5 VC Tribes And How They Approach Startup Investing

Listen 09.06.2021

5 VC Tribes And How They Approach Startup Investing

Kjartan Rist for Forbes Magazine

When pitching for venture funding, finding a partner who shares your vision and outlook is critical. With VC investments lasting for around five years, or even longer, choosing the right firm is akin to choosing a co-founder. You need to know that investors understand your business and industry, but also that you can work together and communicate effectively, through all the extreme ups and downs that startups face.

Fortunately, rapid growth in the VC sector and a greater diversity of skills and approaches means that it’s getting easier to find a partner that aligns with your business. These ‘VC tribes’ each have their own distinct style of working, which means they’re suited to different types of businesses and entrepreneurs. Understanding these tribes and each one’s modus operandi is a good place to start when embarking on your own fundraising journey.

Here’s an overview of five of the most common VC tribes – although I’m sure there are more – and what to look out for with each one.

The Historian – AKA The Accountant

With training in a structured profession, such as law, accountancy, or engineering, Historians love getting into the detail, from financial data to KPIs, or corporate governance issues. Normally more focused on what has already happened than thinking about future strategy, they are the most risk-averse of all VCs, attracted to de-risked propositions with a clear path to profitability. They are likely to clash with the most visionary entrepreneurs, who care more about rapid growth and ‘changing the world’ than the nitty-gritty of running a business. However, their more ‘hands off’ approach means they could be a good fit for those who like to be left to their own devices.

  • Interested in: De-risked propositions
  • Approach: Hands off
  • Communication style: Rarely

The Deal Junkie – AKA The Investment Banker

It isn’t unusual for investment bankers to transition into VC, and you can spot them by their laser focus on doing deals and transactions, over and above the operational details of running a business. That doesn’t mean that they can’t add huge value though, with an intuitive grasp of market trends and sentiment, which can help startups gain market share and grow fast. This tribe knows how to acquire companies, raise additional capital, and enhance value. In contrast to Historians, Deal Junkies work best with founders who move fast and take their chances. And don’t expect them to stay quiet, as they’ll be on the phone regularly with their latest insight or potential opportunity.

  • Interested in: Potential unicorns
  • Approach: Actively, lots of interaction
  • Communication style: By phone

The Dreamer – AKA The Entrepreneur

Successful entrepreneurs increasingly turn their hand to VC, with the benefit of having been on the other side of the table and understanding how entrepreneurs think. But these natural dreamers often revise their romantic view once they have a portfolio to manage, and it’s their own cash on the line, realizing that investment requires a shift in mindset. Dreamers work well with other ‘true entrepreneurs’ who are in it for the journey, not the destination, and with whom they can share their lessons and experience. They will steer clear of founders with a more pragmatic outlook, or who are focused on the end game rather than the process. But if the chemistry is right, they can be a huge asset and supportive force.

  • Interested in: Born entrepreneurs
  • Approach: Supportive
  • Communication style: As and when needed

The Product Maniac – AKA The Scientist

The most technically minded of all VCs, Product Maniacs are ex-scientists or engineers who put the quality of the product and technology above all else. This means that they are excellent at spotting technical flaws, or where founders may have embellished a product’s capabilities. However, their product obsession can mean they have blind spots in other areas, such as understanding big picture trends and market momentum and may clash with founders who take a less perfectionist approach to product readiness. Naturally, they like to work with other technical and product minds, who love refining and iterating new features and modules, as well as in businesses where deeptech or extensive R&D are involved.

  • Interested in: Great products and technology
  • Approach: Manage the product not people
  • Communication style: Aligned with product sprints and launches

The Activists – AKA The Career VC

A more generalist breed of investor, Activists love to get their hands dirty, by working closely with founders and adapting their support to the needs of the startup. Without a specialist focus area, or a single core skill internally, their USP is their Rolodex, containing an extensive network of contacts, to whom they can connect entrepreneurs when needed. They rely on working with founders who are open to communicating their challenges and honest about where they need help or have gaps in their skillset. Those who don’t like this kind of transparency and ongoing input could find themselves in uncomfortable territory.

  • Interested in: Growth cases and well-balanced entrepreneurs
  • Approach: Active and flexible
  • Communicate: Constantly

There is no right or wrong way of approaching VC, just as there is no right or wrong way of building a successful business. All tribes can be effective, but it depends on the underlying opportunity and the needs and preferences of each startup. That’s why extensive due diligence is so important for both sides, before drawing up terms.

And this due diligence will only become more important as we see more specialization emerging across the sector. The next generation of entrepreneurs will have even more investment options, and VCs will need to work harder to differentiate themselves. Partnership and adding value will become even more important. Startups must be demanding, and only move forward once they’ve found the tribe that works for them.

Original Forbes Article