you didnt just say that did you?
Actually, I did. And I hear it from entrepreneurs at least twice a week.
But its not true.
Over the past couple of weeks, along with reading two great articles on venture: Francisco Dao over on PandoDaily talking about the talent economy and Joe Stump’s great post on whether you should raise money or not, I have had no less than 6 conversations with various entrepreneurs whose companies are in the process of raising money.
Its easy to view VCs as opportunistic, money driven old white men who see the vast amount of product and company ideas coming out of the brains of nubile hackers and hustlers as fertile ground. They trade money for equity. As soon as the going gets tough, they focus on the companies in their portfolio that are doing well, they invest only in companies that are talked about on Techcrunch, blah blah blah.
Is that true? For some, yes. Does it make VCs dicks? no.
Its important that as an entrepreneur if you decide to raise money (and I counsel most founders to not raise money for as long as they can) that you understand the dynamic of how venture works. Francisco says it best:
In Silicon Valley, we take venture capital for granted but few people realize what a fundamental shift it represented in the relationship between capital and labor. Since the dawn of capitalism and the industrial revolution, the balance of power has overwhelmingly favored those who controlled the capital. Labor, and all talent associated with it, was beholden to those who owned the factories. The introduction of venture capital essentially reversed these roles with capital now chasing talent. It is difficult to understate what a dramatic change this was. Instead of capital (the means of production) acquiring talent, Silicon Valley runs on the basis of talent acquiring capital.
As the talent, you hold the power. Initially, the only power the VC wields is saving you from living in a box and stealing wifi from the Starbucks on the corner, and by selling a piece of your business to venture firm, you are required to do only one thing: build your business as fast and as big as you can, so that in some reasonable time frame (say, around 5 years), you can experience a liquidity event that makes the initial investment worthwhile for the VC.
And thats when the perception of the VC as a dick arises. Now, the VC’s job is to get you to not think small. To provide insight, connections, and even direction, to push you to grow your company fast. (This is sometimes the same deal with angels, but most often not).
Now, many VCs reading this post, will start disagreeing with that point, while many entrepreneurs will agree.
Its this fundamental disconnect in perception that is the primary reason for friction between VCs and entrepreneurs, even in a successful business.
Brad Feld, a VC, who’s method I believe in, was quoted in a Boston Globe article about Google Ventures:
“VCs love to talk about the ‘value they add’ while trying to exercise control over companies from the top down…’’
Do I believe that VCs are dicks? That their goals are not in-line with the goals of the founders?
I believe that its imperative for the entrepreneur to understand the dynamics of the VC/CEO relationship and define it early on in the lifecycle of the business. Its your business after all. You hire everyone — including your investors — so have the same high bar for everyone involved in the business.
For young entrepreneurs, there are three distinct moments of joy when starting a company: 1) getting other people to believe in your vision and come work with you; 2) getting people to give you money; 3) your first user.
In each case ill-defined communication interaction will make you believe this:
1) your employees are dicks;
2) your investors are dicks;
3) your users are dicks.
When, in truth, you are the dick.
Understand and own every stage of your business and the people the business engages. It may not guarantee success, but it will remove you as the reason for its failure.