The VC industry is broken. We know this because we’re part of it. This is why we decided to take action and ask the startup ecosystem to voice its opinion on the traditional venture capital sector. We call it Change.vc – the movement created to shake up the old establishment and regenerate the industry to serve entrepreneurs and not the other way around.
The change.vc survey was filled in by over 570 respondents, made up of 300 entrepreneurs, 160 VCs and approximately 110 private investors, experts, advisors and startup enthusiasts.
So here comes the reality check: venture capital needs to change. Now it is time to roll up our sleeves and start the change. Both entrepreneurs and VCs agree that the current venture capital offering is not good enough; investors’ arrogance and their lack of transparency, time and consistency, are just some of the reasons why. 85% of the entrepreneurs say that venture capital needs to change, 75% of VCs support that statement.
If you think that entrepreneurs would recommend VC financing to a friend or a colleague, you are wrong! At least 70% of entrepreneurs would tell you to stay away from venture capital. Their level of discontent is very high with a Net Promoter Score (NPS) of -64. NPS is used to measure customer loyalty and can be anywhere between -100 (everybody is a detractor) to +100 (everybody is a promoter). We asked VCs the same question and we found out that 30% of them would recommend VC financing to others (NPS of the VCs is +3).
More than 60% of asked entrepreneurs say that their experience with venture capital is far from positive: “They’re all very much the same, say the same thing, and expect the same pitch, kind of like lemmings all searching for the new Uber – though I’m rather sure Uber v.2 would not have that much impact on the world”. This is just one of the comments which entrepreneurs submitted in the survey. Well, it does not sound too good, does it?
The truth is, pure investment capital has become a commodity. VCs need to understand that it is not only about the money. 54% of the entrepreneurs want VCs to start adding more value to their portfolio companies, beyond financing and board seats. Some 54% of them are afraid of being kicked out of the driving seat by a VC investor and doubt that their interests are aligned with those of the VCs. 45% of surveyed entrepreneurs state that VCs need to be faster and more transparent in their decision making process.
Since we know that there is more to it than just money, we wanted to understand what kind of added value entrepreneurs are looking for. More than half of them agree that they could use a helping hand in finding contacts for further fundraising (57%), strategic guidance (53%) and business development intros (51%). It looks like operational expertise (27%) and talent intros (23%) are not their main priorities.
After learning all this, it shouldn’t be surprising that venture capital is not the entrepreneurs’ first choice when they fundraise for their startups (71% would ask for VC money, whereas 87% would rather work with angel investors).
When asked what is the most important factor they take into account when choosing a VC, entrepreneurs could say it louder but not clearer. Top of the list are shared values and no headaches. So if a VC’s work ethics match the entrepreneur’s ethics, it’s all good. They also look for an easy and smooth partnership with a VC in terms of processes, paperwork and conditions. And no, brand name is not the key factor – only 5% claim that a VC’s track record and brand name is most important to them.
Digging deeper into the data, we have learned that liquidation preferences cause a big headache to entrepreneurs (70%). Other difficult clauses entrepreneurs struggle with are veto rights (55%), and drag-along and vesting clauses (both 26%).
And, by the way, VCs can leave their ties at home. Over 95% of the entrepreneurs agree that they would prefer to work with a VC dressed in casual or business casual attire. We asked VCs about their preferences and it looks like 97% would rather go for the business casual/casual look as well.
There you have it! Dear VC friends, it looks like we have a lot of work to do.
Launched in November 2015 – Change.vc is an international call to action movement powered by ACTIVE Venture Partners in partnership with Tech.eu, Unquote, Global Corporate Venturing, Foundum, Deutsche Startups, ArcticStartup, VCStartups, Rude Baguette, Loogic, Novobrief, Challengers, WhiteBull, Hamburg Startups and Barcelona Tech City.
It is targeting the entrepreneurial community and all other stakeholders of the startup ecosystem who want to participate in changing the venture capital industry together. The aim of the movement is to identify the pain points of entrepreneurs with respect to the current VC offering through a short survey and propose changes that lead to a new generation of VCs. www.change.vc