Common errors between founders, Business Angels, Venture Capital, Private Equity
An incomplete list of behaviour of VCs that drives founders and entrepreneurs mad and what not to do or expect from BAs, VCs, PEs from a recent discussion on Twitter. These behaviours could be an early sign, that the right investor wasn't selected. It's the complete package ranging from money, experience, network, available time etc. Founders sometimes suck at choosing VCs. They tend to let their expectations rise without much evidence, refuse to do proper DD, and act surprised when things go wrong. Founders need to have the courage to shop around, do proper DD, and keep control of the process - at least as a partner at eye level.
Arrogance comes with a price tag. As a founder, you’re putting your heart on the line. You want to work with people who care. Arrogance is by far the most common mistake in the relationship between VC and the founding team.
Unclear signals by saying “NO” or rather, NOT (!) saying no. A lack of insight into the VC process and sometimes devastating timing and slow decision makings. There is no real transparency on real time lines for decision making. Failure to give honest feedback after passing on a deal.
Delay and information extraction
Meetings with zero intention to invest while already engaged with a competitor is a common pattern and wasting the founder's time. A lot of people are just insincere in the process.
Big egos and strong opinions
A lack of self awareness, disstress and strong opinions are a classic recipe for failure while ignoring important data points or experiences from founder's POV. Pretending to know the recipe to success is the cherry on top.
Non-data driven decision making
VCs makes strong claim about X based on experience Y, but neither explains Y nor considers how situation X might actually differ from Y. Anecdotal opinions that ignore the data like “yes, but my friend who's a doctor said that...” The best investors modulate their confidence appropriately AND communicate varied confidence in various claims: I have a strong opinion about X because I have in depth first hand experience vs I think this about Y but I’m just speculating.
Bullshit bingo from the tech space
VCs sometimes pretend to understand tech, making startup's CTO's bite their tongues. Why should they swallow this? Keep an open conversation. Sheep mentality why not saying yes / no until they see what the rest of their peers do is not a first mover or disruptive attitude.
Risk avoiding, not actually taking risk at all
“If you were a PLC...” = Waxing lyrical about wanting to back outliers while obsessing about unit economics pre- PM. To summarize it: “There is nothing in the future, that cannot be explained by a spreadsheet from the past.” Most of them tell “we back you from the very first day”, “no idea is too early” and then “how many units have you sold? How much money have you earned?” Meanwhile “pushing founders to take too many risks and play too much of a lottery”.
Missing track record
Even BAs and VCs have to start at one point, yes. Constantly offering startup advice, having never really run a startup successfully or failed one+ times is a bit like virgins offering love-making lessons, “because they read all about it.” This can result to either or all of problems: Sending advice / people / partnership ideas that aren't really a fit. Not being constructive with feedback when things go wrong.
Board irrelevance and board culture
Superlatives and clichés from a distance looking out from a helicopter down to earth helps sometimes, but need some operational assistance in many cases. Yes there is the 'model' and the 'benchmarks' and then there is what happens in real life on the front line day in and day out, when every day is day one. Board meetings that feel like minor inquisitions are a bad culture. Giving different messages to different people is at least often manipulative. Not being honest, speaking or scheming behind your back is not very professional. Hiding stuff ditto. “Balance is good. Jargon bingo - bad!”
“Yeah, founders don't have time for that!”
Forcing founders to take meetings in obscenely posh offices, accompanied by immoderate sporting of gilets, patting each other on the back for blog posts. ;-)
Note: this text is an extract with additional notes from myself, inspired by Fred Destin's “shit VC's do that makes founders angry” thread on Twitter.