Bill summarizes it nicely with the following paragraphs - Sometimes the "call me when you got traction" line is an indirect no but it definitely is frustrating for entrepreneurs - if I got business lined up then not sure why I would want to involve VCs.
Shrewd or Lazy?
Given all this, the position that VCs are increasingly taking in the space, that of “come back when you a have a product and customers” is highly frustrating for enterprise entrepreneurs. Should an enterprise site be fortunate enough to build out its entire infrastructure and then recruit a bunch of customers to its platform, the question really becomes: What in the world do I need a damn VC for when the hard part of the startup is over?!? Granted, expansion capital will still have a role, but by asking enterprise entrepreneurs to go build and operate fully functioning businesses before they will even consider making an investment, VC’s are establishing an awfully high Ask, one that has some of the same implications as it does in the consumer space, namely it makes angel investors the king makers and creates a selection bias in the expansion stages towards “small ball” investments.
Personally, my problem with VCs doing this is that I don’t think it has the same rational basis as it does in the consumer space. VCs all know that you can’t just wing it with an enterprise business. They know that enterprise customers care about financial viability, customer service, and infrastructure and that all those things take money. The only thing I can come up with is that the consumer space is training VCs to be lazy investors. Why go out and do a lot of work to understand a company’s target market, gauge potential customer interest and assess the competitive landscape, when you can just declare success a crap shoot, go golfing and tell someone “call me when you have traction”. I understand the attraction of such a stance, but whereas it has some basis in consumer Internet because it’s arguably anyone’s guess what big trend is going to hit the tween set next, within enterprise IT, there is usually a very objective set of demonstrated market needs and you know that companies will pay for products that cost effectively meet those needs. I guess what I am saying is that applying the same set of investment criteria to enterprise IT startups as you apply to consumer Internet startups strikes me as intellectually lazy and the anti-thesis of true venture capital.