I went shoe shopping with my partner the past two weekends, and I’ll be the first to plead ignorance to the difference between the B and D suffix for shoe sizes. And even after two weekends, I’m still learning.
I’ve never looked much into shoes. Having spent much of my early life bathed in chlorine (so much that at one point, my hair was brown with blond tips. FYI, for those I’ve never met in person before, I sport naturally black hair.), I’ve spent more time choosing the right $300-400 swimsuit than what I’d wear on my two lower appendages the other eight hours of the day. All that to say, I’m ill-equipped to speak the language of sneakerheads and running shoe geeks.
But just as I’m still learning how shoe geeks around the world understand the finer nuances of heel to toe drop impacting ankle versus knee strain, most founders who haven’t spent the time understanding the nuances of VCs think all money is green. In fact, just last month, I spoke with a founder I randomly met at an event who said, “Money is money.”
And he’s not completely wrong. There is some truth to it. At the end of the day, as investors, we sell money. Moreover, most investors who promise to be helpful are not. As well-intentioned as they are at the time of investment, most fall short of being truly helpful. There are multiple studies that show that founders believe a huge majority of their investors are not helpful.
That said, one of my investor buddies said something quite interesting to me earlier this week. Many founders see investors as saviors not partners. A source of capital to save them when they’re near the gates of hell, but not while they’re building their stairway to heaven. All that to say, as someone who’s been an operator, now a “VC”, but also someone who invests in other VCs, here are some of the nuances I’ve really come to appreciate over the years that I overlooked when I first stepped into the world of entrepreneurship.
Consensus and conviction-driven decision making
Some firms are consensus-driven. Others are conviction-driven. The former requires majority or unanimous buy-in. The latter doesn’t. Neither is universally better than the other, but knowing how decisions are made is extremely helpful. Not only to know who else you need to convince on the team, but also to know how the firm will help you post-investment.
The former is usually a firm where carry is split equally among all partners, so all partners are theoretically incented to see every portfolio company succeed. So as a founder, if you want to rely on the expertise and network of the collective partnership, these are the firms you should pursue. The latter, the conviction-driven ones, are most helpful if you really want one specific partner’s experience. They’ll be the person who takes the board seat. Opportunistically, they may ask for 1-2 junior team members to also have board observer seats. The downside is when and if this partner leaves the firm, there may be a gaping hole in governance as well as interest in the continued success of your company. But otherwise, this will be the partner you will have on speed dial.
I shared a presentation I made recently on LinkedIn. Of which, I share that three kinds of friends in the world. When shit hits the fan at 3AM in the morning…
- There’s the friend you call. They see the call. And they go back to sleep.
- There’s the friend you call. They see the call. And begrudgingly pick up.
- And there’s the friend you call. And as they’re picking up the phone, they’ve got their pants on already and are running out the door with their keys.
Conviction-driven firms, where the partner that pounds the table for you will likely be on you board, or even if not, they’re going to be the third friend. At consensus-driven firms, and I’m clearly being reductive here, you’re more likely — not always — to have the reluctant one or sleepers.
Then it comes down to how the team is compensated. Not something most founders can find out or ask out, but how carry is distributed for each fund matters.
Disagreeableness
I’ve realized a lot of the best investors are quite disagreeable. They have their opinions and are quite vocal about them.
A lot of them quite often score incredibly low on investor review sites. Of course, some just score low on NPS purely because their assholes. But I want to caveat. Assholes are often disagreeable, but not all disagreeable people are assholes.
But it takes a lot of courage to have a contrarian viewpoint that one can back up. You don’t have to agree with it. But it matters. More often than not, these folks will also have negative references. For an LP evaluating VCs, that’s ok. Negative is always better than neutral references. The latter means you’re easily forgettable.
Regardless of whether you agree with these investors or not (equally, if not more true, in great founders), they make you stop and think. And that pause to think makes you a more well-rounded professional, and makes your own opinions more robust when you choose to adopt or not adopt said piece of advice.
There’s a great Steve Jobs line, which I think is quite applicable here. “Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.”
Great investors are troublemakers. In a good way.
P.S. To the three verified troublemakers I know who are reading this blogpost, can’t wait for your debut.
Small talk
Small talk was definitely one of those things I was rather dismissive of earlier in my career. Who da hell cares about the weather? Or what you did over the weekend?
But over the years, I realize some of the best investors are remarkably good at this. Not in the sense that they know how to ask great weather questions, but they learn how to build rapport early and quickly. And even better, they get a founder comfortable, honest, and candid about where they are at.
No one’s perfect. Every investor gets that. Most founders often pretend that they are. But a great investor is great at helping a founder realize they don’t have to be, and also get to understand a founder from a personal level. Not jumping straight into the pitch. Or give me your metrics. Or how much are you raising at how high of a valuation?
Radical candor
Borrowing this phrase from the amazing Kim Scott, the best investors are upfront with expectations. They don’t waste your time. Some even go as far as to share what their incentives are. And the harsh reality that they may be wrong many times before they’re right. They don’t beat around the bush. They don’t delay the inevitable. They’re great at ripping bandages off quickly, so they can prioritize their focus on other matters that require more attention. They have tough conversations early and synchronously. The last thing one can ever say about them is that they aren’t thoughtful. It seems remarkably simple, but most cannot do just that.
To be fair, it’s sometimes easier said than done. Even for myself, and I would not even dare to put myself in the category of great, I’ve been berated, gaslit, and shamed (haha!) for giving and attempting to give honest feedback to founders and investors. In fact, I was introed to a fund manager recently for the purpose of giving feedback. When I realized a couple red flags about her fund (namely her raising a $100M fund with no track record), I asked if she wanted feedback. To which, she replied with something to the effect that she only takes feedback from people who invest and that I didn’t deserve to give her feedback.
So I can see why some managers are averse to giving any.
Raising junior talent
I was reminded of this in my recent episode with Rick Zullo. And I noticed Rick is really good at giving credit and lifting up his team. In a soon-to-be-released episode, Eric Bahn from Hustle Fund does the same. I’ve asked him to speak at events before and he’s often referred one of his junior team members to the event. Not as a “I don’t want to do this, so someone else should”, but as a “I believe XX person will be a great future leader of this firm, and I believe others need to hear her insights.” And he’s been right every time.
Building an institutional firm takes more than one person. It takes a village. To build a legacy also requires more than one generation. I often see great investors taking less credit and giving a lot more to their team. Those often hidden from the limelight.
Discipline
Every great investor I know does something consistently every day. They set ground rules and while it’s less so for others, they hold themselves accountable to do so. Whether it’s a cup of coffee brewed from home every morning, or going to the gym on a daily basis or quality time with family or calling their significant other at a set time every day, I have yet to meet an investor who can’t keep to a promise they made to themselves consistently.
Venture capital is a long game, and it’s very possible for these multi-decade games, to be lucky at least once. Good investors, at some point, hit a unicorn. Great investors can discover many before others do. But any more than twice requires extreme discipline and the ability to say no to things that are good to make room for the great. And it’s so much harder than one might think.
And the simplest proxy to an investor’s ability to do so is their ability to fulfill promises to themselves when no one else is looking.
In closing
At the end of the day, not all shoes are the same. Just like not all VCs are. But if all you need is to get from Point A to Point B, and you don’t care for what kind of support you get along the way, VCs, like shoes, may all be the same.
Photo by Hunter Johnson on Unsplash
Stay up to date with the weekly cup of cognitive adventures inside venture capital and startups, as well as cataloging the history of tomorrow through the bookmarks of yesterday!
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.