Want Less Intrusive Venture Investors? Go to Europe

There is a funky study out in the Journal of Entrepreneurship Theory and Practice (one of my favorite unintentionally funny journal names) on differences in venture capital firm influences in the U.S, Europe, and Asia. The following data table caught my eye, where it shows that U.S. VCs spend more than twice as much time as their European counterparts in some form of contact with their portfolio CEOs. Interestingly, Asian VCs spend even more time with their portfolio CEOs, 347 hours, which works out to a little more than 8.5 working weeks a year. Can that possibly be correct?

Related posts:

  1. Venture Investors: We Want Cake
  2. Why Are Endowments Better Venture Investors?
  3. Expensive CEOs at Venture-backed Companies
  4. The Best VCs: Operators or Investors?
  5. Being a Company Founder is Apparently Overrated

Comments

  1. me says:

    It could be correct if there is one huge outlier. Look how high the standard deviation is.
    We’d need the number of samples to calculate the significance of these numbers. Absent that, the median would be a more meaningful figure.

  2. Paul K. says:

    Yes, I noticed the same thing. Massive standard deviation in the Asian numbers. Not to stereotype, but maybe someone didn’t understand the instructions very well !

  3. Michael Robinson says:

    This is not interesting data. Interesting data would be to rank, on an individual basis, value/hour.
    That is, for each invested company calculate the percent return on investement at exit above or below the median. Divide that percentage into all “in contact” hours for all VCs invested in the company, and then tally the lifetime average percent return added per hour, per VC.
    Yes, I know we’ll never see data like that, but I think it is worthwhile to emphasize that the issue is not one of intrusiveness, per se, but of VCs who subtract value by imposing faddish and ill-informed guidance on portfolio companies. Case in point, the “capture first-mover advantage by sinking 80% of your capital into splashy marketing” fad which culminated in Super Bowl XXXIV.
    If you have a VC whose insight makes a significant contribution to the health of the company, you want him or her coming around as often as possible.

  4. Paul K. says:

    Michael:
    You make a fair point — it would be nice to know a VC’s value per hour, and we both know it would skew low — but I’m less dismissive of the time-spent measure than you are (even if I did present it glibly).
    1) In a globalizing industry where best practices are widely shared, it is noteworthy that along one dimension (at least) practices have not converged. Why not?
    2) Correlation is not causality, and time spent is only one factor, but it is interesting that venture returns are, on average, worse in the Asian and Europe than in the U.S.
    3) More broadly, I’m going to also disagree slightly with your point about there being no upper bound on time spent at a company if you’re good. Not true. Time spent at portfolio companies is not fabricated from thin air; it comes from time that could be spent looking at deals, culling portfolio companies, or assisting other portfolio companies. Eight-and-a-half weeks a year (the Asian number, admittedly a screwy one) on a single portfolio company simply does not scale, and does not reflect a prudent approach to managing risk in a diversified venture portfolio.

  5. Michael Robinson says:

    Paul: “I’m going to also disagree slightly with your point about there being no upper bound on time spent at a company if you’re good. Not true…”
    Well, my point was from the perspective of the portfolio company, as a counter to the glib “want less intrusive investors?” title of the post. I’ve certainly been in the position of wishing particularly valuable board members had the time to stop by more often.
    Of course, from the standpoint of overall fund performance, you are absolutely correct.