I‘ve studied tier 1 venture firms for over seven years, and I see two weaknesses in partners, particularly young ones, that separate the rest from the best: They don’t take enough risk, and they aren’t candid enough with the founders they don’t fund (or even sometimes with those they do).
I’m not referring to risk in businesses they fund; every venture business has meaningful risk, often binary, offset by the opportunity for outrageous return. I’m referring to personal risk, risk to their career. The root of the problem is that venture pays a healthy wage, and it’s hard to put that in jeopardy. As one casual friend said to me, “It’s a good living.” But that’s not what venture is about. Venture is about changing the world by funding amazing companies and making outsize returns for your LPs and your firm.
That takes risk. It takes the strength of one’s convictions. It takes partners who, when they believe to their core in an opportunity, are willing to stand up in front of their partnership when support is unclear and put their necks on the line to get the deal done. They shouldn’t take such risks often, perhaps once or twice in their careers. But when they believe, truly believe, it’s a risk they must take if they want to matter to their firm, to their founders and to themselves.
Partners who aren’t willing to embrace it when their minds, hearts and souls scream out to do a deal, can never be great, and will often struggle even to be good.
These are the risks they will be most rewarded or penalized for; that’s the nature of risk. If they prove themselves right, they earn enormous credibility. If they’re proven wrong – well, that’s the other side of the return coin. One big mistake may not kill you, but two probably will, and good luck winning the next big battle. Yet this defines what venture is built for, and partners who aren’t willing to embrace it when their minds, hearts and souls scream out to do a deal, can never be great, and will often struggle even to be good. They will “make a good living” until the clock runs out, and they find a home in a portfolio company, or “are not included in the next fund,” the two ways venture folks leave venture.
The second flaw probably started with Facebook. The story of Zuck’s indifference to and rejection of Sequoia because of a prior founder’s distaste for the way he felt they treated him, created a fear in venture — the fear that they’d piss off the wrong guy, and one day lose a deal because of it.
This has led to the hollow “nice guy” version of a pass, the “check’s in the mail” of our industry. Often partners don’t tell founders they aren’t going to fund them, or why, or they leave them hanging with no response. Other times, they deliver a hollow “it’s a bit early for us,” or “we’re really interested in doing your next round,” or “we can get there when you show us some more traction.” Hollow, vague, pointless soft passes do nothing to help the founder.
I was recently in a meeting with a founder and a partner from a venture firm where, at the end, I gave the founder a very detailed view of why and where I thought they had challenges in their business that were important to focus on, where there was weakness, and where there was strength. I was also quite clear as to why I would or would not be able to fund them with some additional meetings to answer those questions. When I left with the other partner, he looked at me incredulously and said, “Wow! You really tell it like it is. How can you do that?” He knew what I said was true in the meeting, but was stunned that I was willing to say it.
I thought about my response for a long time and finally said, “Because it has never hurt me, and often helps.” When I look back on my own time as a founder, no one did me any favors by being nice to me. Or more crassly, blowing smoke. The people who helped me, whether they were nice about it (I try to be) or not, were the ones who told me the harsh truths I ultimately needed to learn. And they were the ones who gave me clear no’s early on and let me cross them off my list and move on. I don’t want to do anything less for the founders I spend time with.
It took me a year as an investor to get to candor, as I assumed everyone else must be right. But now I am addicted to it, and I take great pride in the respect and positive feedback I get for it from entrepreneurs. I’ve even had founders I’ve passed on go on to send me other entrepreneurs, some I’ve gone on to fund. Their message is almost always the same: “Whether he funds you or not, Ben is going to tell you like it is.” I just wish I had more partners at tier 1 firms I could say the same of.