Beware the ex-bankers masquerading as VCs
I am a former banker who runs a technology company. We have several million in funding and offices in London and San Francisco. I am living the start-up dream. I am also sick of my ex-banking colleagues who've rebranded themselves as venture capitalists (VCs).
It is not an exaggeration to say that Europe is full of them. The majority of VCs here come from finance backgrounds and have very little practical and operational experience.
Qualitatively this shows in a lot of VC partner meetings we take, especially ones that progress to deeper due diligence. VCs are often criticised for having a herd mentality but I am astounded sometimes by the way some VCs we have met aren’t willing to look at business models that aren’t pure vanilla SaaS annual recurring revenue (ARR).
These former bankers don't really understand the businesses they're investing in, and it shows. In the U.S., where in my experience VCs are more competent, 90% of their investments underperform the S&P 500 over a 10 year horizon. Only the top quartile generate returns that warrant the VC industry's existence. Fundamentally this means that if you truly believe you have a great early stage tech business then actually 9/10 VCs are bad for you. And when you have a start-up, giving opinion, control and optionality to the wrong parties can be an existential mistake. It doesn't help that ex-bankers also tend to make unreasonable demands when it comes to as preference shares, double dip preferences and board seats. They don't understand the business and I don't want them involved.
This is why I've avoided all the ex-bankers in the funding market and instead taken money from high net worth investors who have either built and sold multi-billion pound businesses from near scratch, managed private equity funds, or come from a sector-specific background that's appropriate to our current stage of development. At first I thought ‘PE, how can that help’ but in reality these guys make hundreds of investments and get really involved in turning those businesses around. That experience with business models and how they work in varying markets is something incredibly important for a young tech business looking to find product market fit.
In this way I hope our company will succeed. We need energy, ambition and intelligence to create coupled with the experience to avoid mistakes and to identify and capitalize on opportunity. The second half of that equation is what I want my investors (and senior staff) to provide. If they're ex-bankers, I really doubt their capacity to do so.
Matthias Fournier is the pseudonym of a former banker turned technology entrepreneur.
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