UK entrepreneurs: know which VC to pitch to based on the size of your company

Raising VC funding is most certainly a time-consuming task — and can mean lots of headaches for entrepreneurs. In fact, the funding process may even distract a CEO’s attention away from the company for a long period of time.

Entrepreneurs can make this process more efficient (and less frustrating) by targeting the “right” VC funds: those after the type of investment opportunities that their start-up represent.

When shortlisting VCs, you should apply some simple selection criteria such as:

  1. Depth of experience in your industry (e.g. how many deals have they funded in your category)
  2. Success rate (e.g. how many exits have they secured in recent years?)
  3. Geographic proximity (as most VCs like to be “hands-on” with their portfolio companies)
  4. Do they mostly participate in seed funding, series A funding, or both?

This post tries to to bring some clarity to UK entrepreneurs on that 4th bullet.

I used the ventureloop dataset (the same used in previous posts, such as here, and here) and captured, for each company backed by one of the UK top 10 VC funds, a company size estimate defined as the number of employees listed on LinkedIn.

The results, charted in the graph below, enable an indicative comparison of the relative propensity to invest in early-stage companies for each of the Top 10 VC funds (click on the picture to enlarge):

Propensity to invest in early-stage companiesVC funds in the above chart are sorted from left to right, with VC funds most likely to invest in early-stage start-ups on the LHS and least likely on the RHS.

Key takeaways for UK entrepreneurs include:

  • The 3 VCs most likely to invest in early stage companies are Wellington Partners, DFJ and Index Ventures
  • The 3 VCs least likely to invest in early stage companies (i.e. more focused on later-stage rounds of funding) are Benchmark Capital, Bessemer Venture Partners and Atlas Ventures 
  • Index Ventures and DFJ were the only two funds covering the full spectrum of company size with their portfolios. In other words, not only do they seek to get involved in early stage companies, they also have the capacity to follow-through on their seed investment!

Technical comments / word of warning regarding the analysis:

The analysis was based on a sample of companies and this sample may not be very representative of a whole VC portfolio (in particular, for Atlas Ventures, for wich only 6 companies were in the sample):

VC fund Number of portfolio companies in the sample
Wellington Partners 8
Draper Fisher Jurvetson 16
Index Ventures 31
Accel Partners 11
Kleiner Perkins Caufield & Byers 8
Balderton Capital 13
Sequoia Capital 18
Atlas Venture 6
Bessemer Venture Partners 8
Benchmark Capital 17
Total ventureloop sample 211

There is a selection bias in the ventureloop dataset since companies listed on that website are companies that sought to hire during Q1 2013. Over such a short period of time the likelihood of a big company hiring is higher than for a small company, hence I believe many small start-ups in the 1-25 employees segment were ‘screened out’ of the sample. This bias is obvious on the last column of the above chart: you can see that there are way too few small companies in the total sample compared to large companies.

This implies that the propensity to invest in early stage companies as estimated above is probably underestimated.