I’ve been a believer for a long time that our jobs as LPs (especially if we’re on the LPAC) is to be the parent at the playground. I don’t care which slides, swings, trampolines, or rock climbing walls you scale up. You are welcome to play however you want within the sandbox (your thesis). But when we see you flipping upside down on a swing or doing dangerous maneuvers that can lead to bodily harm, that’s when we step in as the parent.
We see those “dangerous maneuvers” in fund updates, at AGMs, in LP reach outs, in LPA terms, or hell, in regular conversations. I don’t give unsolicited feedback. Just my personal rule. The only exception I make to that rule is if I see something you’re doing as a GP that could have downstream negative impact to you or the fund.
Our job is not to look you straight in the eye with everything you do. Our job is not to be the helicopter parent and scold you at every turn. But I will always keep you in my field of vision, out of the corner of my eye, to make sure you’re staying safe.
To take a step back, there’s an interesting parenting rule I came across a while back. “Prepare the child for the road, not the road for the child.”
Here’s what I’m seeing:
- Fund-of-funds replacing emerging managers’ marketing and community roles (aka FoFs are doing those roles for GPs)
- GPs who believe in king-making. Folks who are doing everything from customer intros to closing customers for founders to hiring and managing all executive positions to finding the co-founder for the founders. So to speak. preparing the road for the child.
- GPs who double as therapists
- LPs who “anchor” your fund, but they take your entire fund
How much help is too much help? How much help handicaps the founders or GPs from what they do next? How does the value-add around certain metrics (i.e. ARR, concentration of customers, time spent fundraising, etc.) by investors mask the a founder’s own ability to achieve success? Have you prepared the road for the child?
My classic venture training told me that startups need to pull off 10-15 miracles before their company succeeds. Will those “miracles” carry the same lessons, scar tissue, and weight in a founder’s mind if the investor does 50%+ of that job for them?
A chick has to eventually leave the nest.
“Good” news is that most VCs are not helpful. And while many say they are or want to be, their calendar, their actions speak differently. Bad(?) news is that this wave of emerging managers feel they need to be valuable in order to stand out. I fear for the over-optimization of the perception to be helpful, rather than actually being helpful.
But to borrow two quotes from two friends:
- “VCs are terrible.” From a friend who’s been in this world for decades having grown one of the most recognizable names in venture. The average VC isn’t helpful. Which is fine. As long as that’s communicated to the founders at the forefront of the investment. Quite a few VCs claim to be helpful. About the same number try to be, most fall short. In fact, more and more emerging GPs are doing so. And many end up optimizing for their own incentives, and not the founders’. Many want board seats, but do not understand the fiduciary gravity of being one. Many make 1-2 intros and act like the founders owe them, whether or not the intros landed any meaningful progress for the founders. And we’re sitting just before the wave of value-add LPs.
- “Just because I have court side seats to the Warriors games does not mean I can replace Steph.” From an emerging GP and basketball fan whose first fund sits at 8X DPI. Despite his success as an investor and as a founder, it’s easy to conflate seeing the action from afar as prescriptive on how to play the game. Most VCs and LPs have had some version of court side seats. Some even further in the stadium. Yet many investors try to offer value and/or advice as if they have a crystal ball.
In doing off-list references on a fund recently, I was chatting with a founder that the VC backed and she said she would never take his money again in her next company. When I asked why, she said, “I have a job to do, but he keeps texting me ideas he has for the business and making single opt-in intros. I’m too busy to respond.”
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The views expressed on this blogpost are for informational purposes only. None of the views expressed herein constitute legal, investment, business, or tax advice. Any allusions or references to funds or companies are for illustrative purposes only, and should not be relied upon as investment recommendations. Consult a professional investment advisor prior to making any investment decisions.