Sword making of a founder: What’s the value of value-add?

For anyone who’s been hiding under a rock: there’s way more VC money (supply) looking for startups (demand) than startups looking for VC money. When there’s excess supply, suppliers try to differentiate.

A typical Seed-stage VC pitch (yeah, who’s pitching whom now?) to founders they try to close now revolves around how much they know about the startups’ domain. They talk about their extensive network within that domain. They go in-depth about how helpful they will be in defining their product and handholding them to their first customers. How they KNOW what their sales model and pricing must be. They throw in (smoke and mirrors?) TLAs such PLG, CAC, LTV, CLV, CARR, TCV, NPS, SDR.

The grand finale is being expressive about how their “value-add” is so much better than the other VCs’ “value-add.”

How wrong that is!

Axiom: no one knows it all; no one is always right. Truths, and finding them, take blood, sweat, and tears. The road taken to find them is essential. DeusEx Machina existed only in plays in ancient Greece. If your VC knows more than you do about what you should do, you’re both in the wrong place.

Hattori Hanzō swords (and exceptional founders) go through fire and hammers hammering for their phoenix within to arise.

It is going through the struggle, getting to the other side, that shapes founders. Figuring out what their product should do, is often painful and continuously iterative. It has no shortcuts, and no VC can do that for them. Figuring out who their customers are, and at a deeper level, their customers’ persona (because there’s always a person there) takes effort and a very nuanced ear. Getting customers to use their product, then pay for their product takes time and is a prerequisite for all following steps. “Charge more” is a truism, but internalizing that can’t be done through advice alone. Timing doing that must me be tuned. It’s all part of learning, failing, getting back up — forging the sword.

No “value add” Seed-stage VC does that for Seed-stage founders.

That doesn’t mean excellent Seed-stage investors with domain expertise don’t offer shortcuts on all the above. However, if the founders can’t do without their investors doing that for them, all parties should have serious reasons for concern.

I believe there is meaningful value a Seed-stage VC must provide to Seed-stage founders. One that is always true irrespective of what that startup aims to solve.

These are valuable things that stand true to all Seed-stage startups, agnostic to their domain. Capital aside, they are 1) advice on topics she knows about; 2) mental and emotional support; 3) perspective and challenging questions to reduce blindspots; 4) reflection on company building steps: budget, hiring pace, candidates (and how to interview those from disciplines the founders don’t yet know well), reasonable run-rate and when is the right time to accelerate, good (and bad) signs of progress; 5) priorities; 6) board management. It’s never too early to set the tone: only the founders run the show; 7) help zero in on the milestones required for the subsequent funding round; 8) intros to great follow-on investors when it’s time.

p.s. Later-stage VC funds (especially those focusing on a relevant vertical) offer other concrete values. However, this is useful only after the founders know who they are, where they’re going, and the asks that will help them.

p.p.s I’m biased against domain-specific value-add (whatever that means). Throughout my career as a Seed-stage investor (the very first investor in almost all), I knew close to zero about their domains— but have known plenty about how uniquely exceptional these founders are and what it takes to help build their companies.

Shout out to my TLV Investor Partners investments: Aidoc, Buidoots, Canopy Immuno-Therapeutics, Deepcure, EverAfterAI, Granulate, Guesty, Hunertz, Solvo, Immunai, Odo, Scylla, Silverforth, Odo, Unleash, WithBond, Stealth-1, Stealth-2