A founder recently emailed me:
Would love to pick your brain about this if you have a few minutes to spare. Let me know if you have 15 minutes to chat on the phone in the coming days.
I wrote back:
It’s really partner dependent. How much of an advocate will s/he be for you? Fight for you?
The founder responded:
Roger that. We have a great relationship with the partner. The scenario that we are being cautioned about is the following: Big fund takes a small position during seed and later decided not to lead the A. Other funds get spooked making the round very tough. Is this a real risk? I see plenty of upside from having a large fund plugged in from the beginning. If we don't hit our milestones, we'll have problems regardless. It is possible that the fund loses interest in the space, partner moves on, etc. We already have a reputable investor that is interested in taking a large part of the round. In our situation, would you take the rest from another big fund or get it from a seed specialist?
Here's my take on that scenario:
Fewer investors is generally better. The cap table is cleaner, you deal with less personalities and politics, and most importantly, the investors you have are way more invested in your success and actively working to make it happen.
As a first-time founder, you often don't have a lot of control over this, and you have to cobble together party rounds in order to get the funds you need – oftentimes with convertible or SAFE notes, which are non-ideal for a number of reasons.
I'd recommend shooting for a deeper level of commitment from a smaller number of investors whenever you can.
If the seed specialist has some very specific value-add (deep industry expertise / industry connections / customer or candidate referrals for example) I'd go all in with that seed investor.
By contrast, if the partner at the big firm has those things, I'd look to find a way to give that partner more than just 10% of the round. Give that person a big enough stake that they'll go to the mat for you and fight for you. Or even do the entire round with that partner instead of the seed investor.
The problem with VCs and founders is that they are aligned... until they aren't. And that bit can flip quickly based on a number of internal and external variables, only some of which are under your control. You have to remember that VC funds have their own investment goals that may or may not align with yours as your startup matures (and almost guaranteed will be mis-aligned at some point in your growth – often times due to things you have no control over, like fund timing). So the deeper the level of personal commitment you have with your partner, the better chance you have of navigating that complex dance over time.