The venture fund world has had a metamorphosis since I started investing. Super Angels started writing very large checks. Micro-VC funds started up. More and more angels entered. This is not a bad thing. More capital gets more startups humming and gives innovation a chance to breathe.
However, it’s important that everyone know their role and everyone be cognizant of it. They say that you should “be present”. That applies to investors too. It’s important for them to know their role. Knowing it helps them become better investors and helps the company.
A lot of investors think that when they write a check, they deserve the exact same rights as institutional capital. Just because I write a check that doesn’t mean I deserve a board seat. As an angel it doesn’t mean that I deserve the preferences that come with institutional capital. As a Micro-VC, I won’t get the pomp and circumstance that accrue to the Series B investors. As the company progresses, different investors get to sit in the front of the bus. To be clear, the entrepreneur always drives.
At West Loop Ventures, we are very aware of the role we play. We invest very early and get companies from point A to point B. Then our strategy is to hand the baton off to the next level investors. As a $30M fund, we can only do so much. That actually helps us as investors because we can be very transparent to the marketplace, and to entrepreneurs about what we do.
When I was angel investing, it was something I had to learn. Once I figured out the cadence of investing, and how much of a difference I could make, things came together. For example, once you know your check size and the stage you invest at, you know where you will invest. I remember looking at a deal where I had been a seed investor. It was now at $40M. Does it make sense to write a check at that level? It’s sort of like dumping warm water in the ocean to cool it down.
The bigger funds can play all the way through the cycle. But, they can’t play in every single deal. They rely on micro-funds and angels to bring them deals. I see our funds role as getting companies ready to take on investment from the larger VC funds. It’s important for smaller funds to build trusting relationships with larger funds-which is one reason I am in San Francisco today.
If you aren’t understanding what I mean, it’s sort of like the evolution of a player and their coaches. The parent that teaches the kid how to play is the angel. The middle school/high school coach is the Micro-VC. The college and pro coach is the bigger VC. When it works and everyone understands their role the player can make the Hall of Fame. The more players that make the hall, the better it is for the coaches.