Buying Talent Is More Attractive Than Renting In Today’s Competitive Venture Market
Imagine getting paid a solid salary to sit around and think up new startup ideas, distracted only by the free food and opportunities to sit in on discussions of the latest, hottest technologies. Well, if you were an Entrepreneur-In-Residence at one of the large Silicon Valley venture firms during the last few decades, that was your gig. The quid pro quo was that if you settled on an idea that the firm found to be fundable, you’d give them first shot at backing you, although not necessarily exclusively and certainly not contractually. It was more of an unwritten rule. Repeat entrepreneurs and departing big tech company execs would often do pitstops as EIRs, sometimes even simultaneously at two firms (otherwise known as the circa 2008 Jeff Weiner Flex). But now in 2021 you rarely hear about EIRs and they’re certainly not the golden prize of previous years. Why is this?
VCs think WHY RENT WHEN YOU CAN BUY? In today’s market, where there’s limitless capital chasing “consensus startups” the risk of waiting to write a termsheet is too great. If you believe enough in a founder to invite them to be an EIR you might as well just give them some money on a note and let them iterate with you already pot-committed. Otherwise someone else will swoop in and offer them an alternative. So a GPs incentive is to take a flyer and let the founders explore their interest areas with that capital, rather than as an EIR. If nothing comes of it the company will just unwind/return capital, or worst case, it’s a writeoff for the fund. But that risk is worth taking these days for the large VCs.
Founders RATHER USE THEIR OWN MONEY OR ANGEL MONEY if they’re not ready to take venture dollars. Before you tell me that the majority of founders don’t have their own capital already and/or a network of friends and family that can write them six figure checks, let me remind you that I’m talking about EIRs specifically, which were already predominantly repeat entrepreneurs and/or Big Tech Co execs. A 10+ year bull market means that the significant majority of these people have the capital to self-fund for a bit and/or more wealthy friends than the did in 2011. The end result is that why entangle yourself in an EIR role if you don’t need the salary, don’t need the introductions (VCs are no longer gatekeepers to funding, talent, etc), don’t need the office (seriously, sometimes people just liked a place to go work) and so on.
Sure some entrepreneurs still align with venture firms for co-development or “EIR-like” relationships but they’re not formal, don’t typically involve salary and importantly, aren’t bragged about publicly by the firms (less everyone else try to elbow into the deal). Farewell EIR….