6.22.11 by Dov
Interesting post from David Cowan at Bessemer. In it, he explains why entrepreneurs seeking venture funding should prefer to pitch to an associate, rather than a partner, the first time they meet with a venture firm. I completely disagree. Heck – we don’t even have an associate at Allos.
His argument comes down to two points:
First, the partners are busy helping their portfolio companies and fundraising, so if they only invested in companies for which they attended the first pitch, many entrepreneurs would never get a chance to pitch at all.
Well, perhaps. But by my count, Bessemer has raised $3 billion since 2009 (call it $1 billion a year), or a bit over $60 million per partner per year. They’ve also made nearly 80 investments (5 per partner) over the last 12 months. So, yeah, I guess they’re busy with their portfolios and fundraising.
There is another way, though. Just as a counterpoint, at Allos we have far less capital and far fewer investments per partner (roughly 90% less of each). We may not be making as much money off of the management fees our investors pay, but it works for us, and it lets us spend far more of our time working with each of our portfolio companies, as well as meeting new entrepreneurs.
Second, he argues that the associates are smarter about new market spaces than the partners, because the partners are so busy. So, you’ll get better feedback as an entrepreneur from the associate than you would from the partner.
Seriously? But, the partner is who you want on your board? Are they planning to do a crash course on your market after they invest? This strikes me as so illogical that I’m not sure I have much more to say.
Look – I certainly don’t want to be setting up a comparison between Bessemer and Allos. They’ve been around for decades and are, by all accounts, one of the most successful venture firms in the world. At the same time, I think time will show that the Allos approach can work for our investors – and that it can be beneficial for entrepreneurs… even the ones we don’t invest in.
Disclaimer: I actually suspect that much of the source of this disagreement is the difference in the investing environments between the Midwest and the coasts. Because the number of startups on the coasts is so much greater (and all of them are probably sending their business plans to the same 30 investors), each venture firm there is going to see dramatically more deal flow than anyone in the Midwest. So, I suspect that our model just won’t work for a firm like Bessemer. At the same time, I’m not sure that pretending their approach is better for the entrepreneurs is really the answer, either.