Danielle Morrill’s post on Zombie VCs got a lot of attention Friday and generated a huge amount of comments on Twitter ad well as in private circles.
Criticism has come in on a number of levels:
- Data accuracy: Crunchbase data is notoriously bad, incomplete and industry-specific.
- Approach: the “guilty till proven innocent” approach has made a number of VCs mad (mostly ones included in the list, but not only). I think that this might have been the only way to get attention to this point and call for more data.
- Timeline: 6 month with no announced Series A seems definitely strict and does not account for fundraising, partner bandwidth and a number of other factors.
- Inclusion of seed or later stage funds: there are some funds in the list which don’t belong in the Series A group, mostly seed funds who only participate in follow ons in their portfolio companies, and later stage or corporate VCs who only do deals once in a while.
While I agree with most of those points, I also think that criticizing (and writing a post about it ;)) is extremely easy. Danielle recognized that there are a lot of Zombie VCs, gathered data and had the guts to publish it. Massive props for that.
What I’d like to put the accent on, is the actual need for such a list. The list might be useful to some entrepreneurs that need to fundraise for their Series A round, but all in all, I don’t think it is as valuable as her previous list about active Series A investors (and some other awesome Startup Indexes). All the attention it got was really curious for me and I think it is determined by the strong title and the potential bad image rather than the actual value conveyed.
We all know there are a lot of Zombie VCs and honestly what I don’t understand is the hostility towards them. They are out of money and can’t raise a new fund. They are not malicious in their being Zombies. They are legitimately having a hard time.
And don’t get me wrong: they often deserve all of it because they made poor bets, didn’t add value or screwed up companies.
But what do we expect them to do? Publish a post saying: “hey don’t pitch us: we can’t fund you cause some of our bets aren’t returning what we expected and we’re having a hard time raise a new round”?
The bigger and known underlying problem is the feedback loop of the VC industry: it takes 10 or more years to know if a fund will have a meaningful return and during this time VCs can raise new funds and make more deals. I don’t think the list highlights those, unfortunately.
The talk on Twitter seemed to focus on transparency, with people arguing that funds who don’t share data are somewhat fishy. Transparency is always awesome, but I do not mistrust firms who don’t provide data on their investments, as there are a number of legitimate reasons for doing so.
In the end, I don’t think we should call out Zombie VCs for having a hard time or non-transparent VCs for not releasing investment data. I think it’s the market’s job to do so and thus ultimately the LP’s job, who will signal by not recommit to non-performing funds and ultimately having them go out of business. The effort should be in trying to minimize the feedback loop.
I think the more interesting approach would be to call out the funds that market themselves as entrepreneur-friendly but end up revealing themselves as terrible partners for companies, as subjective as it can be. Dealing with Zombies VC might lose you some time, but partnering with a “bad” VC will hurt your company much more. Those are the VCs we should be hostile towards and here is where we need more transparency.
I’ll try to spend some time spec’ing out how this can be done, and would love any input from Danielle, entrepreneurs and VCs. Thank again to Danielle for having the guts to get the conversation started.
Edit: good reply post by Brendan Baker who has a more detailed analysis of the post itself.