How founders can stop falling in love with them

I recently wrote an article explaining how not all capital is created equal and we are in a period of glut of funding – in many ways, the best times ever for the founders.

In this environment, every investor has a well-honed case for how they can uniquely add value. Being the founder of a high growth startup means that you will come across many situations that you have never encountered before, so choosing an investor who will be a partner in building the business is a key decision. In this context, the promises of exclusive added value resonate deeply.

Surprisingly, most founders find that the real value they receive from investors is not always what they promise. I have had the opportunity to work with amazing investors who build thoughtful partnerships with their founders, who are invaluable in making the decisions that change the trajectories of companies and who have superpowers to attract talent.

Venture capital investing is a learning endeavor, and I am honored every time I have the opportunity to learn from a great investor. However, when I speak to the founders, it is more likely that the investors they chose exhibited a variety of archetypal post-fund behaviors, all of which undermine value, but do not add to it.

In the spirit of helping founders look past promises of value, let’s take a look at some common investor relations archetypes that founders experience after investing. I hope founders and investors read these archetypes with humor. Like in a good “Silicon Valley” episode, there is a bit of exaggeration here for effect, but not much!

8 archetypes of disappointing investors

The narcissist. Narcissists are completely in themselves and everything always revolves around them – how great their business is and how great they are. They are so in love with themselves that they never take the time to figure out what the founders really want or need. Some narcissists may be well past their glory days – just figureheads on their past successes – and they won’t add value to your startup.

The child with a hammer. It is the investor who tells you to follow his advice because “We did this when I was at Google” or, “When I was on the board of Airbnb, we did this”. They’ve got a hammer, and every problem they see feels like the same nail to drive – the same way they did in the one significant experience they’ve had before in their professional careers. They don’t have the prospect that there might be 10 more ways to approach and solve the problem. Some investors also have a “fire from the executive” hammer which can be particularly destructive.

The know-it-all. It is the investor in the meetings who does not want to hear the opinion of anyone else, including that of the founders. “I invested in Facebook before their Series C, so I have all the answers.” They do not respect the founders or their fellow board members, which undermines the vital relationships and dynamics of the board. They may also have quick fixes such as “OKR” or “recurring income” which they have a soft spot for without understanding if they are a good fit for this business and this situation.

The Pocket Dog (aka the Cheerleader). This is the investor who will never give you the hard message – they will always try to be friends with the founders because they want a recommendation for the next business. They will go to a meeting and invite you over for dinner or on a lavish ski trip. Whenever there is a difficult situation, however, they fall back on “All the Founder wants is the right answer,” instead of being a thinking partner and bringing valuable perspective.

The service router. If you want someone with a big Rolodex then you’ve come to the right place with the service router. Need a CFO or a Sales Manager? The service router will point you to people, but never strive for excellence or help a founder figure out what looks good, say, in a new VP of sales. Service routers are good at recirculating among their portfolio companies. The problem is, talent might have done a good job in a company, but it’s not right for your startup.

The Needy Ned. This investor will drive you crazy because he wants to get involved in all your business does, whether or not it adds value to the process. It may be the first company of which they served on the board of directors, or they may be juniors in the venture capital firm. You’ll know you’re dealing with a Needy Ned when he’s surprised and outraged when you haven’t told him all the operational details of your business. A more difficult version of Needy Ned is someone who doesn’t just want to be involved, but tries to get behind the wheel of the founder’s hands and do things their own way.

The person of numbers. To this investor, the business is a big, complex spreadsheet, and everything can be boiled down to a number or a ratio. They usually come from private equity, investment banking, or growth investing, and they typically use terms like churn, ARR, and “the magic number”. The problem is, they don’t understand the story behind the numbers and they don’t know what it takes to make them move.

The drive-by. If you want your investor to stay out of your hair after sending funds, then drive-by is for you. These are bargaining machines – even before your deal is sealed, they’ve already moved on. After two years, they’ve done 10 more deals and they have no interest in you as a founder or a company at all. They may attend a board meeting or two, but when they do, they’ll likely check their emails to determine their latest transaction.

My thoughts for the founders

Unfortunately, the founders fall under the spell of these archetypes every day. When considering your financing options, here are a few things to keep in mind.

The anybody matters much more than the solidify. Don’t buy the brand; buy the person. Perform due diligence on the person thoroughly and well. Talk to the founders and explore the referrals the investor gives you using your own return channels. Make sure there is a personality and style match between you, your co-founders, and the existing board. Additionally, make sure that the investor’s knowledge and experience matches your business.

Make sure the person and the company really understand your business. A good way to gauge this is to see how diligent they are with your product and whether they speak to customers personally instead of looking at call transcripts made by third parties. If an investor doesn’t take the time to really understand what you are building before investing, what are the chances that they will understand it afterwards and, more importantly, be a valuable thought partner?

Everyone is a good sailor in good weather, but when there is a setback or a little misstep (which, as I point out in my book, “Anticipate failure”, Will surely happen), the worst behaviors point their ugly head. Examine how the person behaves when important decisions need to be made or when the going gets tough. One way to test is to ask the investor for references to their worst performing companies and hear directly how they fared when things weren’t going well.

Check the evidence of added value and request it in writing in a quantifiable way in the condition sheet. If they say they’ll help with hiring, have them write down goals for the first two quarters. If they say they can help customers, ask exactly how much revenue they’ll commit to adding. If they say their brand will attract independent board members, ask to speak to the board members they’ve appointed.

If you take the time to find a good match with an investor, you will greatly maximize the chances of building something great. Even a bad investor on a board of directors can drastically hurt your chances of success, and unfortunately I have seen this happen many times.

Don’t be fooled by promises, reviews, and check sizes – they are transient, and the sugar spikes from these shiny items will only last a short time. Keep an eye on the goal and choose your investor wisely.

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