Why VC is a business of Customer Service

At any point of time, there seem to be enough opinions and analyses about what makes an entrepreneur or his business attractive to Venture Capital (VC) investors.

Take Mark Suster’s excellent post on Entrepreneur DNA for instance, which calls for entrepreneurs to clear a very stiff gauntlet of demanding tests, to be considered worthy of being called an entrepreneur.

And yet, there is precious little information to answer another question which has co-existed all along:

What makes certain VCs better than others?

I propose answers to this critical, and yet almost unknown facet of the mating dance between entrepreneurs and VCs.

Answers that seem to point to the possibility that the best VCs are the ones who treat their “customers” well. First things first, who are a VC’s “customers”?

In a dipstick test done by Larry Cheng on “Who is the VC’s customer?”, about 85% of the respondents (Interestingly, the group of respondents included several entrepreneurs, but no VCs) said that the VC’s sole customer is the Limited Partner (A firm or an individual who invests in a VC fund).

More revealing was the fact that not a single participant in the survey said that the entrepreneur is the VC’s principal customer.

One would assume that if entrepreneurs are the VC’s customer, entrepreneurs themselves would know about it.

Might the observation that not a single entrepreneur considered themselves the VC’s principal customer be attributed to the possibility that most VCs do a terrible job at taking care of their customer (The entrepreneur)?

For the most part, the perception that there is a huge skew in the power balance between VCs and entrepreneurs (In favour of the VCs) runs very deep.

The truth though is that without entrepreneurs, VCs would be out of business.

More profoundly though, in the case of the best entrepreneurs, they are always free to choose another investor that takes better care of them.

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The revelation is surprising and yet hard to refute: Entrepreneurs are VC’s customers and therefore, deserve (Maybe even demand ?) excellent customer service.

Borrowing from Suster’s piece, what are the qualities that make up the DNA of a truly customer-focused VC?

This post offers a primer on some of these traits:

Approachable & Responsive
It is perhaps every entrepreneur’s greatest pet peeve: VCs either don’t reply to emails or take too long to respond.

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On the other side of the table, it needs to be appreciated that VCs get a LOT of email. For instance, Ted Serbinski estimates that he gets nearly 100,000 emails a year.

For most people, that translates to an email almost every minute while they are at work.

For a VC, it is a daunting task to go through every mail and provide a detailed response within a reasonable turnaround time. And yet, there is no other way for a VC to make a great first impression and (possibly) close the sale.

Much like in the case of McDonald’s & Dominos’, service delivery and turnaround time are not only critical to maintaining the VC’s brand ethos, but if done wrong, can result in the loss of a customer and create negative word-of-mouth.

The time and the effort that goes into timely and well-written email responses is well worth a VC’s investment.

[BRB, clearing some more emails that have been pending for a while]

Knows the Customer

Companies that have mastered the art of customer service have been able to do so because they have identified just who their customer is, and, just as importantly, who isn’t.

The same is true in the context of VC firms : They need to know their focus sectors / business areas, preferred ticket sizes, and stage at the time of entry. Entrepreneurs and ventures that remain excluded thereafter, are by definition, not the VC firm’s customers.

Wait, surely this is too trivial and obvious a matter to even be mentioned?

But if that were the case, why do so many entrepreneurs end up receiving responses such as:

“This space is not of interest to us”
….after weeks of diligence ?
A good VC knows how to quickly and efficiently say No when an opportunity doesn’t fit the firm’s investing interests.

Not doing so wastes a lot of time and creates unnecessary clutter in the mailbox.

Offers Relevant Feedback & Adds Value
Being an entrepreneur is hard enough, without having to hear what is passed off as “feedback” in many VC conversations, and then keep a straight face.

One of my favourite entrepreneurs told me about how during one of his meetings with a VC, the VC “took the whole of 30 minutes to tell us that our company name will never work. Why ? Because it has more than two syllables!”

Perhaps there exists a study out there which has established a correlation between the likelihood of a startup’s success and the number of syllables in its name.

But even if that were the case, every VC owes an entrepreneur some feedback, either on how he could improve, or on why he chose to decline the investment opportunity.

It is a responsibility that continues to apply in even greater effect if the investment is consummated, especially over board meetings and other reviews (No, pseudo-intellectual one liners used in B-Schools or consulting firms do NOT count as feedback).

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(BRB, need to work a bit more on a sector to be able to give real feedback)

Becomes your greatest Cheerleader
The popular portrayal of the entrepreneur-VC relationship is one where the VC is, by some distance, the dominant partner in the relationship.

The reality though is that the natural dynamic of the relationship implies that the risk-taking and fearless entrepreneur takes charge, and the VC supports and nurtures the business, especially during its tough times.

In other words, the VC needs to become the Cheerleader for the business.

When I had a chat with Sachin Bhatia, Co-Founder of MakeMyTrip & Co-Founder of TrulyMadly about this, his views brought home an under-appreciated truth:

‘Though the colour of money is the same, only one thing differentiates a great VC from all the others in my mind: will they support the venture and founders during tough times? Every venture will go through a bad phase, especially when it comes to raising a round of funds. As an entrepreneur I need the comfort that the VC will be good with the support needed to swim through these rough waters.”

Marc Andreessen doesn’t disagree:

“You spend most of your time actually dealing with your companies who are struggling and trying to help them. Because it’s the companies that are struggling or failing that actually need the most help. The companies that are succeeding are generally doing just fine without you. The companies that are failing are really the ones that need help and support. And so a lot of what you end up doing at the job is supporting struggling entrepreneurs. It’s kind of continuously humbling. You are a trouble shooter. There’s always something going wrong. Psychologically–we talk about this with our partners–you have to be psychologically prepared for the opposite. It seems like it’s going to be a life of glamor and excitement. It’s more of a life of struggle and misery. And if you are okay with that–because it’s part of the package–then the overall deal is pretty good.”

So the next time you find yourself in an investment pitch meeting, whether as an entrepreneur or as a VC, remember that both sides are evaluating each other’s attractiveness, and there is only one chance to make a strong first impression.

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