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April 22, 2014

Not sure why, but over the last few years, quite a few people I know took on EIR roles at various VC firms in both the East Coast and in Silicon Valley.  Overall, there are positives and negatives to being an EIR.  The positives are kind of obvious:

  • A reasonable paycheck to work off of while you think through your next company
  • Exposure to a large data set of portfolio companies and companies that a VC reviews
  • Expansion of one’s network through the network of the VC
  • Usually few official “strings” attached to the VC aside from an implicit or explicit expectation that the firm get a “first look” at a company that is started during this time.
  • Exposure to the venture capital process and a behind-the-scenes look to how VC’s work and evaluate deals

The negatives are relatively well known too. Mainly, they revolve around the signaling and reduced optionality that the entrepreneur may give up by hitching themselves to one firm over others even if that firm has no official rights associated with financing that entrepreneur’s company.

Personally, I don’t feel that strongly one way or another that entrepreneurs absolutely should or shouldn’t consider EIR opportunities.  But watching a number of folks go through this, there is another, less obvious downside to the EIR role: it becomes hard to avoid absorbing the negativity of the VC process.

I’ve said before that one of the downsides of Venture Capital is that it tends to be a negative job. You say “no” all day long, you spend the most time on companies that are struggling, etc. VC’s get really good at analyzing investment opportunities and pointing out all the reasons why an opportunity won’t work, or is too high risk, or is too expensive, or is deficient on a dozen other dimensions.  It’s hard to avoid this when investing is your day job and you say “no” 99% of the time, but I think it’s not necessarily the most helpful atmosphere for entrepreneurs that are trying to figure out a company to start. Even just hearing the internal chatter about companies can be a bit toxic, but on top of that, EIR’s end up getting pulled into specific discussions around companies, and sectors, and even sit in on company pitches in their areas of expertise.

All of these probably seem like a selling point to founders, who would be eager to expand their horizons and understand how the capital side of the innovation business works.  And for some founders, it probably does help.  But I think many if not most founders will find it difficult to absorb the learnings of Venture Capital as an EIR without also becoming much more critical and overly-analytical about the companies they are looking to start.

All that said, here are some other suggestions for entrepreneurs who do think an EIR gig is a fit, but want to avoid some of these challenges:

  • Focus on firms and EIR roles that are structured around significantly helping you find your next company.  This isn’t all that obvious. Many VCs do EIR’s primarily to draw someone on the outskirts of their network into their network.  Once they are in, they don’t do anything particularly differentiated to significantly enhance one’s likelihood of hatching her next company – they basically get a desk, a paycheck, and can “hang out” or grab coffee with the investment team once in a while.  Talk to past EIRs and try to tease out how instrumental the VC firm was in helping them find an idea, shape their team, etc through something structured and programmatic or just plain effort and sweat equity.
  • Avoid the temptation to play VC. This is something else I’ve seen – an EIR role ends up being a way to “get to know” a talented entrepreneur with the potential that he or she would actually join the investing team instead. It’s easy to get sucked into “playing VC”, and it’s insanely distracting to be put in the position of deciding whether to pursue venture vs. actually work in earnest to start a company. I think it’s hard to do both, and introducing the possibility of playing VC just gets in the way of an entrepreneur’s ultimate goal.
  • Don’t do it for too long.  Most EIR roles I find are time-bound at something like 3-6 months. But some are open-ended. I think it’s best all around to limit one’s time as an EIR for a bunch of reasons. The longer you do it, the more likely it is that you’ll be impacted by the risks above.  Also, I think that it’s helpful to start getting different perspectives after a while, and also to get re-energized and re-focused.  It’s can be pretty frustrating for an entrepreneur to be an EIR for a period of time and not end up with an idea or company that they are ready to be fully committed to.  Funny enough, I find that most of my friends got a burst of new energy and focus when they completed their time as an EIR but continued experimenting on their own. Maybe it’s the change of scenery, or the fire knowing that you are no longer on someone else’s payroll, but it’s a trend that has been interesting to observe.
  • http://www.pingup.com/ markslater

    what about the issue around the ethics associated with sharing an entrepreneur’s idea with someone more equipped to build it not just invest. Many entrepreneurs are super cagey about EIRs for the simple reason that they are the people best positioned and closest to the capital who might work on it.

    Its happened many times in the past.

    • robchogo

      Yep, that’s an issue as well. The EIR might be pushed to do something they’d rather not do, or other entrepreneurs may be cagey about sharing information with them for just this reason.

    • http://www.movablemedia.com aboer

      It happened to me years ago. A month after we pitched an EIR we were basically funded by the VC at gunpoint — the VC’s were deeply connected to our two biggest clients, and the EIR threatened to go after the deal himself. We had little alternative, and made him CEO. (This was the right result, but if we had recruited the same CEO independently we would have preserved much more value for the founders.)
      An EIR is a proven leader in search of an idea. Putting him/her in a position where eager hopefuls present them their closely-held, refined ideas in their best effort at an executable plan is only a recipe for intellectual theft and coercion. I think it is a “sharp practice”, at best.

      • robchogo

        Ugh, that totally sucks

        • http://www.movablemedia.com aboer

          Yeah, although our direct competitor (who was slightly ahead of us) did not take that deal and subsequently failed. Whereas we had a huge exit.
          One of the other complicating issues was that the VC’s sat on the boards of the public companies that were our two biggest clients, which in my view should *definitely* be illegal.
          No one ever writes about this.

  • http://jaydengvc.tumblr.com/ Jay Jay Deng

    I’ve been on the fence about whether or not to pursue an EiR role for all the reasons you listed above and more. I love angel investing so I can’t see myself stopping anytime soon, especially now that I have a few victories under my belt. But at the same time, the flames of entrepreneurship have been fanning for awhile now so I am tempted to create a new startup.

    So how would you describe your time at NextView so far? Has it turned you off from the business of venture capital and strengthen your resolve as a entrepreneur and creator?

    • robchogo

      Hi Jay, I’m a founder of NextView, so this is my startup. But I am committed to VC as long as I believe we can be successful

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