Why You Should Not Be an EIR at a VC FirmSep 17
“Should I be an entrepreneur in residence at a VC firm?” I get this question a lot, and a variant of this came up today.
My advice to entrepreneurs is “no.” I used to sponsor “EIRs” but I stopped many years ago. It’s because I think such a program is rarely a win-win for the entrepreneur and the VC firm.
Most EIR programs roughly have the following shape:
- The VC firm pays you a salary for 3 to 6 months
- You get to go to a portion of the firm’s partners’ meeting and you sit in on some meetings when start-ups come in to pitch
- The entrepreneur is expected to take his new idea for funding to that VC first. Most don’t make you sign a piece of paper, but it’s clearly expected that they get the “right of first look and refusal”
So, that all sounds good, right? Some pay, exposure, and an insider’s view of how VC firms work.
Unless you want to be a VC, though, I think such programs have real flaws:
- Signaling: what if the VC firm passes on your idea? How do you explain that to other VC firms?
- Unrealistic pressure: evaluating a new business idea and getting personal conviction around it is an open-ended process. It’s a bit like writing a novel. It might take 3 to 6 months, but chances are, it won’t
- No strings, but very high expectations: your salary comes from the VC’s management company (see “How Are VCs Paid?”), not from the fund. So, you are a zero-sum personal hit to the senior partners’ compensation. They’ll expect something in return
- You lose free agency: Other VC firms will be leery of showing you their ideas or contacts. You’re on a competitor’s payroll. You’re now one of them. I think the ability to network and pitch any VC firm at any time is one of the entrepreneur’s greatest advantages
- You lose the ability to shop for terms: Even if you weren’t going to shop terms, the very impression that you cannot will affect the psychology of the negotiation. You don’t have a real Plan B
A friend of mine tried to balance her approach to being an EIR. She insisted on only being part-time at a VC firm and she did not take a salary. She thought she could maintain her independence. She didn’t. Other VC firms were reluctant to help her and the VC firm that hosted her later on clearly communicated in “no uncertain terms” that she was beholden to them.
Look, I’m not one to encourage people to turn down a salary. But, just realize that what you’re giving up is your freedom.