The Misalignment of Mid-tier VCs

We just finished raising 750k in a seed round. We are extremely happy with the investors we got, most of them are execs at big-name travel sites like Orbitz, Cheapflights, Momondo, Trippy and CarTrawler, and a couple smaller VC firms. But I encountered a bunch of mid-tier venture capitalists along the way who I thought were borderline delusional, and it was extremely frustrating.

The number of VCs or investors I’ve met with who have said something along the lines of “once you have hit ____ ridiculous metric we’d be interested to reopen the conversation.”

Now, Sequoia, Founders Fund, General Catalyst, KPCB, A16Z, they can say that. Because once we hit that ridiculous metric, we WILL come back to them and still ask them for their money.

In our case, it’s often a full integration of Mozio into an airline, etc. which is kind of ridiculous: if we can convince an airline to integrate us, not only will we probably not need to raise, but we definitely won’t be raising from a mid-tier VC.

At that point I can probably go raise funding from a top-tier VC.

This has been one of the most annoying things about talking to mid-tier VC firms. When a no-name VC gives me a response like this they are basically telling me “Lets keep in touch, and when you achieve the metrics that are so obviously successful they allow you to pretty much raise from anyone anyway, please come back to us and let us into the deal to co-invest with KPCB and attach our name to the deal.”

Ummm no.

Now is when I need you. Now is when I need the angel investors, the mid-tier VCs, to take a risk on us before Sequoia and General Catalyst do.

I don’t need you, the mid-tier VC firm, when literally everything is going right.

And until you realize this you will stay a mid-tier VC firm. You don’t have the luxury of waiting until everything is perfect. Famous firms like A16Z and General Catalyst do. As much as I would love it if they committed sooner rather than later, they are famous and well connected, and twice spurned entrepreneurs will still go back to them a third time.

This is why there is such a discrepancy between successful VC firms and the not-so-successful. Angels are willing to take the early risk a reputable firm like Accel isn’t willing to take. There is a place for them in the ecosystem. High potential companies that are succeeding go to the top tier VC firms. There is a place for them.

There is no place for the mid-tier VC and that’s why their returns are so bad. They have neither the appetite for risk that the angel investor has, nor the connections and reputation that the top tier VCs have to attract the deals once the risk has been mitigated.

They are in no-mans land.

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