What Kind of Value Do VCs Add?
In a short but controversial 2013 interview published in Techcrunch, former Sun Microsystems co-Founder and current Khosla Ventures managing partner Vinod Khosla contended that most VCs don’t add any value to the startups they invest in.
The problem with measuring value-add is that it’s mostly subjective. How much does a piece of advice weigh? Or an introduction?
To clarify the issue, we compared what Founders say VCs bring to them with what VCs declare they spend the most time on.
What Founders say VCs bring them
In a 2001 study that remains relevant to this day, an entrepreneur-come-VC asked entrepreneurs to rate how their investors were doing on a range of value-add elements.
What VCs think they bring Founders
Let’s compare these findings with a 2016 study asking c.900 VCs based in the US what they thought they brought to the table.
The percentages below represent what VCs say they do with portfolio companies:
- Financing, Advice, and Introduction: 70%
- Strategic Focus: 87%
- Hire employees: 46%
- Operational guidance: 65%
The apparent discrepancy is that, while VCs declare they spend time providing operational guidance, they score poorly on that item with Founders.
What is the most impacting value you bring startups in your portfolio?
💬 Let us know in the Comments section below.
👀 Sources & Additional Material
- Vinod Khosla: 70-80% of VCs Add Negative Value To Startups, on Techcrunch (2013)
- Dotzler, F. (2001). What Do Venture Capitalists Really Do, and Where Do They Learn to Do It? The Journal of Private Equity, 5(1), 6–12.
- Gompers, P. A., Gornall, W., Kaplan, S. N., & Strebulaev, I. A. (2020). How Do Venture Capitalists Make Decisions? Journal of Financial Economics, 135, 169–190.