VC's Don’t Need Branding, They Need Better Reputation

As I began to jot down my thoughts for this post I realized that generalizing what I’m noticing in the VC space would not represent reality accurately since crypto VCs and other tech VCs are so fundamentally different from each other. When a new tech wave emerges, now being Crypto, it has an increased susceptibility for scams as many try to hop on the bandwagon to reap whatever newly discovered gold they can. However, other general VCs have their fair share of lack of due diligence and can definitely be scammed too. For instance, JPMorgan fell for a $175 startup accused of fraud, and this was in the student loans space. But, there are overarching themes between the crypto VC and general VC space which is what I’ll highlight. I’d also just like to note that not all VC’s are like this, the strong successful ones are doubling down, and doing their due diligence (like they always have been). Additionally, the startups who have an actual moat and strong team will probably make it regardless. Although those types of startups and founders are few and far in between.

If you haven’t noticed, we’ve entered yet another lower stage of this bear market. For the crypto space, it seems that since the fallout of FTX the great fraud unraveling has just begun. U.S. banks’ trust for crypto companies' reliability is hanging by a thread, and rightfully so. Other VC’s are occupied by the new AI trend. Instead of learning from mistakes, and working on their internal works and processes, VC’s are still occupied with the glitz and show. This is exemplified in an article by “The Information” magazine that just came out for their weekend publishing called, “Screentime: The Tik Tok Creator Bringing Comedy to Venture Capital” where he states, “My thesis? I don’t know I’m trying to make money”. I think the title says all. In addition to Tik Tok, VCs are running around on other various forms of social media, primarily Tweeter, pushing around content in the hopes of getting followers and clout. I’m assuming that the end goal of this is increased inbound deal flow and cap table priority. They go as far as to pay for ghostwritten tweets. Of course everyone wants to achieve a brand name. VC’s such as A16z, Sequoia, Founders Fund, for instance, have shown their brand value power when founders choose who to let invest. If you have a name VC like the ones I listed as a lead, you’re bound to have other VC’s flocking in to invest. But, the difference between established brand VCs and newer ones is that the established ones’ strategy was not to post endless thought leadership content to achieve their brand, it was by having strong hits early in the game and tech wave they had their peak participation in.

Part of this new era of VC is the era of the VC organization. A VC is no longer just a person coming to write a check. Now, a VC is a company in and of itself where they’ve expanded to multiple forms of investing in addition to just investing in early stage startups. There are whole teams and divisions, including dedicated teams for research and now branding (although that is expected to be taken care of by the junior on the team). However, under the surface there is chaos and disorganization. What doesn’t sit comfortably with me is the way innocent founders get impacted by a VCs lack of clarity and mismanagement in their own operation. From my participation and observation of being in the space I would say that this is more prominently happening in VCs where there are a bunch of junior VCs, divisions who do not sync with each or work together to the full extent that a smoothly running organization is needed.

I am aware that most of the big VCs would prove to be sufficient enough since they make a decent amount of deals, many which have proven their success. However, I believe that the sunk cost of uncaptured innovation due to the way in which the VC ecosystem is currently operating is too great to ignore. VC’s keep talking about their value add to make them differentiate from one another, since they essentially offer the same “product”. In my opinion, the best value add is doing research not just for the hype or to put a bunch of logos on a slide, but for more specific use cases a fund is looking into. Of course an investor who used to be an operator might have one or two useful tips, but because markets are constantly changing each new startup has to fight new battles. Essentially, founders look for help from their investors when they need specific asks like having access to beta testers or access to customers. Value add as in access to resources other than capital (which is also sometimes necessary down the line, but that’s besides the point).

A VC claiming to have value add in terms of human capital doesn’t mean anything if their relationships and network don’t have much trust and they don’t have a good reputation for pulling through. Pretty quickly, you might hear from other founders and people in the industry (or your specific industry trying to raise) if a certain VC is strong to their word. So, the disruptor to the big name VCs who seem to have lost the one on one connections to their founders are micro funds and solo GPs. People operating as a small fund or just representing themself have a lot more on the line for their reputation. This is why their interpersonal relationships are a lot stronger, or if they’re not, at least they have a clear reputation for standing for something for one reason or another. A VC brand name might open a few doors, but between gaining access to individuals a smaller fund might not get to otherwise, standing by a real value add that goes beyond the brand name is a rarity only reputation can decipher.