VCs Are Not Safe
Founders often misunderstand the role of Venture Capitalists, and VCs often misunderstand how founders view them. Clarifying the actual role of VCs will help everyone in the startup ecosystem and help founders get the help they really need.
Source: Na Studio
Venture Capital firms are extremely important for innovation and for the global economy. The venture system funds the development of breakthrough technology and greatly accelerates the growth of important ideas. Furthermore, even though the system still has insider advantages, VCs significantly increase the democratization of access to capital. If you have a great idea and the team to develop it, there are people who will give you literal millions of dollars to make that idea become a real thing in the marketplace. This is fantastic!
VCs can also be incredibly helpful to founders in many ways. They can connect you with other investors or with resources that would typically be out of your reach. Some are great at giving advice on going to market, and others are great at making connections to strategic partners or to key team members. (Note: Angel investors, corporate investors, and family offices each have their own characteristics, but for this discussion, we will consider them all investors in the VC family.)
In short, VCs have a very important role to play in the startup ecosystem. However, founders often misunderstand the actual role of VCs. To be fair, VCs also tend to misunderstand how founders view them. This leads to all sorts of frustrations and missed opportunities. Therefore, it’s critically important to understand the actual role VCs play in the startup ecosystem and where you can get the support they don’t offer.
What a VC Is NOT:
VCs are not gazillionaires with tons of cash. In case you don’t know this, VCs had to do their own fundraising before they ever got to you. Every few years, they go out and pitch their ability to identify and nurture great startups and assemble tens or hundreds of millions of dollars based on investors’ confidence that this VC could suss out whether you can actually pull off the crazy shit you’re talking about. It’s a really difficult job.
VCs are not your friends. They are hard-core capitalists. They are using money to make money. They want to help you make something that will become very valuable. No matter how much they may like you as a person, they have a professional and fiduciary responsibility to make money for their investors. If they don’t do that, they will be out of a job. At the beginning and end of every day, they care much more about their job than yours.
VCs are not your dumping ground. It may be tempting to vent to them, especially if they seem kind and caring, and thoughtful. They may actually be all of those things, but for the most part, they don’t want to be your therapist or your mentor or the bin for the steaming pile of stank you need to unload.
VCs are not your boss. They are investors in your company. They probably have a voice on your board, but you are the CEO. You and your cofounders probably hold a majority stake in the company (or close to it). You should listen to them, but it’s also OK to disagree and to go your own way. You should understand your company better than they ever will.
VCs are not safe (even if they want to be). Some VCs are great people in great firms. They may even be kind and compassionate individuals. Usually, they genuinely want to help, and often they are game changers in terms of connections, funding, or well-timed advice. However, there is a fundamental power imbalance. Founders won’t usually be fully honest with VCs about their most difficult problems because they want more money from the VC and their friends. This is OK. It’s just part of the context.
Founders Need Safe Forums
Founders need a safe and confidential forum. “The only job lonelier than a CEO is that of a startup CEO” (Jeff Shapiro). I’ve been sharing that quote every day for the past month, and I always get knowing smiles and nods from the lonely founders on the other side of the table. There are a few key ingredients for a successful founders forum:
They must be confidential. This is non-negotiable. You can’t usually get this at a conference or at a bar with friends. If you’re going to open your heart and your company struggles, there has to be a legitimate firewall of secrecy. This means the group has to be structured and small.
They must be consistent. You need a predictable rhythm both for the timing and for the content. You need the same time every month, the same people, and the same basic format. No flaking out. If you can’t make this a priority, then you’re not ready.
They must be solution-focused. You can’t just sit around and complain about how much it sucks to be a startup CEO. That may give you a fleeting dopamine hit as everyone wallows in mutual-self-pity, but it doesn’t actually help anyone move forward. You need a clear plan to work on your core issues together and to find real insight into your most pressing challenges or opportunities. This usually means you need a paid facilitator to keep the conversation from going off the rails.
They must be with true peers. I love my wife. I love my family. I love my friends. But most of them don’t understand what I’m going through as a startup CEO. Your forum needs to be populated with other founders in a similar industry at a similar stage of growth. For you to take their input seriously, you need to know that they understand what you’re going through.
This is why Wisdom Partners runs Forums for founders. There are lots of great founder groups out there, but most don’t meet the criteria above. Wisdom Partners Forums curate groups of 6-8 founders from around the world, whose companies are in similar stages of growth in similar industries. They meet together in person for a weekend retreat and then meet for monthly virtual meetings for the rest of the year. Founders finally have a core group of respected leaders who understand them, care about them, and help them work through their most difficult challenges. Simply put, Forums are transformative.
VCs are important, but they can’t give founders everything they need. Wise VCs will support your connections with peer forums and coaches. The wisest VCs will help nurture and fund these connections!