Three Types of Venture Capitalists

Seth Godin, who I won’t attempt to classify, wrote a post a short time ago on middle-men and their declining value within organizations.

Here’s a piece of it:

Travel agents… gone.
Stock brokers… gone.
Real estate brokers… in trouble. Photographer’s agents, too.
Literary agents?

The problem with being a helpful, efficient but largely anonymous middleman is pretty obvious. Someone can come along who is cheaper, faster and more efficient. And that someone might be the customer aided by a computer.

Essentially, venture capitalists are middle men. Entrepreneurs are finally understanding that it’s not just about the name or size of the fund, it’s about the people within the venture fund. The wisest entrepreneurs are no longer flocking to brand name firms; they’re focusing their attention on pitching people. VC’s like Brad Feld, Josh Kopelman and Fred Wilson have proven that you can be (i) successful, and (ii) an entrepreneur’s VC.

Also, to be clear, an “entrepreneur’s vc” isn’t like a “player’s coach.” A “player’s coach” lets their team slack off. Player’s coaches simply want to be cool with their players. An “entrepreneur’s vc” cares too much about their team to let them slack off.

I’ve worked around a couple vc’s, either as an analyst or an entrepreneur. I’ve observed three types of VC’s:

• (i) The Arrogant VC: Late to the board meeting? Check. Laugh mockingly? Check. Demand a strategy be carried out? Check. Place new hires within the organization without consent of the entrepreneur? Check. Has never been an entrepreneur? Check. Really old? Check.
• (ii) The Sprinkler VC: This type of VC believes in one thing: effecient portfolio theory (or Modern Portfolio Theory). Essentially, he or she believes that a VC’s purpose is to sprinkle money around to as many companies as possible, with the hope of one hitting a home run. Usually this is found in the huge funds that can afford this strategy. They strictly see their purpose as being the money-men, and nothing else.
• (iii) The Entrepreneur’s VC: This type believes in adding value and treating entrepreneurs as partners. Most often, this type of VC has been a successful entrepreneur. At the very least, they understand your market inside-and-out, and will ask you questions that you’re secretly hoping they don’t ask–because it’s difficult to answer.

There’s probably a couple more types/characteristics, but these are the only ones I’ve worked with thus far.

According to Seth, here’s how these type of middle men add value:

Middlemen add value when they bring taste or judgment or trust to bear on a transaction that isn’t transparent. Literary agents are crucial when publishers believe that their choice of content is essential but have too many choices and too little time. But publishers don’t trust every literary agent. They trust agents they believe in. Key point: anonymous agents are interchangeable and virtually worthless. Agents that don’t do anything but help one side find the other side in a human approximation of Google aren’t so helpful any more.

If you’re an agent, what type are you?