Investment Without Injury

VC investors should know when to limit their involvement--and entrepreneurs should stand firm on where to draw the line.
Magazine Contributor
Co-founder of Foundry Group and TechStars
3 min read

This story appears in the June 2010 issue of Entrepreneur. Subscribe »

An entrepreneur reminded me recently of something I once said that stuck with him: "A good VC needs to know when to get out of the way." The comment was in reference to a fast-growing company that was making a ton of operational decisions in its early stages. We had a tight investor group that trusted the entrepreneurs, and rather than get in the middle of numerous operational decisions--including hiring and salary, office space, employee parking--we spent our time talking at a strategic level and guiding the business.

As a result, the business grew much faster than if we had micromanaged the operation. Sure, mistakes were made--but on the whole, the velocity of the business was much greater than if we'd involved ourselves.

There's a cliché that when a company is successful, it's because of the entrepreneurs, and when a company fails, it's because of the investors or the board. Self-aware investors know that they are supporting characters in the entrepreneurial process, but many VC and angel investors don't. As a result, they become involved in areas where they add nothing, stall the company's progress with slow decision-making and subject the entrepreneurs and management team to endless extra work.

Although annoying, this kind of behavior is mild compared with some of the truly bad behavior I've seen from both VC and angel investors: demoting a CEO in the midst of raising outside financing, leaking confidential information about when a transaction is occurring, or going behind senior executives' backs to find out what is going on in the company. None of this is illegal, but it illustrates how investors can negatively affect a company and, in some cases, destroy value.

With companies I'm involved in, I've adopted this line: Do no harm. This guides my thinking when I try to decide how involved in an issue I should be. I'm aware that once I've invested, it's critical that I stay out of certain things. This concept also applies when big decisions--especially about executive roles or financing--come into play.

For example, I'm open to talking to any employee of a company about any topic, but I'm careful not to make decisions unless I've had a chance to talk with the CEO. Also, I've learned not to disclose anything that the CEO wouldn't be comfortable with my saying in front of him. And I always try to raise any issues I have with the person I have them with because passive aggression (or passive avoidance) is a major negative.

I've started to share the "do no harm" line with some of my VC peers in companies we've invested in together. Rather than thrash around in the weeds for a while, the VCs start looking at things specifically and making sure their behavior is neutral. I've also encouraged the entrepreneurs I work with to think about how they interact with their investors.

If you feel your VC is undermining you or the company, slowing things down or just being difficult to deal with, address it and figure out how to interact more effectively. Remind your VC that you are on the same side of the table. Business is difficult enough as it is.

Brad Feld has been an early-stage investor and entrepreneur for more than 20 years. He is a co-founder of Foundry Group, an early-stage VC firm. Feld blogs at and, runs marathons and lives with his wife and two golden retrievers in Boulder, Colo., and Homer, Alaska.

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