In her Sifted article on ‘The five deadly sins of VC’, Elena Mazhuha talked of investors’ vacations in Mykonos, helicopter tours and luxury cars. It shocked me, as I read it from the sanctity of my Hyundai.
VCs have become something of a cultural punching bag in recent years and opinions like this certainly add to what is already a cutting polemic. But they are also only half the story.
The market is tough right now and, as a result, anxious entrepreneurs are looking for a villain to direct their frustrations towards. A tighter fundraising climate brings investment terms that seem unfair by 2021 standards as well as more scrutiny on business plans and routes to profitability.
VCs are increasingly having to play the bad cop and be more prudent with the capital entrusted to us.
But while Elena’s article was a great and warranted takedown of a certain kind of VC, it remains a caricature. It is a list of red flags for anyone looking to raise money from investors. Of course these characters do exist — and they tend to be the noisiest on LinkedIn — but they are not representative of an entire industry.
VCs are, in general, pretty great people
After 15 years in this industry, I don’t recognise any of those traits (‘hypocrisy’, ‘vanity’ and ‘robot-likeness’) in my own team, nor in the majority of other firms I work with.
Like any industry, there’s a depth and variety to how people in VC behave. My advice to those who encounter VCs like the ones Elena mentions would be — find another fund.
VCs help ambitious ideas flourish, they support founders on gruelling journeys and they envisage a world made better by technology.
If it was all about money, holidays and fast cars, we’d all have chosen to be bankers instead.
So to continue the theological theme, I will play devil’s advocate. Here are my top five virtues when it comes to VC.
VC is by definition a very long game, and that’s why it pays in our industry to be kind. The rewards of conducting yourself respectfully are myriad, but in particular it leads to harmonious relationships with the other board members and entrepreneurs you’ll be working with for years.
Kindness will also get you access to investment opportunities where you least expect them because VC is a smaller world than you may think.
In an industry that is almost by definition a rollercoaster experience, a little emotional intelligence goes a long way towards making you a better investor. To paraphrase Bob Dylan: “Be nice to people on your way up. You might meet ‘em again on your way back down.”
Candour is a virtue not a vice. I understand why founders can get upset when receiving nos from investors. After all, it’s their baby, so the notion we could look it up and down and decide not to get involved obviously hurts.
But venture capital is a game of numbers. The company you pick from a range of 10 bets will not be the same company you pick from 100, or 1,000.
Maths is baked into our decision-making at all times and that’s one of the reasons why we take so many meetings and issue so many nos.
What founders need is a quick response without the sugar coating. Honest feedback is useful because time is everyone’s greatest asset. Fast, candid responses, even if short, give founders the opportunity to iterate faster and more effectively (according to Station F, 80% of startups made some sort of pivot during Covid, for example).
Typically, the more experienced the founder, the more they appreciate a quick ‘no’, and they understand not to take it personally.
There is a way to deliver virtually any message to anyone in a way that is kind, specific and constructive. VCs often have to be the bearer of bad news, but their habit of being direct is a strength.
A common misconception is that VCs are arrogant, but I think that’s because people confuse candour for meanness.
VCs invest in people first and foremost, especially at the early stages. Shifts in market opportunity are inevitable, so the team behind the business is the real asset we invest in.
Even the most callous VCs need to protect their assets at all costs. An unhappy or burnt-out founder is one of the most existential threats to a startup (as well as being devastating to watch from a board seat).
Our industry has come a long way on this issue in the last few years. At Ananda, our founders’ health program provides the portfolio with coaching support and arranges peer-to-peer conversations to encourage openness. And many other players, such as Balderton Capital, are now focusing on this topic too.
The cliché is that VCs run founders into the ground. That is changing. We have a vested interest in looking after people; it improves our chances of all enjoying the ride together.
According to PitchBook, only 26.4% of venture capital firms are specialists. With three-quarters of us acting as self-confessed generalists, this should breed humility. That statement might raise some incredulous eyebrows and I confess that this isn’t always the case. I am often part of board meetings where everyone seems much smarter than me, sometimes thanks to their expert knowledge in a field, more often dangerous half-knowledge hidden in abbreviations.
That said, in this dynamic field, where agility is rewarded over domain expertise, the most humble VCs are often the most successful. I firmly believe you don’t have to understand the founder’s market better than they do. That would be hubris. The best thing we can do is to accept when a founder might have a better understanding of where their company needs to go next, and how they can and should get there.
If generalised expertise, and the humility that should come with it, is a competitive advantage, then this is a virtuous mechanism of the VC industry.
My final virtue is ambition. The entire point of our profession is to build transformative businesses that need capital injections to realise their potential. We can debate the pros and cons of revenue-negative business models ad-infinitum, but the fact remains: VCs back big ideas. A penchant for ambition is a virtue, not a vice, especially in verticals like impact, fintech and hardware.
For all the criticisms of VCs, they are fundamentally trying to bring about positive, systemic change at scale. This makes it a meaningful job. I spend my time with founders who want to improve the world and people’s lives. My job is to accelerate their ideas to meet that ambition.
If that isn’t virtuous, I don’t know what is.