Tuesday, May 28, 2013

VC Whisperer Thought #5: VCs and Entrepreneurs Need To Smarten Up and Hire Investment Bankers

VCs and entrepreneurs need to smarten up. You aren't good at everything, you don't have infinite amounts of free time, and you don't know everyone.

So why is it that both VCs and entrepreneurs feel they are particularly well-positioned to spend all kinds of time raising money? Why are both groups so allergic to investment bankers?

Does the CEO of a startup do all the coding and UX work himself? No, he hires experts to do the work for him. Since when did it become the CEO's job to spend his time on the road meeting with investors? That's downright negligent in my opinion. And it is even more negligent if the VC encourages this behavior. The entrepreneurs I back should be focused on building their business, not running around doing tasks for which other people are much better equipped.

Granted, the founder of a startup shouldn't be hiring bankers to raise those first couple rounds of financing. It's helpful to do that yourself. You refine your pitch, you get great feedback. But once you're at the point where the business is raising $10M+, why wouldn't you bring in experts for help? Why wouldn't you offload a lot of the grunt work required to make such a financing successful? And why wouldn't you expand your own network by paying for someone else's. The time saved that you can then use to grow your business is invaluable. And if you're the VC who thinks you can play investment banker for your startups and make introductions, then I'm sure glad I'm not your LP, because clearly you've lost sight of what's important - finding and getting into great deals, not going on roadshows with your companies.

The stigma and aversion to investment bankers in the VC/startup world needs to end. In fact, the best VCs and their most successful portfolio companies often use investment bankers on a regular basis. I've worked with some of them. Smarten up people. Stop thinking you can do everything yourself, and even if you can, it's not a good use of your time.

VCs and entrepreneurs shouldn't be spending all their time raising money.
Leave the financing work to the financing experts - investment bankers.
Don't assume you can or should do everything yourself.

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