The Three Roles Of A Venture Capitalist

Over a 25-year career, I've had the good fortune of investing across a broad spectrum from seed-stage companies to leveraged buyouts. One of the reasons I do what I do at Amasia is the realization that my skills, such as they are, and more importantly my interests, are around investing at an earlier stage. This usually means pre-Series A to Series C.

The nomenclature is increasingly blurred -- there is a new blog post every week about how "seed is now the A" and "the B is now the C" and "the F is now the IPO" and "the IPO is now the take private" -- and so a better descriptor might involve company headcount. For me, pre-Series A to Series C usually translates to companies with between 5 and 100 people.

At this stage, the relationship between the VC and the founder(s) is central. But as an active investor, especially when you serve on a company's board, your role isn't one that lasts for a couple of months. It can last for years -- in some cases for well over a decade. And the role changes quite a bit over time.

As I see it, a VC's job falls into three buckets: 1. Cheerleading; 2. Helping to solve problems ("adding value"); and 3. Holding management accountable. The mix between these changes as companies grow. At the seed stage it's mostly buckets 1 and 2; at the Series A stage it's more of bucket 2, some bucket 3, and a fair dose of bucket 1; and at the Series B stage and beyond, it mostly bucket 2 and 3 with a bit of bucket 1.

I've found over the years that I need to think more intentionally about how to evolve the relationship as a company and a management team evolve. This is a transition that is quite difficult for a VC investor; it's certainly been difficult for me. I'd say I've gotten it right no more than 20% of the time. What happens most of the time is that there is a less-than-perfect transition in the mix between the three buckets, there is turbulence to varying degrees, and then a new equilibrium is reached.

The "best" founders, in my experience, also see the need for a transition as their company matures (in all respects, not just the relationship with an involved VC). This makes everyone's life easier, as we're all then pulling our oars in the same direction.

There is another approach: to let a new lead investor, coming into a later round, play the role in bucket 3. This is quite common, but I feel it amounts to shirking a responsibility. Part of my job is to prepare the company and the founder for a more professional board and company environment. A dynamic in which an earlier investor is the perceived cuddly one and the later investor is the perceived schmuck is a terrible dynamic.

There are many variations on this theme, including the inverted sequence where it's the early stage investor that's been much more focused on bucket 3, leaving a bruised founder(s) who's understandably dying to get to a slightly less prickly investor landscape. But in all scenarios, there is a transition in the VC investor's role as a company matures, and it's rarely straightforward.