What it takes to be a zombie VC firm
We’ve all noticed the wide apocalyptic scenarios spread in the media and fiction. I’m sure we all have our fears, doubts and probably our own world-destructive phantasms. One of these scenarios, funny, crazy and terrifying at the same time, is the zombie apocalypse. Oh, sure, we’re here to talk business. To talk about a VC firm, about a startup, about a new funding campaign. Yeah, but I’m thinking of a Venture Capitalist that’s slowly decomposing, it’s body turning to worms’ holes. It’s slowly dying, spreading a putrid smell on its way of hunting down your startup’s brains: the investment. If you’re not careful enough, opting for a diseased VC could mean the zombie apocalypse of your startup.
How do you recognize a zombie VC firm
In order for you to do what’s best for your startup( and believe me, endangering its brains – the investments – will brink about its downfall) you must know at a stone’s throw which is the peril. Be aware, it will give you signals, all you need to do is recognize them. You might be asking yourself: why all the trouble? The fact is a zombie VC firm is not that funny. As Dan Primack suggests sometimes it really bites to be a zombie firm. Don’t strike a deal with such a firm, because even if you think that after the investment you are off the hook, you might be faced with a return of investments. Dan Primack brought up the case of TL Ventures, which is a VC firm based outside of Philadelphia, which stopped raising funds a decade ago, but since then it’s been getting returns from its investors.
I guess you don’t want this happening to you. You should start by doing some research, before shaking hands. Find out as much information as possible about the firm. Here’s what you should look after:
- Inactivity. As Sam Hogg points out while showing why Zombie VC firms can be an entrepreneur’s nightmare, if a VC shows signs of inactivity, such as not raising new funds, nor finding new partners for the last 5 years, then you might have come across a dying firm.
- No new capital. Sometimes, VC firms drown due to poor performance or planning, and without new capitol they can’t grow, so they start to contract. Less and less partners are left to monitor and take care of the portfolio. That’s when they’d come after your funds.
- Worst case scenario. The worst that can happen, shows Sam Hogg, is for a VC firm to put management to another firm. There are even firms that specialize in dissolving dying firms, so for the startups involved the situation is not that bright, as they are put on second place, because the VC is turned into cash or another form of liquidity.
- No Series A investments. Talking about Zombie VCs Danielle Morrill emphasizes you shouldn’t choose a VC firm if they haven’t made series A investments for the last 6 months, and if although they were making regular investments in the past, they didn’t do any investments in the past 3 months.
So, now you know how a zombie VC firm looks like. What do you think? Should you avoid it or you’d take the risk?