Do VCs add value? 4 years later, the answer remains: sometimes.

VC = smart money. VC = value add. VC = helpful. This is how the VC industry markets itself to founders. But do founders really agree?

A few years ago, Henri Deshays (at Newfund), Owen Reynolds (then at University of Chicago, now Expon Capital) and I embarked on a project for Kauffman Fellows where we polled a group of VC and founders to establish if VCs really add value.

The headlines were clear: VCs think they add about 30% more impact than founders do, with similar gaps in perception across most other areas.

The startup world evolves fast, and four years later we’ve now gathered the same team and repeated the research to see what has changed.

We received responses from 71 VCs (76% early stage, 13% late stage and 11% multi-stage) and 88 founders (Stage: 96% Early (seed, A), 4% late. 65% EU, 31% US).

Perceived impact of a VC.

Similar to the last survey’s results, VCs overestimate their level of impact and helpfulness. Founders rate the average impact of their VCs as a mere 5.2, whereas VCs believe their impact to be rated a decent 7.1 — a 35% difference.

We decided to break this impact score down to better understand in which areas founders and VCs perspectives differ.

The largest gap in perception comes in recruitment — 69% of VCs think they’re making a real difference here when nearly 79% of founders state that VCs don’t. Big difference.

Similarly, with introductions and marketing, nearly three-quarters of VCs see an important impact, whereas only 44% of founders agree.

This is particularly interesting because, in the 4 years since our first study, the conversation about VCs offering operational support has only grown, with funds increasingly adding talent functions and portfolio support roles. Yet the gap in perception is widening. Living up to founders’ expectations (or VC promises) is difficult.

So what can VCs do to add more value in recruitment? Given that VCs manage multiple portfolio companies and need to spend time on finding new investments, founders can probably not expect every VC to fuel their recruitment funnels. Some can, but most cannot.

However, for key executive roles, VCs could go the extra mile by opening up their Rolodex, sharing experiences on how to best work with recruitment agencies, and most importantly jumping on calls with final-round candidates to push them over the finish line. Your investors can be your best cheerleaders.

On a positive note, one area both founders and VCs agree that VCs have a significant impact is on follow-on financing. VCs have a natural ability to help founders raise follow-on capital by for example connecting founders with the right people and funds, supporting on preparation materials such as decks and financial plans, and helping craft fundraising strategies.

Generally, what is striking about this chart is that some founders note their VCs to be critical across some areas, whereas others deem their impact insignificant. The range is wide. There are different possible explanations for this.

One could be the quality of the VC and their relationship with founders. There are many VCs who simply are capital allocators and only call the founders to yell when they get a negative investor update. There is also a massive difference in terms of relationship and network between the top and medium VCs. The ability for the VC to leverage their network for hiring, biz dev, fundraising, etc. can be dramatically different.

Another explanation is the natural cycles any founder-investor relationship follows; some periods, VCs roll up their sleeves, communicate daily and help a startup navigate through times of uncertainty. Other times, the company is smooth sailing and might not need or want help from their investors. Depending on when you ask the founder, the perceived value add may vary a lot.

At the same time, it would be unusual if founders thought their investors were key to their success in these fundamental areas, when they are the ones in the trenches day in and day out. In a sense, rather than looking at the findings as “VCs overestimating their value”, another way to look at it is: “founders rank VC impact somewhere in the middle to bottom of everything on their list.” Founders tend to themselves and realize their success is a result of their ingenuity, and not VCs paving their way.

This was confirmed when we asked in which areas founders want more help from their VCs. Fundraising is the clear outlier. Helping to run the biz comes much later.

So what do we take away from this? Clearly, founders and VCs need to have more discussions and alignment on expectations at the start of their relationship. This also means founders meaningfully DDing their investors to ensure the best match. VC referencing is essential for any founder raising. Quality VCs show their value both in good and tough times.

Most important factors when picking your VC.

We asked founders and VCs to rank what’s most important when deciding which VC firm to partner with. The top five reasons are the same for VCs and founders, but with some significant differences in weighting.

VCs realize personal chemistry is important but maybe underestimate quite how much. Founders rated it nearly 25% higher and made it number one on their list. Sector experience sees a smaller gap but is still much higher ranked for founders than VCs.

And most notably, VCs rank their brand and reputation as the most important factor for them, while founders only think of this as the 5th most important dimension. For many VCs, their brand is their everything. VC is a commoditized industry and your brand is typically what separates you from the rest. But founders care much less about it… Also, investment track record is deemed about half as important to founders as their investors.

We have seen tremendous increases in the speed of the VC/founder relations in the past couple of years. Investment decisions in 48 hours have not been uncommon to the dispair of many VCs. As such we see length of the relationship to be ranked at the bottom for VCs, and slightly higher for founders.

Frequency of communication.

When asked about the frequency of communication, 3x as many investors as founders said they communicate weekly. This might be explained through the frequency of checking in — investors reviewing their portfolio on a certain cadence, while founders think in terms of monthly reporting or even board meetings.

It’s also an area with natural fluctuation — a founder in crisis might need their investor heavily for a period, but only want monthly check-ins once things smooth over. This means the value of contact is much more important than frequency alone, an area we might want to explore more in the future.

Let’s also not forget: not all founders necessarily want their VCs to spend more time with them, particularly given how they perceive the values add. Time is everyone’s most scarce resource and indeed investors want to back founders who know how to prioritize.

The final word.

There’s maybe no more important reflection of how the relationship is going than asking whether founders would partner again with their VCs.

Thankfully, only 14% had an experience which means they would not take that VC’s capital again, and close to 40% would be more selective next time. Some mismatches are to be expected, and that’s 14% too many, but still good to hear for the nature of the ecosystem.

30% of founders truly believed their investors had been helpful, while nearly 20% were simply happy to take the capital because “money is money”.

Although the popularity of the “money is money” answer might be surprising to some that have been in this industry longer, it’s fair to say that the VC ecosystem has seen some shifts in recent years. New types of venture investing models emerged, one of the most famous being Tiger Global’s approach, which offers founders money with very founder-friendly terms with minimal involvement. For certain types of founders, companies, and funding stages this type of venture investing makes sense.

Maybe the answers above give us some of the “why” behind this. Most founders don’t feel they are getting value from their investors, even in areas like follow on rounds where they would hope to see specialized experience. They feel they can do better. And it’s not because they want to see an improved “brand and reputation” from their investors. It will come down to meaningful help in operational areas of their business that are impossible to miss.

The ultimate test of how helpful VCs really are is now upon us. The turbulent times ahead where everything is not straight up to the right will give founders the ability to really test their VCs. This will be a time when VC legends are created and legacies destroyed. Everyone, hold on for the ride!

Huge thanks to my brothers in arms Henri and Owen for their instrumental work on this. 🙏