What makes a good VC

High-quality entrepreneurs need high-quality investors.

I don’t claim to speak for “founders” generally. These are my personal reflections. I am an entrepreneur with a history of failed and successful bootstrapped companies, and now a VC-backed company. I’ve met at least 500+ angel investors and VCs professionally in my life.

Just as investors need to find quality founders/companies, founders need to find high-quality investors. I begin with the premise that this isn’t easy to do. There are VCs everywhere, and they mostly present the same way and say the same things.

So it’s not easy to find the signal amongst all the noise. VCs have this problem when meeting with founders, but the problem is just as salient for company founders going the other way.

But I can say from experience that having the right VC in your network can make a huge difference. We are lucky to have one or two really high-quality investors who have become instrumental to our progress as a company (you know who you are).

Founder-VC collaboration is a beautiful thing when it happens. So what are some signals of a “high-quality” VC from a founder perspective?

It’s difficult to get a VC’s attention, and it’s often even harder to keep it. Investors have to meet a lot of people and as a result they often ”parallelize” instead of “serializing” — habitually scanning for external opportunities, even during one-on-one conversations. This is especially apparent in face-to-face meetings at events, where you can see this happening directly with a lack of mutual gaze.

Being present in a meeting, listening with attention and exclusive engagement in conversation are excellent signs for an early VC contact. Usually this comes through even from an online meeting. That kind of engagement leads to deep exploration of issues. It may be a short meeting, but the quality of such an attentive encounter is fundamentally different.

I think back to our seed round, and a few meetings stand out in this way for being characterized by deep attention on both sides. It’s no accident that those are the investors who have come to be close to us.

There is an asymmetry of information flow built into the dynamic of founder-VC communications. Founders are in a naturally open stance knowing that they’ll be asked to share material aspects of their company as well as to share intellectually and emotionally. VCs are typically less forthcoming, or perhaps they just don’t get asked as often.

This opacity is damaging to relationships. For example: in this market, many funds are not allocating capital at all but continue to play out patterns of fundraising meetings without making this clear to counterparties. That is immensely frustrating for founders, but since the costs are asymmetric that may not be apparent to VCs.

Generally I am surprised how few entrepreneurs are in the habit of asking questions of investors. A VC who openly shares information is worth his or her weight in gold.

My favourite VCs — ex-entrepreneurs who have built their own companies. That’s probably setting the bar too high. But it does strike me how many investors only hang out with other investors. It’s great to meet a VC who has had a diverse career and maintains diverse networks. They bring stories and experience, and you know they can interact effectively with different kinds of people.

Conversely, it’s hard to connect to the super analytical “quant” type of investor. They are alienating. Unfortunately sometimes the front-end of VC funds are these kinds of analysts.

Very few people talk about “founder-VC collaboration”. The dynamic between entrepreneurs and VCs is captive to legacy patterns. There can be a meeting of minds at the intersection between capital and innovation that is magic — I know, because I am experiencing it.

But the companies of the 2020s won’t be built the same way as in the 2000s. All industries evolve by invalidating old assumptions and creating new models, and venture capital is the same. I hope we can make quality collaborations between founders and VCs much more common.

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