A VC in Vacationland

Most of us have heard the fable of the chicken and pig discussing being participants in breakfast.  The chicken offers to contribute the eggs, but the pig demurs, realizing that by donating the ham or bacon, he becomes fully committed via the slaughterhouse.

Investors can also come in these two levels of commitment.  The "chicken investors" contribute the money, but often little else to the venture.  The "pig investors", on the other hand, contribute money, connections, time and often many other things to the new company. Both are important to your success.

Chickens are good because they provide needed funds and don’t tend to meddle in the business.  They could be friends and family who trust you but know little about your technology or product.  Or they could be other venture guys who co-invest with "pig" investors on certain deals.

Pigs are critical because they not only provide needed cash, but are able to make numerous connections in their networks that can help you grow the business.  The best kind of pig investor is one who really knows your space and can also advise on the evolution of your technology and products.

The worst kind of investors are chickens who think they are pigs and vice versa.  Chickens who think they are pigs and do not know much about your space can lead you in wrong directions.  Likewise, pigs who can but do not contribute anything beyond money are also trouble. Potential investors or customers will wonder why the pigs, who know a lot about the space, do not seem to care about promoting the company.

The moral of the fable for entrepreneurs is to choose the right mix of pig and chicken investors and make sure that they understand and approve of their roles up front.  Many of the board of director problems I witness are around confusion of, or of ignoring agreements on, initial "chicken or pig" roles. It is advisable to document these roles up front in the letters of agreement between investors and the company.