The founders personal problems have nothing to do with the business. Venture capitalists are investors, not life partners. You are rewarded for success, not effort.
The founder's personal problems have everything to do with the business. If a founder's life falls apart, then it's the business that will suffer. Keeping founders poor is a great way to make an investment more risky.
Let's not veer off into crazytown here. I'm not saying the founders are irrelevant to the business. I see why you think I might have been. I'm saying that it's not despicable for venture capitalists not to care about the founders wedding. They are making an investment. Do I care about the well being of the guy who manages VFINX?
What percentage of the founder/investor drama you read about on HN comes from misunderstandings about that basic fact? 90%?
You can imagine a better world in which everyone worked together as a team to the betterment of all involved, but the reality is that you are in business, and there are going to be times when business doesn't give a sh#t about your problems.
I think this gets overlooked because we read a lot about a very specific investor who seems unusually attuned to the well-being of its investments. But they do that because it makes very good business sense, and because they've rigged their model so that the success or failure of any one investment is much less impactful than it would be at Battery Ventures; they have less incentive to be ruthless.
VCs shouldn't care about a founder's wedding -- but they should care about whether a founder is going to be stressed about going into debt to pay for a wedding.
A founder's personal life becomes relevant the moment it affects the successful management of the company.
I think everyone here is recognizing that. I'm only pushing back on the notion that words like "despicable" apply to investments and similar business decisions. They don't.
PG has stated many times that he's investing in people just as much, if not more, than their ideas. It seems to me like part of investing is people is making sure their personal life is in order.
No, part of investing the way Graham invests is helped by caring about people's personal lives.
Don't forget, most VC funds make 1-4 investments per partner/year, invest huge sums of money, invest at a point where the business has a life beyond the founder, and require a home run return to move the dials.
Graham invests in many tens of companies per year. He invests a small amount of money. He invests at a point where there is nothing but the founder. And he's thrilled with Wufoo.
Should more firms invest the way YC does? Maybe, but remember that many YC companies depend, at the DNA level, on eventually getting an investment from a major VC.
J/w Have you ever taken angel/VC money and poured your soul into your company? I suspect not because regardless of what rationally might tell you - it's all VERY personal and any investor worth their salt knows how much stress you're under and that reducing that burden, even in little ways, helps so much. I've lived this and have given even a little more a month to good people because they needed to pay off bills, etc. Just FWIW...
I couldn't really understand this comment, but if the question is, have I, the cold-hearted asshole who made the parent comment, ever actually founded a company, taken money, and poured my life into it: yeah. Have. With VC and everything!
As the article points out, there can be sensible reasons for letting the founders cash out. The conflict between early exit (that sets the founders up for life) and risky home-run (that meets the numbers the VC needs) is classic. I saw it firsthand in the last startup I worked for. It caused a palace coup that replaced the management team. I understand the issue.
But what does that have to do with the question I responded to? Sorry, it's not despicable for investors to focus on their investment and not the personal problems of founders.
(If I'm wrong about what you meant, let me know and I'll delete this comment; I'm not trying to be antagonistic.)
I can't reply for nickpinkston, but I suspect what he was getting at is that some practises of VCs could be seen as unethical. If someone is deliberately making other people's lives unpleasant in order to make themselves rich, most people would regard that as unethical, and that's what VCs are doing if they prevent founders from getting money in order to keep them "hungry".
They're offering your company money. Their stipulation: the money has to go to the company. The founder can't take it and buy a car (or a wedding). This seems reasonable. The founder is hungry. So are hundreds of thousands of homeless people.
We're talking about using this to get peak performance out of your people. You can take the "everyone should be hard as nails forever or they're not a real entrepreneur"-type of position, but I think this is naive.
That's what we're talking about now, but note that this conversation didn't start out that way.
Meanwhile, note two things: first, that you may in reality be a lot more replaceable than you think you are, and second, that you are almost certainly perceived as being a lot more replaceable than you perceive you are.
As soon as you sell board seats, the question of your ruthless replacement stops being a moral issue and starts being a business issue. Venture capitalists aren't investing their own money. It is the case that their absolute most important priority is the protection of their investors money.
Were you the founder / CEO of any the funded startups you were involved with? Not an ad hominem, just wondering where you're coming from.
I think the fundamental issue here though is that there are massive costs of having an under-performing head founder. Replaceability is a massive risk (bad replacement, moral, public image, learning periods, etc.) compared to what it costs to keep the original CEO happy and driving hard toward the dream - assuming they're good in that position in the first place.
"Sorry, it's not despicable for investors to focus on their investment and not the personal problems of founders."
The question being begged is whether these two things are positively, negatively, or un-correlated. That has a whole lot to do with the logic of making the investment in the first place.
So, setting aside the "despicable" question, is it rational to invest in a startup where the founders have tons of credit card and student load debt, or planning a wedding they can't afford right now, without also putting some money into alleviating that pain? Do crushing financial burdens make founders "hungry," "panicked," or somewhere in between?
Look at startups the way Steve Blank does: as a series of experiments designed to discover and validate a set of product features that will meet a market need and that can be scaled to large numbers.
Now restrict your perspective to the stages of these experiments that A-round investors like Battery or First Round or DFJ concentrate on. In other words, stipulate that we're not talking about firms like YC that invest in 30-50 pairs of individual people they like every year.
What are the assets of these companies?
Yes, the founders are assets.
But so is the total team.
And so, to an even greater extent, are the proprietary results of the customer discovery/validation experiments they've been running.
And so, to an even greater extent than that, are the customers they have managed to close (or more broadly the "market traction" they've achieved) in the course of conducting those experiments.
And so is inventory, so is brand value, so is the core idea, so is the foothold in the market, so is the framework code they've built and the expertise in extended it, and so on.
Against all these assets, what's the real pragmatic cost of replacing the rare founder whose incentives have flipped so totally against the investors that he will drag the company away from the home-run outcome the investors need so he can salvage his personal life?
Now what's the cost of simply not giving a founder bonus money that itself might pose the risk of allowing the founder to disengage, consider a new startup, become obstinate in board meetings, etc?
I don't know, but I can see sane arguments in both directions for not giving VC founders liquidity.
The nice thing about not taking VC this time around: I don't have to give a shit. =)
Yea, I think we're actually the same page. It sounded like you were saying that things like making the founding team more comfortable (i.e. paying down loans or a wedding) weren't good investments - it sounded like a classic "arm-chair" type comment. But I think we're talking about two different things.
I think I'm still on the side of letting the founders take some money off the table, but not satiate their hunger. I like Mark Suster's article on this:
Why is Thomas making so much noise on this thread?
(a) Because he is addicted to arguing about things on Hacker News.
(b) Because he takes pleasure in pointing out how ruthless the venture capital funded startup environment actually is.
(c) Because he believes that people who factor their blood, sweat, and tears into how they should be treated by investors have set themselves up for otherwise avoidable heartbreak.
