLean

        Definitely not unique to just Alberta, just the market I’m most familiar with in Canada.

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  • John

    You lost me at “The Generalist”.

  • Booker Schmidt

    An excellent list of VC types to avoid. I would add:

    The plodder. This is the person who moves at a laboriously slow pace—during the initial discussions, the due-diligence and, if and when they get there, the term sheet negotiations. This person never does anything quickly. Meanwhile, your tech startup is passing up other promising funding sources, because you’re bogged down dealing with this slow-mannered VC. If your startup needs cash sooner, rather than later, pass up the plodder.

    • http://startupcfo.ca/ Mark MacLeod

      That describes a large number of investors. Hard to get most VCs to move quickly. I see both sides. As an investor, you want as much data and time with someone as possible before you commit. But, there’s a difference between being diligent and stringing someone along.

      The best investors clearly outline their process and clearly say “no”

  • Duuuuuuuuuuuuuuuuuuuuuuuuuuude

    So is there anybody left after all of the exclusions?

  • Mark V.

    > We live in a specialized World.

    Oh, I thought this is about insects, not people.

  • http://www.facebook.com/rasim.aliyev.796 Rasim Aliyev

    Altough I agree with the fact that there are a number of investors that are not necessarily suitable in enabling to scale a company sustainably.There should be no denial that a ‘true’ founder would seek funding from all possible avenues because if he can truly create a product he can do so with minimal support. However, the scenario is totally different for the enterprise sector.Where the individuals mentioned above can be of a very high value.

    • http://startupcfo.ca/ Mark MacLeod

      Having been on both sides of this, all I can say is this is a long term relationship. You don’t want to work with these types. Trust me

      • http://www.facebook.com/rasim.aliyev.796 Rasim Aliyev

        Agree 100% but all I wanted to state is that ‘dumb’ money should not be looked down upon.

        • http://startupcfo.ca/ Mark MacLeod

          It has its place, for sure.

  • PEPE

    WOW nice!! Good Job, Flat Truth!!

  • http://www.afroginthevalley.com/ Sylvain Carle

    I just couldn’t resist writing a quick list of how to avoid/test for these types of VCs…

    The banker: Ask them to tell you one of their worst time ever as a CEO/VP and to talk about the startup rollercoaster. If they can’t, you have a banker.

    The name dropper: Ask for actual email cross-intros and make sure you meet at least two of those. Most likely you will not event get to the email where you are CC’ed…

    The dude on 20 boards: Ask for a commitment of X hours PER WEEK (1,2,3). If you are just getting started, you will need them.

    The guy with a yacht club membership: schedule a meeting at a dive bar (aux foufounes maybe) or “not in his niehgbourhood” (aka Westmount or Ste-Anne de Bellevue). If he doesn’t how to get there, pass.

    The generalist: Ask for what she think is hardest in your space. Easy.

    The celebrity: Easy, we don’t have those (yet) in Montréal.

    The ‘non seed’ VC: Real angel/seed VC sign real checks. I would take 25K from a real entrepreneur/angel before 100K from one of those “non seed” guys.

    The outsider: Cross check your references. Ask Evan, or Mark or Tara or Seb if they know about that fund. If not, be wary.

    The penniless VC: Ask for 3 most recent funding. And by recent we mean “in the last 12 months” not “last 10 years”.

    The opaque VC: See “the outsider” and “the name dropper”.

    The blabbermouth: Be careful. Usually an intern, or recently hired grad, doing “research”” for his fund “really lovin’ what you guys are doin”… Don’t be another data point in their spreadsheet view of the world. Trust takes times and social graph proximity.

  • http://twitter.com/_charlesbrun Charles Brun

    Great post Mark. I’d add the VCs from Dragon’s Den and Shark tank! Although you can probably add those to the list of celebrity VCs! ;)

    • http://startupcfo.ca/ Mark MacLeod

      Generally agree, though Bruce Croxon (co founder of Round 13 capital and a dragon) is a good guy

      • http://twitter.com/marclennox Marc Lennox

        I listened to Bruce speak in Ottawa a couple months ago and he definitely seems like a good guy. Brett Wilson seemed like he was entrepeneur friendly also, at least on the show. But in general I don’t understand the valuations on Dragon’s Den. Pretty much every deal is a corporate takeover from the founders.

        After listening to yours and other presentations on this topic, I don’t see how any company that sells 50% in an angel round has any chance of raising further money without completely disengaging the founder(s)… and we all know what that leads to.

  • BrandonWaselnuk

    Great post! I think you hit on a lot of solid points, even without ‘science’! Thanks for the insight.

  • http://www.facebook.com/johnantoni John Antoni Griffiths

    thanks for the advice, love the website & that kudos widget is awesome!