A venture capitalist (VC) can provide capital to startups with high growth potential in exchange for an equity stake. VC investors can be a savior... or a terror.
Background
VCs fund startups when they see an enormous upside. They cover their bets across many startups, knowing that many investments will not yield a return.
Ideally, the investor contributes capital AND helps with long-term strategy, recommending key leaders, new business opportunities, and future funding.
VCs have a fiduciary duty to their limited partners, which may eventually not align with the founder’s vision and plans despite their best intentions.
Struggle
When an eager founder asks me for investors to make their dreams happen, I'm conflicted.
VCs often can be—and want to be—catalysts for founders and agents of positive impact. However, they can destroy egos and (rarely) even businesses.
They can be unresponsive, demand advice on other topics, and give advice that is more aligned with their LP's interests than the founder's.
Pressure
Most investors likely start with good intentions to make money while supporting passionate founders. Along the way, though, the pressures mount.
They tell founders pursuing their dreams “No” 50x more than “Yes.” If they do invest, success is unlikely since 75% of venture-backed startups fail to return cash to investors.
VCs can be inundated and distracted by numerous meetings and messages.
Also, founders wanting funding may be hesitant to give constructive feedback.
These factors can make VCs unconsciously despondent, distant, and unhelpful.
Seeking
The chart from NFX captures these pressures (and how to overcome them).
If you want to be successful as a founder, find VCs who fight these pressures.
"A good investor will recognize that their positive mindset is constantly fighting against the downward pull of negativity.
When investors lose that fight, they become jaded.
Honestly, that’s the top reason they act like assholes."
Ask peers for their experiences of how potential VCs helped when they were down, give advice when asked, and add value beyond funding.
Strong VCs will tell you what you need to hear about your strategy, market, product, and leadership. Remember, tough advice is different from bad advice, and it's precious.
Find investors who can set and meet expectations, offer constructive feedback, and add strategic value to support your growth.
VCs can provide crucial capital and support. Recognize the potential tradeoffs.
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The original article is “How VCs Become Assholes.” This post written by me with AI editing.
Hat Tip to Kyle Westaway for this gem. Kyle has an incredibly informative weekly newsletter.
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