Why courting investors may mean changing your perspective
The job of a great investor is to be a coach and not a player. Investing is a business and nothing more.
More than half of investor (while every VC is an investor, every investor is not a VC even if they call themselves a VC, so I will use the word “investor” in lieu of VC) meetings I’ve been a part of have involved participants on the investor side who have behaved in a rude and disrespectful manner. This includes tardiness, cutting out of the meeting early, tapping away at their smartphone, constantly interrupting discussion, condescension, you name it. Some of these meetings were simply ridiculous, as evidenced by a founder who got told he didn’t “look the part” after being invited to pitch for fifteen minutes only to find the meeting started ten minutes late and was not to be extended. These are signs of a broken investor ecosystem. Simply put, founder and investor interests will rarely ever be aligned.
Tolerating bad behavior on the part of investors due to their financial position is nothing new. We’ve heard the horror stories about discrimination, harassment, racism, sexism, and many more untoward behavior (some of which I experienced on many occasions) by investors that often go unchecked until a major scandal happens.
Raising capital depletes far more energy than investors realize, and many investors are too opportunistic in their behavior. This is often a sign of what to expect if you ignore the red flags and make a deal with them. While there are some good investors out there (very few, to be candid), you won’t be hard pressed to still find these behaviors rampant. Notwithstanding — like many entrepreneurs, in my early experience I only realized some of the longer-term implications of those signs on the documents I signed well after the fact. This was enough to make me wary, and rightfully so.
Investors are like any other — there are a lot of B and C players who pretend to be A players. Many will tout their “powerful connections, industry insights, among other competencies, but few have operating experience or can prove their investment strategy is effective; many simply ‘luck out’ and have a few portfolio companies carry their firm. Few can/know how to run a company, nor have the stomach to be entrepreneurs themselves (hence, they go into VC / investing). This reminds me of the old joke of “Having the smart guys doing the work and the dumb guys doing the thinking.”
More often than not, investors on your board may want to prove they are the smartest in the room by forcefully suggesting strategy changes during quarterly meetings. Perhaps the board member may get sound bytes on industry events, or a competitor that just got acquired but surely doesn’t understand the business to the extent of the operations management, and then proceed to think they can do better. Often a distraction at best. These suggested “strategy changes” slows down the momentum as founders scramble to fit the strategy change into ongoing operating processes. Again, momentum suffers.
To quote Fred Destin — “There are two types of VC’s — Entrepreneur VC’s. and and Careerist VC’s.” “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.”
It’s common knowledge that investor’s are often out of touch with the reality of entrepreneurs, even those who may have been entrepreneurs. Wealth amnesia is a real thing where people for get what the struggle felt like. A well known investor who writes often on Quora once said he does not expect founders of any company he invests in to take a salary. I find this view reprehensible, which is juxtaposition as to why they are often times elitist, clashing with the very scrappiness of their entrepreneurs. I recall one investor would make a litany of suggestions (including a $2 million dollar suggestion for a company that’s only raised a million) and process improvements without a care for the resources, people, or expertise required to make it happen. Arrogance is the word. Even I was told to join another startup … funded by our very own investor.
The only real solution is that founders need to know what they’re getting into. When you take money, you have to deliver, or no one will be happy, including yourself. When it comes to investors, your interests will almost never be aligned.
The job of a great investor is to be a coach and not a player. When you go down the road of bringing investors into your dream, be aware you just may have to give up that dream if your interests are not aligned.
Cheers!
Alani Kuye is a Founder and CEO with over 20 years in the technology & Startup Space.
