Steve Blank On The Broken Relationship Between Investors And VCs

Veteran entrepreneur of Silicon Valley shares his funding stories, what he’s learned about the entrepreneur/investor relationship over the years, and the best way to pitch to a venture capitalist.

Steve Blank

Funding Stories


When I was at E.piphany, my last startup, I was negotiating with a company called Infinity Capital at the time. They really wanted to invest, but it was the beginning of the bubble and I wanted an absurd number. All we had were six slides and I wanted a $10 million post-money valuation. Back then, all you got is a couple of slides. But it was my eighth startup and my partner had been around for a while too. We’ve had done this before. We had gone back and forth, but this was a new firm and they wanted us.

We’re in their conference room. I say, “Why can’t you guys do $10 million?” Finally they admitted, “Steve, we’re a new fund; everybody will think we are idiots if we do that.” I said, “All right. Can you do some other number?” So I stepped out of the room and they called me back 10 minutes later and said, “So listen. We can do $9.99 million.” I’m trying to play poker here, and one of the partners at the time was a great photographer–the firm had big prints on the walls. I was really in love with the one in the boardroom. So without thinking, when they made me that offer, trying to keep a straight face, I grabbed the photo off the wall and slammed it on the desk, and said, “If you throw this photo in, you got it!”

The look on their face was utter astonishment. I was thinking it was because I was being creative by throwing the photo in, but then this cloud of dust settles around me. I turn around and look at the wall and it turned out the photo had been bolted into the drywall. And there was now a hole–I literally ripped their boardroom wall off as I was accepting the offer. They said, “Yes, you can have the photo. But we’re going to have to deduct $500 to repair our wall.” And I said, “Deal.” And that’s how E.piphany got started.

A firm who had done my last company was Mohr, Davidow Ventures. The senior partner at the time was a guy name Bill Davidow who was a marketing legend, who had also funded other Enterprise software companies. I went in and pitched him the idea about how to automate the marketing domain. He gave me 5 minutes, then as polite as he can do it, walked me out the door and said, “Stupidest idea I ever heard. Steve, Enterprise software means across the Enterprise. Marketing is a very small department.” As he was walking me out, I remember as I physically crossed the threshold that: A. He was right, and B. How to solve the problem. So E.piphany went from a bad idea to a good idea by being thrown out by this VC. He has reminded me since, “Sometimes you invest in the idea, but you should always be investing in the people. If I would’ve remembered who you were, I would’ve known you would figure it out.”

VCs have had now about 50 years of gathering a knowledge base. And while a lot of them will still tell you it is opportunity and technology and whatever, a good number of them now will say that they would rather take an A Team with a B Idea than a B Team with an A+ Idea. At the end of the day, a smart team will move faster, pivot quicker, be able to identify flaws, hire more veterans, than a regular team. So what you’re looking for is an extraordinary group of people. I think for E.piphany we put together probably the best pickup team. We never socialized with each other, the four of us. We were an awesome team at work, we just had different styles.

How Entrepreneurs Should Pitch


One of the mistakes that entrepreneurs still make is essentially about presenting your business plan. And the reason why VCs ask for it and entrepreneurs pitch it, is because that’s what you would do if you were launching the next product in a large company. That is why you would write a plan. But it really doesn’t reflect what you are going to be doing. Don’t present that at all. What you want to present is something very different, a lessons learned pitch: Here’s what we thought, here’s what we did, here’s what we found, so here’s what we are going to do next. Don’t show up with just, “Here’s my idea.” Or worse, “Here’s where I am today.” Tell the narrative of what you originally think and what you learned.

What that sort of pitch does is expose to the VCs, not only your idea, but whether this team is capable of learning on the job and how rapidly they can do that. That’s a very different pitch and that’s all around this lean startup, customer service thing that’s kind of catching on. It’s not about showing me what you would do if you were working at an IBM or Microsoft. Show me how agile you are, and how your idea evolved from the first day. I think that it exposes a lot about the team and the technology in a way that a traditional plan doesn’t.

Since I started in the Valley, the amount of information that Entrepreneurs have about VCs is 100x if not a 1000x more. It used to be that no one would ever discuss what a VC carry was, how the firm is together, any internals of the firm, or which partner was good or bad–that just was never discussed. Now a days you have sites like The Funded and you can do due diligence on the firm you’re talking to and figure out which partner you want, whose the domain expert, etc., in a way you never could before. The bad news is partners behavior have become incredibly unprofessional, in a way that I’m just astonished.

The Investor/Entrepreneur Relationship

When I first came out to the Valley in the late 70s I remember carrying the projector for my first CEO into a venture firm called Mayfield. The head of the firm was in the room, his name was Tommy Davis. Tommy Davis was one of the first Silicon Valley VCs. I was just a spear carrier; I didn’t say a word. I stood in the corner and turned the slides. Fast forward six years, I’m now a cofounder of a company called MIPS Computers and we are raising money for Mayfield. I show up at Mayfield and Tommy Davis, who is about to retire, meets me at the front door and says, “Steve, good to see you again.” I almost wet my pants. He said, “How’s your career?” He knew the three companies that I had been at. I don’t know if he was just f**kin’ with my head because he wanted the MIPS deal, but I still remember this guy taking time on a busy day–I was just one of a team of people, and wasn’t even going to be on our board because he was near retirement. But he made an effort to show a personal interest.

Today, you sit in a board meeting and people are on their iPhones and BlackBerrys. There are times where I have seen VCs do this to entrepreneurs and I want to take these gadgets, open up the f**kin’ window, and throw them out. “Your time is not anymore valuable than mine. All you got is money, obviously not brains!” The Tommy Davis story is one that has stuck with me for over two decades.


I think VCs, whether they are Angels or whatever, forget who they are. At the end of the day, they are a service business to entrepreneurs. On the other hand, entrepreneurs sometimes treat them like they are only a source of cash. Some VCs forget who they are versus their entrepreneurs, and a good number of young entrepreneurs confuse their VCs with just being a bank. We use the words, “Venture Capitalists bring experience to an entrepreneur.” But no one has quantified that.

A standard Silicon Valley VC, not an Angel, might sit on 10 boards at a time. And then for their career, they may cycle through 4 or 5 rounds of those. So you can get a VC on your board who has seen 40 or 50 companies. And typically, if you do a traditional round of financing, you could have two of those. That means if you’re a first-time entrepreneur, you might have people sitting on your board that have seen the entire lifecycle of a company 80x to 100x more than you have. And they have seen thousands of pitches. What VCs do badly is explain the value of their experience. Which I’ll contend, even at the worst case, you would’ve have to be deaf, dumb, and blind not to pick up something just from pattern recognition. They just never explain it to entrepreneurs in a way that makes them want to pay attention.

But Young VCs don’t realize that they are not funding scientists and engineers, even though they might technically be; most entrepreneurs are artists. In fact, they are composers. The analogy I like to use is 500 years ago you would’ve walked into a sculptor’s studio and you would’ve seen a block of marble. If you would’ve come back three years later, the sculptor, Michelangelo, would’ve shown you the Pietà. You would’ve said, “How the f**k did you do that?” And he would’ve said, “Steve, all I did was remove the stone around the sculpture I saw.” World-class entrepreneurs see things that others don’t.

VCs and entrepreneurs are not interchangeable. We can count on our hands the number of VCs that became entrepreneurs. We are joined at the hip economically–it’s a symbiotic relationship of two alien species. VCs are actually managers of a very narrow and specific financial asset class. They take risk in a way that no other financial manager does. And they do that incredibly well. But the people they take risk on are actually artists. So that’s the story.

[As told to Kevin Ohannessian]

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Steve Blank is a prolific educator, thought leader and writer on Customer Development for Startups, the retired serial entrepreneur teaches, refines, writes and blogs on “Customer Development,” a rigorous methodology he developed to bring the “scientific method” to the typically chaotic, seemingly disorganized startup process. Now teaching Entrepreneurship at three major Universities, Blank is the author of Four Steps to the Epiphany. Follow him on Twitter @sgblank.

About the author

When it comes to helping startups succeed, Steve Blank is where entrepreneurs often start up. A prolific educator, thought leader and writer on Customer Development for Startups, the retired serial entrepreneur teaches, refines, writes and blogs on “Customer Development,” a rigorous methodology he developed to bring the “scientific method” to the typically chaotic, seemingly disorganized startup process