A bit of a warning here. A rant follows.
I had an experience the other day with a young investor from another firm and it got me thinking.
More directly, it got me recalling time spent on the other side of the table, raising capital from Silicon Valley VCs during the height of the bubble in 1998.
It got me remembering why I had a dim view of most venture capitalists at the time.
You might have heard that things then were, well, comparatively pretty easy. And they were.
Easy for teams like the ones I led to raise capital at outrageous valuations. With important technology, good market timing, a real business model, a great team and business traction, the sky was the limit.
It was easy for VCs to select opportunities to invest in from a deep inventory of disruptive opportunities.
It was easy for VCs to be self-absorbed in their success.
And to forget about their real purpose as VCs.
The real purpose of a VC is to help special people build special companies. To help create value for all shareholders. To help teams to delight their customers. To help develop talent. To build effective, long-lasting partnerships which help entrepreneurs and the venture firm alike. And to generate strong investment returns to Limited Partners.
Forgetting their real purpose made it easy for investors back then to confuse their part in a start-up’s success.
It was easy to demand teams to “get big quick” (I still hate that term) without thoughtful business guidance. And it was easy to be super-arrogant.
Push, slash, burn, move up, move on.
This was true of some of the veteran investors who made their bones when the going was good. Certainly not all. But enough. They were not shy about telling and directing management — as opposed to coaching and partnering.
But it was also agonizingly true of many of the junior investors. The ones who might have sat in the back of the board room. The ones who hadn’t yet experienced success as an entrepreneur, operator nor investor. Certainly not enough to substantiate the inflated sense of self that was displayed.
Neither personal success nor failure gave their advice context. But they barked out opinions and directives in support of their agendas, nonetheless.
That was then.
As a board member years later, one thing that I pride myself is being grounded in the knowledge of how hard it is to do what the folks we invest in and partner with do for a living.
Creating, building, leading and developing is incredibly fun.
But it’s seldom “up and to the right”.
It’s hard to solve problems, to lead the way and build both exceptional value and team culture.
Lots of peaks and valleys to the journey. Lots of amplitude in the trend line of growth.
It’s hard to be an entrepreneur and a company’s leader.
I appreciate the fact that, more often than not, the people sitting across the table are simply smarter and more talented than I am. In fact, given my modest intellect, it’s a pretty easy grok for me.
The people across the table are visionaries, creators, artists and executors.
Investor partners who do our job correctly are coaches & mentors. We impart street wisdom and a guiding voice to help others avoid the roadblocks we experienced.
We help them to replicate the principles & practices that enabled us to experience the successes we enjoyed. Whether as operators, board members and/or investors.
That shared philosophy is why I selected my Polaris partners years ago — first as an independent director — then as an investor.
Until that point, the thought of doing what I now do for a living as a second career was less than appealing to me.
Good investor partners are not on the playing field. We don’t need to originate that many ideas nor dedicate years of blood, sweat and tears executing them. We don’t live every moment of the company’s life. We don’t need to be the smartest people in the room. The people we choose to invest in — many of them several times over — fill that role.
Over the years, I found that the most effective investors rarely are the smartest people in the room. If they are, they’re likely in the wrong room.
Like the best operating leaders, their key competencies reside in helping to build teams, to catalyze goal-setting, to orchestrate the ideas and talents of others. But really good investor partners “clear the brush” and create an environment which enables the success of the management team. And they stay off the playing field unless invited on.
So…back to my recent experience. This is not then — but now.
An inexperienced investor, one who’s experienced little success, who confused all of this. He thought HE was the company. HE was the reason why the company is on a roll. HE was calling the shots for the founder, CEO, management team and company.
Pretty big job. He obfuscates a level of insecurity with arrogance. And he’s lost the trust and confidence of his management team in the process.
He brought it all back to me. Kind of a good reminder, all in all. And just as repugnant an experience this time around.
Sometimes, when really special, incredibly-intelligent people consistently come to an investor asking for money, and then experience great progress, it’s easy to confuse one’s role. It’s possible to feel more important than you really are.
Unless you have real purpose clear in your own mind. And work with people who share those beliefs.
Otherwise, it’s hard to be an effective partner to folks — after you give them that money.
I have worked with many investors around the world, including Polaris Ventures. Some were good, some not so good, and one so great that they have left such a positive and lasting impression on me. (And the outcome of the company we worked together on wasn’t great by any means).That great investor was Polairs! David, your honest and humble blog was so incredibly refreshing. Your attitude and postion as an investor doesn’t surprise me in the least. It’s why Polaris and its partners continue to thrive through the market turbulence. I hope anyone that has read this Blog truly understands that this is in fact the Polaris philosophy. In my humble opinion, Entrepreneurs and management that do get to work with Polaris are equally fortunate. They are much smarter people than David gave them credit for.
Thx very much, Mike. Our goal is to be the kind of partners we wish we had as operators. Your appreciation is very much appreciated :).