Individual stock investing can be divided into “growth” & “value” strategies. Growth investors find companies that will grow at an above-average rate. Value investors try to find deals: companies that are trading below their intrinsic value.
I’ve found venture investors can be categorized among similar lines.
“Growth” investors focus on the idea: the team, market, and product. They want investments that can be run-away successes. In contrast, value investors focus on the “deal”: investor rights & protections, aggressive preferred stock elements, etc. They want the biggest slice of the outcome, for the smallest investment amount.
In practice, it’s not really this black and white. As Warren Buffet has pointed out, growth and value strategies are not mutually exclusive, and successful investors use a combination of both.
As an entrepreneur, I love working with growth-focused investors. The value or “deal”-focused VCs are a drag. I respect investors wanting fair terms, but getting overly clever or aggressive just complicates things for follow-on capital, disincents management, and most importantly, time spent negotiating those terms is time NOT spent on making the company valuable.
My message to VCs: you’ll make your LPs happy by finding the right projects and doing everything to make them successful, not by cranking your average ownership & deal terms across your portfolio. Keep your eye on the right ball.