As a startup founder trying to raise venture capital you may be introduced to a venture firm’s “EIR.” Startup founders should welcome these interactions, but should also prepare carefully for meeting with a VC’s entrepreneur in residence. An entrepreneur in residence has slightly different motivations than a typical venture capitalist, so an understanding of the role of an EIR and a the right homework can be very beneficial in your quest to raise venture funding. This is the first in a 3 part series on venture funds’ entrepreneurs in residence and your startup’s fund raising process.
First, a little definition that I’m making up on the fly describing an entrepreneur in residence
Entrepreneur in Residence: (”EIR” or sometimes “venture partner”) is a previously successful entrepreneur/manager/CEO/CTO working for a venture capital firm as an advisor to the VC on new investment opportunities and seeking to join a startup as a key member of the management team (usually as CEO) when the venture firm finances it.
The EIR’s role
So what is the purpose of an EIR?
- An EIR is probably looking for a job. While they are usually paid something by the venture firm, their real end goal is to find a cool startup to join… usually as a CEO. Thus, your job as a startup founder looking for capital is to get this EIR so excited about your company that they want to work there. You may not wish to give this person the CEO role, or even let them near your startup. But knowing that the EIR’s purpose is to take such a role at a startup can be used to your advantage. Try to get the EIR so pumped up about your business that they want to join it - even if you don’t want them to. I’m not saying you pretend to offer them a role and then yank it away, I mean make the company so exciting that they can’t stop talking about how great it is to the VC firm’s partners. Consider this part of the game of raising venture capital.
- An EIR provides expertise to the VC firm’s diligence process. The entrepreneur in residence came out of a particular industry and is likely to focus in a similar space OR had a special role, such as a channel partner development expert. It is very likely that this person has some real knowledge in one of the areas that you are attacking or in one of your potential execution strategies. The EIR will try to help the VC understand these aspects of your startup’s business model. You could potentially learn a lot from this interaction, but should also know that there is a chance an EIR will ask some pretty tough questions… either because they really know their stuff or because they are trying to look good in front of the VC.
- An EIR can help the VC find new potential deals. Since the EIR likely has good connections in a given industry and a good reputation with executives in the community it is very likely that the EIR can help the VC generate “deal flow.” The EIR might also be doing a deep dive into a particular industry. Getting introduced to a venture capital firm through the EIR is a smart way to take advantage of the EIR role. Gaining access to the VC through a trusted entrepreneur is a powerful way to get the VC’s attention. You may also get to take advantage of a little bit of human nature, as an EIR who introduces an idea is more likely to subconsciously support it.
- An EIR might actually put together a new company for the VC. Many early stage venture capital firms may be willing to put capital into an EIR if they can come up with a good idea and find the right co-founders. This is probably the trickiest thing to navigate when interacting with an EIR, as you do not want them to turn around and start your idea with funding from the VC. This is where dealing with only reputable venture firms can be most helpful, and it is also a great idea to ask any venture fund you meet with if they are looking at other ideas in your space. There have definitely been a few times that I have had to say to a startup “hey, we are in deep talks with a company in your space and may be making an investment in them, do you still want to speak with us?” (Most startups still seem to want to take the meeting.) I would hope that other firms’ EIRs would disclose the same.
- An EIR may help the VC with existing portfolio companies. This probably doesn’t matter too much for you during your search for venture funding, but can be a bit of a time suck for the EIR.
Understanding the EIR role and realizing that the EIR has slightly different goals than the VC can help you highlight your company better. Getting your startup funding is no easy task, but having a venture firm’s entrepreneur in residence in your corner can really help move you along in the fund raising process.
Tomorrow I will discuss the some ideas on how to prepare for a meeting with an EIR, and on Friday I will post some tips on getting the most out of your EIR interactions. I’ll post links to those articles once they go live. In the meantime I’d love your thoughts.
