Investors Are Your War Partners, Not Your Beer Buddies
The founder/investor dynamic is extraordinarily complicated and often misunderstood. Entrepreneur-turned-professor Steve Blank wrote that VCs are your frenemies. He describes an encounter that began, from his perspective, as a social call and ended with investors abandoning his startup. Caught off-guard and stunned, he had misinterpreted his relationship with the investors, thinking of them as friends, not professionals with fiduciary responsibilities.
Over the past few years, as many new early stage investors have entered the market, competition among investors for the best CEOs has become fierce, despite the tightening Series A landscape. In order to compete for the best entrepreneurs, some investors have stretched traditional social boundaries between CEO and investor, which has caused confusion for many and trouble for some.
Here is the approach to the CEO/investor relationship that has struck the right balance for me and is what I share with CEOs during the pitching process:
I'm your war partner, not your beer buddy.
I see my role as a CEO's partner in war, fighting by their side to help them win. We're on the same team, we need to have each other's back and we must share a deep trust rooted in the company's best interests. That doesn't mean we can't be friends (we can and in many cases, we are), but it's a different dynamic. The organizing principles for investor selection extend well beyond compatibility. War-time trust is required; beer is optional.
An investor should bring out the best version of CEOs, simultaneously challenging them and supporting them.
Investors should encourage and support CEOs, asking them probing questions and also challenging and guiding them when they are out of line. I believe in (kindly) pushing CEOs to the edge of discomfort to help them grow both professionally and personally. The balance of support and challenge helps CEOs make the best decisions for the company and is the best recipe for personal and professional growth.
Radical candor is uncomfortable but effective.
I seek to be the call CEOs want to make -- not the call they have to make. When they have a challenge, I need them to be willing to engage in tough, honest conversations. I want to know what's working well and, more importantly, what's not, so we can tackle it together. I tend to ask a lot of questions to get a better understanding of leading indicators of success (and potential pitfalls). Is the product resonating with target customers? Is the sales machine repeatable and predictable? Are customer acquisition costs too high? What are the cultural norms we are building?
All startups have bumps. To smooth things out, tough conversations and even tougher decisions are required. It's my job to initiate those discussions and offer recommendations, but in a helpful, actionable way wrapped in empathy and mutual respect.
"Pay and pray" is being replaced by "ask me anything."
In years past, many VCs opted to stay out of the way, ready to engage only to hire or fire a CEO. Knowing this, CEOs were hesitant to call investors with bad news for fear of losing their jobs. Times have changed, and that model is outdated. Paying and praying, when it doesn't work (and it usually doesn't), wastes CEO, investor and employee time, as well as money.
Entrepreneurship is no longer a privilege afforded to seasoned CEOs who have managed large teams before. Many of the most successful entrepreneurs are first-time CEOs who are learning on the job how to hire and manage employees. It's only realistic that these young CEOs can succeed when they partner with investors and operators who can help mentor them through their experience gaps.
I'm not just an investor; I'm an extension of the team.
Once I write the check, I'm on board. I'm a company cheerleader and will advocate for the company at every opportunity. I'm also an operator, working actively inside the company. I schedule recurring one-on-one meetings with not only my CEOs, but with product, marketing and sales leaders, too (with the blessing and trust of the CEO). I even attend off-sites when I can add value. This helps smooth out knowledge gaps and enables me to get a handle on what's working well, as well as opportunities to help the company fill skills gaps and ultimately improve.
I consider the act of operating as a board member with deep contextual understanding of the company, team members and the space in which they operate to be a signal of respect for the entrepreneurs and their mission. Operating this way also enables me to help develop the leadership team. My hope is that, in turn, those interactions will help them become even more instrumental in their current companies' success and will help grow them into future leaders. Today's strong team members are tomorrow's CEOs.
I partner with the whole CEO, not just his or her startup self.
I believe that investors should get to know CEOs as individuals and as human beings, not just as CEOs. Investors should know what inspires entrepreneurs, what they believe in and what values they hope to infuse in their companies. Being a CEO is an all-consuming undertaking, often requiring the complete immersion of oneself into work to achieve the seemingly unachievable. When obstacles block a CEO's way, I see it as my job to help dislodge the obstructions. Often those obstacles require an understanding of the person beyond the CEO. I see it as my role to provide emotional support and inspiration as much as intellectual rigor in decision making. Running a startup is intensely draining. CEOs need both intellectual and emotional support to have any hope of succeeding. Providing that support in my role as a board member and trusted partner is, above all, what I cherish the most.
A clear mission illuminates the path.
Startups are never a straight shot to glory. They will stumble (repeatedly). CEOs, investors and team members all have to buy into the vision. I remind CEOs to rinse and repeat the company vision over and over and over. When they think they've said it too many times, they need to say it again. The perils of under-communication far exceed the perceived discomfort of over-communication. That's what it takes for employees, customers, partners and investors to fully internalize the mission and dedicate themselves to it. If teams are inspired by clearly articulated goals, as well as fully developed and consistently followed corporate values, they will have a shot at success.
I don't expect CEOs to always have the answers. I won't, either.
And I won't say that I do when I don't. At Trinity Ventures, we have a shared ownership model. Each partner possesses diverse perspectives and skills. If I'm not the expert, I can turn to my team. If needed, we can turn to folks outside the firm. Our goal is to help CEOs reach the best decisions, not the fastest ones.
Stories periodically emerge of investor betrayal. In most cases, those stories actually represent a misalignment between founder and investor expectations. Developing a communicative, transparent and trusting founder/investor relationship takes work, but it can be a huge asset for entrepreneur and CEO alike. When the right balance is achieved, you win. And in this business, very few remember second place finishers!