After the recent announcement of Angellist Syndicates, there has been much discussion of the future of the venture capital industry and it’s potential disruption, and I have written about it previously as well. Some of the biggest forces changing the industry include: 1) startups have less need for capital then ever before because the cost of building a company has decreased, 2) Angellist has made it easier for any investor, including LPs themselves, to source high quality deals, and 3) getting access to the best deals has become quite competitive, and is extremely important given such a high percentage of VC returns are generated by the top decile of deals.
Many VCs are trying new models and value propositions to get access to deals and improve returns. First Round, A16Z, and a few others have operators on staff. Others offer connections or advice as their primary value add. While some, such as angel investors, simply offer money and get at out of the way.
It would be interesting to do some customer development interviews with the founders of the most competitive deals to see what makes them choose one VC over another. With less competitive deals, they probably don’t have much of a choice on who’s money to take, but with more competitive deals, founders will probably have some reason for accepting one VC’s money and not another.
Was it because of the in-house PR? The expertise of the Partners? Personal relationships with Partners? Do they value the operational support more than the actual money?
Understanding what the top founders see as being most valuable could help VCs improve their chances of getting access. As with any business, understanding customers’ (in this case founders’) challenges and what they perceive as valuable enables the firm to extract value (in this case equity).