I meet with a lot of entrepreneurs and the topic we tend to discuss most is fundraising. Naturally, the entrepreneurs ask me who the best VCs are? Well, that is very tough question to answer as there are many variables to consider when thinking about who the “best” VC is. It could be their track record, meaning how many exits have they had and/or how much money have they made for their firms. Other considerations are how much value they bring to their portfolio companies, how active are they at board meetings, how do they help the company succeed, how active are they in helping you raise the next round of financing, etc. Another variable is their personality and how that matches the CEOs they work with.
Well rather than tell my personal/professional opinion of who the best VCs are, lets review a few groups that rank VCs based on their own methodologies, specifically Forbes and TheFunded.com. Forbes provides an annual review of who the best 100 deal makers are, which includes mostly VCs; they call it the Midas List. The 2009 Midas List was unveiled on 1/29/2009. The other group that ranks VCs is called TheFunded.com; which ranks VCs on a weekly basis, based on what entrepreneurs think of the VCs; their most recent ranking is dated 2/9/2009 and included 99 VCs. I’m sure there are other services/sites that rank VCs, but the two I mentioned are the most well known to me, so lets see what they say.
Both groups have different methodology of identifying who the “best” VCs are. Essentially, Forbes, takes a look how successful these VCs have been, so they review which VCs have the largest IPOs or acquisitions of their portfolio companies, see their methodolgy here. Given that most start ups take seven years to exit, my perspective is that these VCs are being measured on how successful they were in identifying/sourcing good investments opportunities ~7 years ago (avg time for start ups to get to an exit) and how much value they added throughout the process. Although Fores does provide an explanation as to how they rank the VCs, I would argue that they also consider the “brand” of these particular VCs and also their popularity. Given that most professionals in the VC/start up ecosystem expect very few large exits in 2009, it is going to be difficult to apply the Forbes methadology in ranking the best deal makers in 2009.
TheFunded essentially is looking at which VCs have the most positive reviews by entrepreneurs. For those of you who are familiar with this site, you know that there has been a lot of questions about the validity of the postings, as they are anonymous. In addition, they have received some negative attention from VCs, see this Techcrunch article. However, I believe there is some validity to this site as they are beginning to get more and more entrepreneurs to rank these specific VCs. As the sample size of entreprenuer ratings increase, they will get more positive attention on the data they present. My opinion is that the perspective of TheFunded provides an indication as to who is currently the best VC, which could mean that these VCs might not realize their exits (IPOs / acquisitions) in ~7 years; see the point I made earlier. The argument could be that the highly ranked VCs on this site might get access to great investment opportunities simply because they have good feedback from entrepreneurs; founders with great ideas would gravitate to these highly ranked VCs.
The purpose of the post was not to be over analytical as to which group reviews most accurately, but to set the stage and see if there was any overlap of highly ranked VCs on both lists. So after cross referencing both lists, there were only three VCs (suprisingly) that were on both….drum roll please…”The Best VCs” are, in no particular order, John Doerr from KPCB, Gregory Gretsch from Sigma Partners, and Pete Barris from NEA. Congrats to these three for making both lists.
P.S. I don’t know if these investors are really the “best”, but hopefully you enjoyed the post