“For most VCs, they go to board meetings then leave,” he told the H2O Global Innovation Leadership Summit yesterday in Silicon Valley.
I’m technically now a self-hating investor.
He looked back on the days when he was trying to raise money for Fastly, the content delivery network he co-founded. One particular incident he’ll never forget involved a VC in Palo Alto that they pitched to named Sapphire Ventures. The investor sounded very supportive and told them things it could do to help but didn’t follow through when called upon.
“Silence. Not even a reply, not even an ‘I’ll get to it’ or ‘Give me a week, I’ll work on it.’ Literally didn’t bother to reply,” says Gil.
“I’ve become an investor so I guess I’m technically now a self-hating investor because I, by large, hate VCs,” he quipped, drawing laughs from the audience.
Rather than join a major VC firm, he took a different route, becoming an angel investor. One of the early folks at eBay, Gil used his money from eBay, which IPO’d in 1998, to start angel investing.
This way of investing allowed him to avoid the consultants from McKinsey and Bain that flooded into eBay – “a way to hang out with the people I liked instead of the people I worked with,” he joked.
Unlike VC firms, most angel investors don’t get into startups purely for the money but because they’re successful, want to give back to the industry, and they like the company they’re investing in, Gil believes. These people are involved in a very personal way and are genuinely trying to help out. They don’t just promise things – they do them.
“I look for someone who’s emotionally involved where they should be, who’s calling and trying to help, someone who’s brainstorming with me, coming up with ideas, and coming back to say, ‘hey I looked into this,’” he stated.
Today, Gil leads the biggest AngelList syndicate – hence the “king of AngelList” badge – that has done about a hundred crowdfunded deals at US$4 million apiece – including one he backed not because he was expecting to make money off of it but because his daughter loved the product.
There are exceptions
Gil’s revulsion toward venture capital, however, isn’t absolute. There are a few good VC guys out there – and one of them is LinkedIn co-founder Reid Hoffman.
Every startup needs a a Reid Hoffman, says Gil. Photo credit: Joi Ito.
Reid wears many hats. Before setting up the professional networking site, he was a prominent angel investor who later forayed into venture capital, serving as a partner at Greylock. Gil and Reid knew each other from PayPal, where Gil was an angel investor and Reid an executive. Ebay would eventually acquire PayPal in a US$1.5 billion deal.
There are lots of ‘shotgun weddings’ where the most you can do is reference-check the investor.
“Reid Hoffman was one of my favorites. Reid once said to me: ‘I will not leave the meeting until I find one thing I can do to help. It may be big or small, it doesn’t matter. I owe them that for the hour they spent with me.’”
His advice to startups raising VC money? Get yourself a Reid Hoffman.
“I like someone who actually cares. This shit we do is so hard to begin with, it’s nice to have someone who’s emotionally supportive,” Gil said.
Gil likens finding the right investor to dating. “How do you find out if someone really likes you? You make it harder, you push them and push them and push them again. You don’t return their calls and see if they call back.”
Gil Penchina (holding mic) pictured yesterday at H2O Global Innovation Leadership Summit 2016. Photo credit: Tech in Asia.
When you finally find the one and that VC joins your board, that’s marriage. Know that you’re going to be stuck with that person for years, he advised.
However, startups nowadays raise capital in a very fast-paced environment, leaving little time to vet investors. He called this the “shotgun wedding” where the most you can do is reference-check the investor.
He has this practical advice for those caught in this situation: “At the end of the day, the other half of it is about selling. Whether or not you have the right level of emotional involvement, get it. Arranged marriages work, they become in love with each other or pretend they’re in love.”
“You just never stop selling. It’s the unfortunate curse of being a CEO.”
This is part of our coverage of H2O Global Innovation Leadership Summit 2016 hosted by H2 in San Francisco on October 19. Tech in Asia is a partner of H2, a Silicon Valley-based nonprofit organization whose mission is to advance leadership development in the fields of digital entrepreneurship and innovation.