How do founders choose seed investors? It's personal.
Back in 2016 when I started my own startup, we were fundraising the first time and going on a roadshow on Sand hill road. After pitching to the first few firms, we were excited to hear all the amazing things that investors are offering, such as CXO advisory panel, talent and market platform, connecting within portfolio founders, etc. However after talking to 10-20 firms, it becomes less and less obvious how one firm differs from another. In the end of the fundraise and looking at the term sheets we got, after rounds of discussion we can only conclude that we can’t compare the firms apart anymore, it’s really about the individual partner that we will be getting to work with that seems to matter.
With the seed funding scene today, rounds are becoming more and more competitive and founders increasingly are seeing a lot more options than they did before. After talking to many founders that raised their oversubscribed seed round, asking them “Why did you end up with these institutional investors in the round?”, there will be an array of reasons like the portfolio/thesis or ownership sensitivity, but the bottom line reason has always been “Because we just really like that partner”. It wasn’t the fancy office or amazing CXO panels, it comes down to the person that the founders is looking to work with.
The next question obviously is, why do founders prefer one partner over the other? I don't think there is a clear answer as every founding team has their own preferences and desires when it comes to options. For a lot of founders, the opportunity to work more closely with iconic investors can be very attractive. And for others, if the investor is an operator turned investor then the background of the investor could be more beneficial or aligned with the company's space. Fundamentally, I do believe at the core regardless of how iconic the firm or partner is, the founder is still have to ask themselves the question, "Can I see myself enjoy working with this investor throughout the company life-time?". And to for founders to answer that question, it becomes very personal.
My true belief is that the partners not just looking at a founding team and think about the returns/risks/work involved, but actually genuinely care about the people which is the founders themselves will be part of the brand that will show through.
Part of the reason that led to start Essence fund, is that I think the term "founder-friendly" which is most common used word in VC websites is often not truly displayed. A lot of partners could be the most "founder friendly" when it's fundraising time, but act and behave differently once the deal is closed. Or showing a lot of love to certain teams that perform the best but desert very quickly the ones that doesn't. Or watching their phones majority of the time during pitch meetings, overselling a lot of promises but doesn't quite deliver in the end, it all conveys a strong message to the founders who the person is. I've seen all these behaviors in the past either during my fundraising time or in the journey of helping other teams.
My hope is that for Essence, besides focusing on helping technical teams building enterprise companies, one key value that I hope all partners in Essence now and in the future will share is the genuine care of the people behind the company. As a lot of people as noted that VC business is essentially a customer service business, the ones that actually care about the customer will show.
