For first time entrepreneurs, it applies even more so to so-called ‘business cofounders’. You want a co-founder who obsesses over the product / market, and not one looking for a token ‘brilliant engineer with lots of ideas’

I think the coaching you get with the pre-seed funds (Y-Combinator, DreamIt, etc.) creates success for both the fund and the portfolio companies. At SeventySix Capital, we look at our Rolodex when evaluating companies because companies that may not be that attractive in general, could be with some help.

On the other hand, entrepreneurs usually don't have the flexibility of choosing an investor because they need the cash, so you have to be very disciplined and refuse money from extractors.

Is it fair to say that the work of 'building' for an investor as a complement to the core team is all front-end loaded? Or do you think 'building' as an investor is ongoing even when there is complete team in place?

A builder treats help with respect — “help me, don't do for me” — and pays it forward even when he's not paying it back. He gives help in return for grace.

A builder necessarily believes in a purpose larger than himself which he must fulfill, and in pursuit of that larger purpose pays all around him in hope, inspiration, and motivation. With regard to value, while those rewards don't always fully replace cash, they do more than their fair share supplementing it.

http://en.wikipedia.org/wiki/The_Children's_Inv…

Despite a numerical surplus, VCs show little desire to alter their investment strategies and succumb to finicky entrepreneur demands. They don’t need to – they can hold out, do fewer, larger deals and back their pet entrepreneurs. At least the Boston VC scene has proven immune in this regard and held to their approach. Maybe West Coast VCs have to play nicer?

Fund sources like Y Combinator are certainly welcomed respites for entrepreneurs over VCs, but they too have a fatal flaw: they utilize the same screening approaches for admitting start-ups into the program as VCs do for funding (and hence garner similar results). Once in, though, ventures certainly experience a greater attention then their VC funded peers.

Perhaps the true definition of ‘builder’ is when that person or entity’s actions to grow a company are better recognized and successful to the point that few realize that the ‘builder’ also injected the proper amount of capital into a venture to make it viable. As a result, they are virtually unknown as an investor when in reality they have served that role equally as well.

I've seen a video of a Boston/Valley based VC and his partner – a well known angel talking about the 15 investments per year. Perhaps you are alluding to the same thing. In their case – I believe they are doing what is correct for their partnership and thier LP's. They have a number of large funds, and so are focused on making much bigger investments in companies that have already shown themselves to be successful. Of course, if you have a $500M fund, and need to generate returns, you probably need the companies you invest in to return something like $7.5B – so good luck there – you need some massive winners.

Are they builders or extractors? Hard to say really. I guess you would view them as extracting some of the value that builders had worked for. Same as public market investors.

What I've never understood in this whole debate – is why, as an investor, you would ever not attempt to build the company, being as involved as you can, and as helpful as you can to management?

One thing I do agree completely with is that the vast majority of Wall Street belongs in the extractor category. There are investors and bankers working with small companies to provide growth capital – and strategic help – but these are increasingly rare for a lot of reasons – but that's a longer story.

I can see in the start-up phase where being a builder makes a lot of sense – but I would ask you – once you are beyond the real start-up phase – and the company is doing well – and looking at a B or C round – when does the building end – and the extraction begin? Because as you go beyond the basic job of the angel investors and get into the later stage VC's how do you avoid dealing with the extractors and the board directions they steer the company in? (Again, I can think of a few ways – but would love to understand how you think about it)

Builders embrace change and modify their product to benefit from the rising tide.

Extractors stifle innovation and build walls around the rising tide to keep it from engulfing their product.

The ability to change fast is the primary difference.

The agricultural analogy is similar to seed fund investment, not only in name. But, a skilled farmer must understand that different plants need different seeding, caring and reaping.

Today, social network and peer review sites (for example) are like stalks of corn — there are many of them, they are only slightly differentiated (despite what the founders think), many will fail to grow, and the rest will be mowed down by the ag-farmers and made into corn syrup — a big business.

Occasionally, a different kind of seed pops up. Call it an “oak” or a “sequoia” . Small seed, lots of care, lots of time, lots of money. But, the result is impressive.
While there are few sequoias, there are even fewer farmers/foresters that have ever seen a sequoia — they grow in restricted parts of California. So, not knowing what really big trees are like, they spread their seeds into the soil, sometimes barren, sometimes depleted soil, and wait for stuff to sprout.

Any fund that doesn’t know what a big tree looks like, be it a seed fund or a big VC will not succeed no matter how much they nurture a dud. Whether you have 30x$500K to invest or 30x$10MM, your approach and focus will be the same — deal flow and active betting. It is knowing which ones are going to be winners AFTER you have invested in what turns out to be the right sector and switching from a mass farming to a nurturing strategy. That’s the pivot good VCs know how to make.

I have seen the attitudes of good VCs change dramatically when they smell success. Dramatically. All of a sudden, they start caring, get active on the BOD, want to suggest candidates and hires you've been begging for, start eagerly discussing the next round and giving you a list of funds that are calling them about you.

So, both seed funds AND VCs are ultimately extractors. BUT, the good ones know how to switch into the “build” mode once there is something worth building.

I think Maples and Wilson can have very different attitudes toward how quickly you get to revenue but still be focused on helping to build companies. It's just different styles of building.

Totally disagree re Boston VC vs Y Combinator. Y Combinator sees the world as a talent pool of raw clay that they help mold into new things. Boston VC sees the world as fixed and he tries to grab is piece. Sure, builders also compete for deals, but they also look for fixer uppers, half baked stuff etc.

BTW, they guy managing your 401K is a waste of money. If you want public market exposure, put it all in an S&P ETF.

I agree that there are extreme archetypes for these traits, and herald the winning of builders. But business building is a type of art based on shared value, and reaping what is sown.

Farmville has taught me that.

I couldn't resist that last line, j/k

ps: Chris did your write this as a self reminder or just as a message to folks that follow your writing? I do the former with posts regularly.

For example I'd be very inclined to join you in chastising these bastards on Wall Street who just move money around and create no value. Yet if they happen to be the money managers of my 401K, I'll feel differently about their role in “value creation” – the value they create for me becomes very real.

Even within the people you mention, I see many nuances. For example Mike Maples is very focused on early value extraction in the form of revenues (I remember his advice “think of how the first $100K will come, and then how the first $1M will come”). On the other end, Fred Wilson seems to be willing to take more risks on the absence of obvious value extraction – see delicious or more recently twitter in his portfolio.

In all fairness, when that Boston VC talked about catching the right deals, the same comment could have been made by Y Combinator or Union Square: the job of investors is first and foremost to pick the right team and right market opportunity at the right price – in other words, “win the right deal”.