The Arrogant Venture Capitalist: A View from the Trenches
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and “Wannabe Entrepreneurs.” “Entrepreneur VC’s behave in the best interests of the business they are investing in” whereas Careerist VC’s put their own career prospects first.” “Wannabe Entrepreneurs either hate all VC’s because they reject their business idea ,” or “suck up to all VCs because they want their money.” Long story short: The goal is to match Real Entrepreneurs with Entrepreneur VC’s.
Some VC’s are not that shy about this. One VC partner describing his role: “Industry experience is not that important. I see my role on a board is to challenge every decision the management make.” And another: “I don’t give a s**t about the company’s strategy, my job is to come here once a month and check what you are doing with my money (sic).” QED.
Different Objectives and Time Frames
“It takes patience and time to build a great business, and target returns and time frames (e.g. five times in five years) can get in the way. On the other side, entrepreneurs burn out and blow up all the time, so it’s tough to keep both sides aligned and together for a long time.” Sigurd says “Investor timeframes often force businesses to scale too fast, whereas the entrepreneur must offset the risk by slower movement and something akin to agile development.”
Arrogance and Lack of Empathy
Entrepreneurs despise “double standards.” “VC’s do things no regular employee would dare to do but are largely unaccountable for those behaviors: forgetting about board meetings, showing up late, bullying the team or CEO, being unavailable, paying no attention in meetings because they are on Blackberry, etc.” The message is: “Don’t treat me the way I see fit to treat you.”
VC’s are often “out of touch with the reality of entrepreneurs.” “They are often times elitist, clashing with the very scrappiness of their entrepreneurs.” Arrogance is the word. “I was told forcefully ‘you will fail’ and that I should join another startup … funded by the very same VC.”
Finally, entrepreneurs feel VC’s are “crap at sharing the wealth,” recognizing “how tough it is to create value” or “properly re-incentivizing managers who gave up many years of their lives, effectively abusing their position of power.” “I spent 4 years in poverty ignoring my family and my friends to get the company to this point, and now they want me to vest my shares.”
Bottom line: “VC’s really don’t take any personal risk but expect everyone else to…”
Dark Side of the Force
Some behavior deeply damages alignment and trust, and “without these the necessary working relationship and motivation is destroyed.” Planned gradual washouts of founders, lying about the state of the business when refinancing, negotiating on behalf of management and forcing deals through, firing part of the team pre-acquisition, changing deal terms at the last minute and generally making a mockery of governance —all are common behaviors by venture partners, to judge from entrepreneur’s comments. The worst story was that of a VC pushing to recover shares from the heirs of a deceased co-founder under a reverse vesting provision. “It will take a lot of good karma from a lot of VC’s to make up for this one.”
For any venture partner interested in getting our industry’s mojo back, the scale of the problem should be apparent. Many entrepreneurs are angry. Like politicians too long in the Senate, we appear out of touch with our constituency. While it’s clear from some of the comments that taking venture capital is simply not the right path for many companies, it is also clear that we need to rethink our relationship with entrepreneurs if we want to continue to attract the best of them. Now is the time for that rethink.
For entrepreneurs, I will leave the last word to Rory Bernard: “Choose your VC’s with care. Good ones transform your business, bad ones wreck it.”
A longer version of this post has been published at Fred Destin’s blog, A VC In Europe.
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