The awkward thing about being a VC: feedback
(this article first appeared on Techworld)
Now look at the thousands of rejections for funding sent by the same venture capitalists. Of all the reasons they give to entrepreneurs on why they passed, what do they never mention? Again, I think you know: the team.
This is rather embarrassing and, if I were an entrepreneur again, I’d travel around tech conferences in order to point out this contradiction to every VC who claimed to be ‘all about the people or team’. It would be funny to watch them splutter on their artisanal mineral water.
This got me thinking. I have often sat in meetings and begun to realise that I am going to pass on the opportunity to pursue an investment in a company. In the lazy-sounding (but highly efficient) assumption-driven, pattern-matching way that most of us actually think,this negativity is often heaped onto the person who is pitching you.
To provide examples, thoughts like the three listed below spring to mind during these meetings. These thoughts aren’t related to real companies, but they are very much indicative of stuff that I’ve thought before:
- “This guy is a bit vague on the big vision, I don’t feel confident in his grasp on that. Can he really think big?”
- “She seems a great CTO, but the CMO doesn’t really seem to be thinking realistically about how hard acquisition is going to get in this space.”
- “This team just isn’t listening to anything I’m saying. I’m probably wrong, but can I work with a team that doesn’t seem to listen at all?”
As I have said elsewhere, I try hard to give lengthy, detailed feedback to every founder and team I meet in person, which means I sit down and think hard to capture what I didn’t understand. When you do that, you often start with thoughts like the above, which are negativity latched directly to a specific person, or to the team at large.
When you dig deeper into your thought process, however, you usually realise there are objective reasons why you have a lack of confidence in the company. These reasons aren’t usually tethered to the shortcomings of a specific individual.
You’d be right to ask me to back myself up on this point though, so let me dig deeper into the three example statements that I created above, and explain exactly why and how the onus shifts from a focus on individuals, to more business-centric reasoning:
“This guy is a bit vague on the big vision, I don’t feel confident in his grasp on that. Can he really think big?”
- After you think about this guy, you discover that he has very little option but to speak in vague terms — not because he can’t think big — but because he’s trying to make the most of a market that is actually quite small. His vagueness is a result of his trying to disguise and fudge this fact, while claiming that adjacent markets are also available to his product, even when you and he both know that this isn’t true. So, after a bit more analysis, you discover that this is a problem with market, not team.
“She seems a great CTO, but the CMO doesn’t really seem to be thinking realistically about how hard acquisition is going to get in this space”
- In this situation, a few things are possible. Potentially, the CEO has misunderstood the importance of marketing as part of customer acquisition in the future, and so has hired the wrong person. Perhaps they should have opted for someone who has a background in brand building, rather than acquisitional marketing. Alternatively, the CMO himself knows that this is a weakness in the future model, and is trying to make the best of a hard hand. Therefore, this company has a problem with competition, not its team.
“This team just isn’t listening to anything I’m saying; I’m probably wrong, but can I work with a team that doesn’t seem to listen at all?
- This is the one that is genuinely about ‘team’. Sometimes personalities just don’t work that well together. This isn’t hard to predict for entrepreneurs. There are a bunch of ways of analysing who you are, and therefore who you will generally work best or worst with. Also, it is important analyse how important ‘working together’ is for your personality or business, or your approach to investing. So, this is a problem with relative personalities with the team, not just team per se. In other words, each individual might be phenomenally intelligent in his or her own right, but this combination isn’t going to fly.
Analysing this has led me to two conclusions: one a piece of advice for entrepreneurs, and another a constructive reprimand for myself.
For me: I’ve decided to stop being lazy and claiming that ‘team’ is some kind of golden rule to all investing. It is lazy flattery of entrepreneurs in a time where being founder-friendly seems to help win deals. Rather, I’m going to be realistic. Every now and again, there’ll be a personality that doesn’t gel. That’s okay. I’ll say that, and I’ll work hard to find that entrepreneur other people who are not like me, who will work well with them. And, in all those other cases, I’m going to be a bit more intellectually honest and dig into why I really don’t want to invest.
For the entrepreneurs: Be more open about the weaker parts of your story. At the end of the day, it’s much better for someone to say that they know something doesn’t quite work (yet) but that they recognize that (self-aware!) and have a number of strategies to deal with it (smart!) and are willing to deal with that uncertainty (entrepreneurial). Telling the truth on stuff you know most people are going to see through anyway builds credibility and means you get evaluated properly, rather than a less than perfect hand reflecting (unfairly) on you.