The venture capital industry is less transparent today than at any time in recent memory.
For all the talk about expanding access and improving its sordid record on diversity, in reality, it has never been harder for founders to figure out who can even write a check to their startups in the first place.
When I first returned to TechCrunch after my second stint in venture capital, my first piece was entitled “The loss of first check investors.” While working in the venture capital industry, it was maddening to see — particularly at the pre-seed and seed stages — how few investors were really willing to go out on a limb and invest in founders before another VC had committed a check.
It’s only gotten worse in the past two years since that article, and the complexity comes from a number of different places. As our investigation showed more than a year ago, fewer and fewer venture rounds are being announced through SEC Form D filings.
There are almost no publicly accountable datasets left indicating who is writing checks in the venture industry and which companies are receiving those checks. While stealthiness is valid in the early days of a startup, the excuse wears thin after years.
The growth of the VC industry has further complicated the picture for founders. Firms that might have had six general partners in the past have grown into firms with three managing general partners, nine managing partners, 15 partners, six venture partners and a passel of principals and associates (and that’s not even including the whole operating platform wing of many venture firms).
As firms increase their assets under management (AUM), more and more of a partnership’s time is devoted to their own fundraising and relationship-building. Some prominent individual VCs spend almost all of their time securing new LP capital rather than actively investing. That’s not very helpful for founders seeking a seed or Series A.
Worse, many supposedly active investors have no recent evidence of new investments. As reporters, we have regularly run into these “zombie VCs” who supposedly do great deals, but can’t admit to a single investment made since 2016. It’s annoying as a reporter, but as a founder, zombie VCs can suck up bandwidth and attention that are better spent on more active investors who might actually write a check.
Even when investors write checks, they can be strangely hesitant to just say it. More and more firms list the names of individual portfolio companies under multiple investors or sometimes an entire team of investors. Many VCs no longer want to attribute a deal to anyone — deals apparently just “happen” by a firm with no lead. It says a lot about a venture firm and its individual partners when no one wants to take responsibility for their own investments.
Finally, we regularly talk to VCs who argue that they are focused on “consumer apps, enterprise, digital media and occasionally biotech/health.” What does that even mean? That’s not a focus, it’s a nothing-burger.
In short, who is actually in charge? Who can lead a deal? Who gets stuff done for founders? What do any of these titles actually mean anymore? What do any of these investors even think about these days? Who leads in individual verticals these days?
These activities create toxic externalities for the rest of our ecosystem. Founders have to spend more time fundraising with a longer list of names in order to ascertain exactly who can actually commit to a round. We recently spoke to a founder who closed a seed round after talking to more than 200 investors. Their takeaway at the end? “I really just wish I knew then what I know now.” Specifically, that the vast majority of those investors were never going to be helpful.
We created Extra Crunch to give founders an edge on what’s happening in the industry. We do that through tactical posts on areas like growth marketing, immigration and product development, but the most important category (based on feedback from our own members) is fundraising. We constantly get asked how to fundraise better, how to design better pitch decks, and how to craft a narrative that ultimately is going to lead to a term sheet.
Yet, the most important fundraising questions we are asked are simple: (1) Who leads deals? (2) Who is thinking about investing in my space?
We are increasingly solving the latter through our EC surveys, where we go out and talk to a dozen or two investors about what they are funding these days in specific industry verticals. We run these frequently to stay on top of the latest changes in each vertical, and it helps our readers understand up-to-the-minute what VCs are thinking about when it comes to topics like space tech, or real estate tech or consumer brands.
Yet, the other question has proven trickier. We really don’t know who wrote the first check into a round of funding or who the investors are who really catalyzed a round and helped early-stage founders get to closing. It’s an enigma, and the opacity is costing founders time and money as they fundraise from people who never intend to write them a check in the first place.
And so today, we are announcing a new project under the auspices of Extra Crunch called The TechCrunch List. We are seeking information from founders on who wrote the first checks into their companies and want to share that intel with the whole world.
If you are a founder and want to contribute, please fill out our very short survey.
Our goals are three-fold:
- We want to help founders separate signals from the crazy noise of the venture world. Who really writes checks into startups these days and is willing to stand in front of the pack? Who are the leading investors in individual verticals?
- For VCs, we want to shine a spotlight on the ambitious dealmakers who write those lead checks and help push startups to greatness. A lot of investors “lead from behind” and we want to give credit where credit is due.
- We want to level the playing field in an industry that is sorely lacking in representation. Anyone can be first in. You may not have the largest check, and you may not even be the “lead” investor listed on a round. But anyone can be the first to say to a founder “I believe in you, and I’m ready to wire.”
Importantly, The TechCrunch List will not be a ranking of investors within a vertical by some arbitrary metric of performance. Instead, it is a positive endorsement of investors who have shown thoughtful activity within specific industry verticals.
Our hope is that resources like our VC surveys, The TechCrunch List and more to come can propel more founders from all walks of life to build great, sustainable startups that change the way we do business and organize society.
The VC industry is always evolving, and we are going to have to evolve along with it. Help us help you and the many thousands of other founders looking to make their dreams a reality.