Venture capital: cash, not counsel?

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Related tags: Venture capital

A new survey has revealed that venture capital investment in health
care ventures rarely goes beyond the money bestowed, and claims
that VCs add value through their expertise are rarely if ever
fulfilled.

The survey, carried out by Windhover Information reveals what health care entrepreneurs want, get - and don't get - from VC firms. To arrive at the results, Windhover surveyed more than 100 seasoned entrepreneurs, asking them to qualify their dealings with venture capital firms.

Windhover found that entrepreneurs distinguish among VC firms by the efforts they put in after funding. More specifically, they need VCs that can help secure follow-on funding, recruit customers and employees, and coach, counsel and advise them. VCs only rarely help in these areas, according to survey respondents.

One entrepreneur explained: "No matter how passionately these VCs pontificate about how they really value working with management, they really don't do that."

Another summed up his thoughts by saying: "A lot of firms will brag about [value-added services], but you really don't find that there's a lot of substance behind those qualities or tasks."

The respondents commented on some 500 funding episodes across more than 200 VCs. Their comments ranged from grateful to scathing, but mostly fell into the latter category, according to Windhover. Moreover, the respondents were highly experienced entrepreneurs: 57 per cent had 16 or more years of health care experience, and 56 per cent were the CEO or president of their firm.

Commenting on the study's implications for the industry, Windhovermanaging partner Roger Longman said: "the irony here is startling: VCsthink they're helping their companies with more than money, but theentrepreneurs in our survey say many VCs are simply funding them.Nothing more. "

"And the further irony? Those VCs will never know if greater help leads to greater returns. This study clearly shows what entrepreneurs want in the funding process, and tomorrow's entrepreneurs can use its findings to benchmark their own pursuit of funding."

It is not that start-up CEOs were totally disenchanted with VCs. Theygave them high marks for pre-funding support, industry knowledge and thefairness of term sheets and valuations, suggesting there is a basis fora valued relationship.

But Windhover managing partner David Cassak added: "at the end of the day, a dollar's a dollar, no matter what its source. A VC that takes the time to listen to the conclusions of this study can carve out a unique differentiation for itself...and in the process leapfrog competitive funds that fail to do so."

The survey was completed in collaboration with sponsors PricewaterhouseCoopers, Wilson Sonsini Goodrich & Rosati, and Applied Information Networks.

Related topics: Preclinical Research

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