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Question: Is a venture capitalist’s website the best place to learn about their investment strategy and investment portfolio?
Answer: The data suggests it is not.
We reviewed 200 venture capital firms’ websites (the largest, most prominent, most active firms) to see if they accurately reflected the firm’s investment strategy, investment history and portfolio of investments and found that an overwhelming majority (92%) are inaccurate. Specifically, we compared what the venture capitalist’s website says about their investment preferences and portfolio vs. their actual investment history to see how closely (or not) the two were.
And the news wasn’t good (you read that right: 92% wrong). VC websites are inaccurate on at least one of the key evaluation criteria an entrepreneur would use when analyzing an investor to determine fit. (see below for lots of graphs given our proclivity for data) The reality based on our analysis is that, unfortunately, venture capital websites do a pretty abysmal job of accurately educating startups and entrepreneurs about their investment strategy.
We are not sure why this is the case as this is not just bad for entrepreneurs but for VCs as well who likely see irrelevant deal flow from ventures that are not a fit. But hopefully some VCs can clarify as to why they think this is the case. At least one venture capitalist, Mark Davis formerly of DFJ Gotham suggested what our data conclusively proves out in his post entitled “Why VC Websites Stink”.
So why is VC website inaccuracy a problem for entrepreneurs/startups?
As an entrepreneur, when you go to a venture capitalists’ website and get past the marketing-speak, your hope is that it will accurately reflect the venture capital firms’ investment strategy and focus, and thus provide you insights and understanding into the following areas which will ultimately help you determine fit with your venture:
- The sectors/industries that the VC invests in
- The stage of investment that the VC invests in (i.e., seed, Series A/B/C, growth equity, etc)
- The geographies (states and countries) that the VC invests in
- The activity level of the VC, i.e., do they make 1 investment per year or twenty
- The portfolio of the venture capital firm so you can accurately see what they invest in
If accurate, a VC’s website can provide a great view into what they like and don’t like as well as how active they are – all important determinants of whether they might be a fit for your business. For VC’s, this would probably help them “kiss fewer frogs” as they’d get more relevant deal flow (although business plan spam prob won’t go away).
Below is the analysis of VC websites along each of the above 5 dimensions.
Just because it says they invest in a particular sector doesn’t mean that they do
63% of venture capital websites were inaccurate with regards to the sectors that the VC invests in when we compared their actual investments vs. what they say they invest in. In 49% of the cases, the firm invested in fewer sectors than their website claimed. In 14% of the cases, the VC actually invested in more sectors than their website suggested. For these investors especially, it seems like this is a missed opportunity to let entrepreneurs know that their investment focus is wider than that stated.
When they say they invest at all stages of a company’s development or maturity, that’s often not the case
61% of VC firm websites didn’t accurately reflect their stages of investment when we compared the stage/series/maturity of companies they actually invested in vs. what their websites say. In 45% of cases, they invest in fewer stages then they state and 16% of the time, they invest in more stages than their websites suggest.
Geographic preferences on VC websites are a mess
In 61% of cases, the headquarters of a VC’s actual investments didn’t match the geographic preferences stated on the VC website. The good news for entrepreneurs (sort of) is that 32% of the time, the VCs actual investments showed that they invest in more geographies than they state they do. 29% of the time, venture capitalists invest in fewer geographies than their websites suggest.
Determining how active a VC is not easily done by their websites
Many venture capital firm websites have a recent news or portfolio news section which is where you might expect to be able to see how active the firm is, what types of companies they’re investing in, the amount and stage of recent investments. And while recent news might be a great place to do this, 58% of VC websites did not have comprehensive, up-to-date news pages that reflected their investment activity thus providing an impediment to entrepreneurs seeking to understand a firm’s investment activity.
Portfolio pages are incomplete
Venture capital websites almost universally omit their dead portfolio companies (see below). But even amongst live portfolio companies, only 34% had updated portfolio pages when we compared against their actual investment history. This may be the result of just not making website updates frequently enough or certain portfolio companies being in stealth mode, but given the useful information an entrepreneur could glean from an investor’s portfolio pages, the fact that 2/3 of these pages were not comprehensives was surprising.
Dead companies are removed from the portfolio
We’d lamented in our list of the best startup failure post-mortems of all time that while entrepreneurs are often willing to openly share what went wrong in a venture via a post-mortem, investors seem loathe to do this. Perhaps such public admissions of infallibility are not looked upon favorably by LPs or perhaps it might look like bad form to talk about an entrepreneur/startup that didn’t work out, but at a minimum, keeping your portfolio accurate with even those companies that didn’t work out might be useful to entrepreneurs.
For example, if an entrepreneur pitching a social network for cats already knows that you invested in a social network for guinea pigs that didn’t work, that is useful for them. They either know not to approach you if it seems the scars from that prior venture run deep or they can better prepare their pitch understanding why you may be reticent given past similar experiences. An informed, educated entrepreneur is good for the entrepreneur and the VC.
Note: We didn’t include this as one of the key 5 criteria for a VC’s website but thought the point about dead portfolio companies was useful enough to highlight
Summary Accuracy Statistics for Venture Capital Websites
So as the graph below shows, our aggregate results reveal that 92% of VC websites are inaccurate on at least 1 of the 5 key dimensions we highlighted above. For entrepreneurs looking to do investor reverse due diligence, this makes your job a bit more difficult as what you see will often not be accurate.
If you are an entrepreneur seeking funding and your company has an awesome venture capital-friendly name, we recommend you check out our free Funding Recommendation Engine. You have nothing to lose and a list of potential investors to gain. You may also want to check out the Brain’s Guide to Venture Capital.