“Investor/Entrepreneur Value Expectation Gap”: Part 1 (Project Overview)

Do VCs deliver the “value adds” that entrepreneurs expect them to deliver?

Note from Noam: This past year, to help inform their future careers in private equity, 2 HBS second-year MBA students, Matthew Louie and Cali Tran, did a survey-based study of 51 entrepreneurs and 81 VCs. The title of their study was, “The Investor/Entrepreneur Value Expectation Gap of High-Potential Technology Start-ups.”

The goals and results of their study are relevant to issues explored in this blog, so I will be posting Cali and Matt’s executive summary here, in three parts: Part 1 (below) is their overview of the project, Part 2 will present the results of the entrepreneur survey, and Part 3 will compare the entrepreneur and VC results. Although their dataset is not complete or robust enough to provide statistically significant results, the patterns in the data may be suggestive of broader issues.


By: Matthew Louie and Cali Tran


 

 

Project Overview

Objective

The objective of the Field Study is to (1) explore the perceived value of venture-capitalists to high-potential technology start-up ventures; (2) identify the existence, if any, of a gap between the entrepreneur and investor expectations; and (3) establish the location and measure the breadth of the chasm.

Sample pool

The following statistics represent the average participant of our survey.

Entrepreneurs

51 entrepreneurs participated in the survey. 92% of the respondents have been founders or senior executives of more than one start-up venture, and over 80% are C-level executives in their current company. 73% and 20% work in the software/services and life sciences industry, respectively. 56% of the participants work in companies that are currently shipping product. In terms of headcount, the average company has 35 full-time equivalents (“FTE”) and is expected to grow approximately 35% to 45 FTEs next year. The average entrepreneur interviewed also indicated that their company has raised three rounds of financing, two of which were venture rounds.

Table 1: Entrepreneur Profile [51 entrepreneurs]
(highlights the breakdown of roles as well as
stage of company the entrepreneur represents)


Venture Capitalists

81 venture capitalists participated in the survey. 84% of the respondents were at least Partners in their firms, at least 35 years of age, and 78% had more than five years of investing experience. The typical venture capitalist also manages five portfolio companies and serves as a Director in four of them.

Table 2: Investor Profile [81 investors] (highlights the median type of fund and breakdown of how
the typical investor prioritizes their day)

Median Fund

  • $600MM assets under management
  • 3 raised funds
  • 5 partners
  • 7 total investment professionals
  • $210MM size of current fund (57% invested)
  • 89% software / services focused
  • 38% life sciences
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